Shortly after the case of Cove Creek Condominium Association v Vistal Land & Home Develop, LLC, __Mich App__, Nos. 342372 & 343144 (2019) was decided in late December 2019, the Michigan Court of Appeals decided another case involving disappearing units. Wellesley Gardens Condo Ass’n v Manek et al., No. 344190 (Mich Ct App Jan 9, 2020) (unpublished) was somewhat similar to Cove Creek in that it involved unbuilt “need not be built” units, except that instead of just the builder, Wellesley Gardens was also fighting the county treasurer who argued that tax foreclosure revived the rights to build. The Court confirmed, as in Cove Creek, that under MCL 559.167(3), also known as Section 67, the unbuilt units in fact disappeared by automatic operation of law, and further confirmed that the units were not revived into existence even though they went through tax foreclosure and were actually sold to prospective builders. If you live in an incomplete condominium and the unbuilt units are “need not be built,” you should act quickly to assert your vested ownership rights in the undeveloped lands, even if those units went through tax foreclosure and a new owner claims a right to build.
Wellesley Gardens Condominium was created in 2002 and was eventually expanded via master deed amendments to 426 total units. Though the roads were all laid down, and some building pads and utility leads were built, approximately half of the condominium units were never completed. The Association had previously litigated against a prospective builder in 2014 and obtained a judgment that unbuilt units 210 through 427 ceased to exist after July 8, 2011. However, in 2015 and 2016, despite the Association objecting to tax foreclosure on the non-existent units, the county treasurer proceeded to foreclose for unpaid taxes, enter judgments of foreclosure, and sell to new buyers looking to build. Wellesley Gardens ended up in litigation with the buyers of those tax foreclosed units over whether the units could be built. The county treasurer intervened and argued that tax foreclosure stopped the Association from asserting the units did not exist.
The Court of Appeals generally followed Cove Creek and held that the unbuilt “need not be built” units had disappeared in 2011 automatically without any action on the part of the Association. In a portion of the ruling unique from the issues in Cove Creek, the Court rejected the argument that the tax foreclosure somehow revived the units into existence. The Court of Appeals also rejected the unique argument that Section 67 only caused units to disappear automatically if they were owned by a “developer” on the disappearance date. That meant that Units 165 through 167 also disappeared in 2011 even though owned by a non-developer at that time.
Depending on when your project was created, and how units were designated in the condominium plans, your community may be similarly situated to the associations in Wellesley Gardens and Cove Creek. Our firm will counsel you on this unique area of the law and whether you have the same rights as those condominiums to regain control over undeveloped land.
In a significant development impacting certain types of incomplete condominiums in Michigan, the Michigan Court of Appeals published a decision in Cove Creek Condominium Association v Vistal Land & Home Develop, LLC, _ Mich App _, Nos. 342372 & 343144 (2019), which confirmed that under MCL 559.167(3), also known as Section 67, unbuilt “need not be built” units in condominiums disappeared and all rights to build them ceased by automatic operation of law without the Association needing to take any action. If you live in an incomplete condominium, and even if a builder or developer still claims a right to build the rest of the units, your Association may have a valid claim to exclusive ownership and control of all remaining unbuilt land. This valuable property right can be lost if you and your Association do not act to assert your rights against “need not be built” Units.
As for the underlying case, Cove Creek Condominium was created in 1989. 14 Units were designated as “need not be built,” and in fact were never were built. The Court of Appeals held that unbuilt “need not be built” units disappeared automatically after the expiration of the 10-year time period under the statute, and that the Association’s rights in the remaining common elements “vested by operation of law, without any action.” Nothing more than the passage of time was required for the “need not be built” units to “disappear.” The result was that the Cove Creek Condominium Association alone had ownership and control over all remaining unbuilt land.
Further, the Cove Creek Court rejected the argument advanced by the successor developer that a September 21, 2016 amendment to Section 67 applied retroactively and prevented the units from disappearing, holding that the statute only applied to unbuilt “need not be built” units that still existed as of the date of the amendment. As a result, the successor developer lost all rights to build the unbuilt “need not be built” units, and the Cove Creek Condominium Association alone was vested with title to, and control over, all remaining vacant land.
Depending on when your project was created, and how units were designated in the condominium plans, your community may be similarly situated to the association in Cove Creek. Our firm will counsel you on this unique area of the law and whether you have the same right as Cove Creek to regain control over undeveloped land.
Makower Abbate Guerra Wegner Vollmer PLLC has been named as one of the 2020 “Best Law Firms” in our region in Real Estate Law, Litigation – Real Estate, Litigation – Construction, and Construction Law by U.S. News – Best Lawyers. More information on “Best Law Firms” can be found on the U.S. News - Best Law Firm's website.
The Federal Housing Administration (FHA) recently changed their condominium mortgage approval requirements. The FHA changes were announced by the U.S. Department of Housing and Urban Development (HUD) in its release of Mortgagee Letter 2019-13. The changes become effective October 15, 2019.
Read our FHA Client Advisory here
Mr. Tocco graduated from Wayne State University in 1998 with a Bachelor of Science degree cum laude and was inducted as a lifetime member of Phi Beta Kappa, Gamma Chapter of Michigan. Mr. Tocco went on to graduate from Wayne State University Law School in 2004 and has been licensed to practice law in Michigan since 2005.
Mr. Tocco gained significant experience handling all facets of bankruptcy matters throughout his career, eventually expanding his practice into the representation of Condominium and Homeowner Associations. At Makower Abbate Guerra Wegner Vollmer PLLC Mr. Tocco will continue to focus his practice on the representation of community association clients, including collection matters, restriction enforcement, litigation and contract drafting and review as well as bankruptcy.
Read more about James here.
Steve Guerra has again been named by The Best Lawyers in America as one of the Best Lawyers in real estate law for 2020. Recognition by Best Lawyers is based upon peer review and is awarded to only a select few attorneys in each geographic area. More information on The Best Lawyers in America can be found on The Best Lawyers in America website.
Michigan Court of Appeals (unpublished), Docket No. 342831, Decided October 25, 2018
With the advent of Airbnb and similar services, the issue of short-term rentals has increasingly become a problem for condominium and homeowners associations over the last few years. Most governing documents do not directly deal with this issue, so associations are looking for other ways to control this activity. By finding that short-term rentals violate zoning ordinances that restrict the use of property to “single-family residential,” Michigan courts are providing a way to restrict or prohibit this activity that does not require an amendment of the association’s governing documents.
The Michigan Court of Appeals held that absent specific language to the contrary in a municipal zoning ordinance, property located within an area which limits use to “single-family residential” may prohibit “short-term rentals.”
Concerned Property Owners of Garfield Township, Inc. (“Property Owners”), is a Michigan corporation comprised of individual owners of real property located around Silver Lake in Garfield Township, a popular vacation destination near Traverse City in northern Michigan. The property at issue is located within Garfield Township’s “R-1B” zoning district, which limits property use to “single-family residential” purposes. Prior to 2015, the Property Owners used their properties as vacation rentals, allowing third parties to lease their homes, usually for periods of one week at a time.
In 2015, Garfield Township amended its zoning ordinances and, in doing so, it specifically prohibited short-term rentals in single-family residential zoning districts, thus preventing the Property Owners from leasing their properties for periods of less than 30 days at a time. The Property Owners filed suit, claiming that short-term rentals were permitted under the municipality’s pre-2015 zoning ordinance and, as a result, their properties could continue to be used for this purpose under the doctrine of “prior nonconforming use.”
“A prior nonconforming use is a vested right in the use of particular property that does not conform to zoning restrictions, but is protected because it lawfully existed before the zoning restriction’s effective date.” Lyon Charter Twp v Petty, 317 Mich App 482, 489; 896 NW2d 477 (2016). Thus, if short-term rentals were permitted under the pre-2015 zoning ordinance, the Property Owners can continue to use their properties for this purpose, notwithstanding the fact that the ordinance was amended in 2015 to specifically prohibit short-term rentals in single-family residential zoning districts.
The trial court ruled in the municipality’s favor, finding that short-term rentals were prohitibed under the pre-2015 ordinance. The Property Owners appealed this decision to the Michigan Court of Appeals.
The Court of Appeals, in an unpublished decision dated October 25, 2018, affirmed the trial court’s ruling, finding that short-term rentals were not permitted under the pre-2015 ordinance and, thus, such use does not qualify as a valid prior nonconforming use. Specifically, the pre-2015 ordinance defined “single-family dwelling” as a “dwelling unit designed for exclusive occupancy by a single family which may be detached or semi-detached,” and it defined “dwelling unit” as a “building or portion thereof designed exclusively for residential occupancy by one (1) family, and having cooking facilities.” In addition, under the pre-2015 ordinance, the definition of “family” included relationships of a “non-transient domestic character,” but specifically excluded those “whose domestic relationship [was] of a transitory or seasonable nature or for an anticipated limited duration of a school term or other similar determinable period.”
Next, the Court noted that the pre-2015 ordinance did not define the terms “residence” or “residential occupancy”; however, when a term is not specifically defined in the body of a statute or ordinance, it is appropriate to define that term in accordance with its “ordinary meaning.” The Court found that the term “residence,” as commonly used, excludes uses of a “transitory nature.” Citing O’Connor v Resort Custom Builder, Inc, 459 Mich 335, 345-346; 591 NW2d 216 (1999), the Court held that a residence “is a place where someone lives, and has a permanent presence . . . as a resident, whether they are physically there or not. Their belongings are there. They store their golf clubs, their ski equipment, the old radio, whetever they want. It is another residence for them, and it has a permanence to it, and a continuity of presence . . . that makes it a residence.” Accordingly, a third party’s use of the property as a short-term rental does not fit within the definitions of “residence” or “residential occupancy.”
In short, the Court held that under the pre-2015 zoning ordinance, “the use must have been more than transitory, evidencing an intent to establish a permanence to the occupant’s presence there.” The Court concluded that “[b]ecause the weekly short-term rentals in this case do not establish the type of permanence needed to establish a single-family dwelling,” the Property Owners’ pre-2015 use of their properties as short-term rentals did not qualify as a valid prior nonconforming use. As a result, such use violates an ordinance that limits property use to “single-family residential” purposes.
In a case of first impression, the Eastern District of Michigan held that a request to ban smoking within Units is not a reasonable request under the Fair Housing Amendments Act. The Plaintiff in Phyllis Davis v. Echo Valley Condominium Association et al., Case No 17-12475, sought to compel the Association to ban smoking within a neighboring unit, claiming that the smoke affected her asthma. Ms. Davis’ unit shared a common hall and stairway with the smoking unit. Ms. Davis, a co-owner, argued that prohibiting smoking in the neighboring Unit was a reasonable accommodation under the FHAA and Persons with Disabilities Civil Rights Act of Michigan. The Association took the position that it lacked the authority to ban smoking in Units by rule; that such a ban required an amendment of the condominium documents. During the course of litigation, the Association attempted a smoking ban amendment but it failed. The court agreed that such a restriction required an amendment of the condominium documents, finding that, "Imposing a smoking ban on all Echo Valley co-owners, the effect of which would be to restrict them from engaging in a lawful activity on their own property, cannot be accomplished in this case without a violation of existing law. For that reason alone, Davis’s accommodation demand is not reasonable."
Ms. Davis also argued that smoking within a Unit constituted a nuisance and annoyance that required enforcement action by the Association. Ms. Davis presented only her own complaints as evidence that smoking rose to the level of an actionable nuisance and annoyance. With regard to this argument, the court held: "She mentions elsewhere in her briefing that other residents have complained about smoking at Echo Valley, but she has not presented that information in such a way that would give the Court a basis to depart from the reasoning of other courts. General observations about smoking at hotels or other residences do not establish that smoking at Echo Valley is so unreasonable as to trigger the Board’s enforcement obligation under the bylaws."
Benjamin J. Henry of Makower Abbate Guerra Wegner Vollmer served as co-counsel for the Association in defending this case.
Todd Skowronski and Evan Alexander have been named to the 2018 Michigan Rising Stars list.
Each year, no more than 2.5 percent of the lawyers in the state are selected to receive this honor. Super Lawyers, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a patented multiphase process that includes a statewide survey of lawyers, an independent research evaluation of candidates and peer reviews by practice area. The result is a credible, comprehensive and diverse listing of exceptional attorneys. The Super Lawyers lists are published nationwide in Super Lawyers Magazines and in leading city and regional magazines and newspapers across the country.
More information on Super Lawyers – Rising Stars can be found on the the Superlawyers Website.
Makower Abbate Guerra Wegner Vollmer PLLC has been named as one of the 2019 “Best Law Firms” in our region in Real Estate Law, Litigation – Real Estate, Litigation – Construction, and Construction Law by U.S. News – Best Lawyers. More information on “Best Law Firms” can be found on the U.S. News - https://bestlawfirms.usnews.com/.
Mark Makower and Steve Guerra have been named by The Best Lawyers in America as two of the Best Lawyers in real estate law for 2019. Recognition by Best Lawyers is based upon peer review and is awarded to only a select few attorneys in each geographic area.
Steve Guerra has been named as the Board President of the Community Association Institute – Michigan Chapter (CAI) for the 2018-2019, and Steve began his term on June 1, 2018. More information on the Community Association Institute – Michigan Chapter can be found on the CAI Michigan Chapter's website.
In a recent case from the Michigan Court of Appeals, the court considered whether an Association properly ratified a circuit court bylaw violation lawsuit. The Association's Bylaws required a majority vote of co-owners prior to instituting litigation for a bylaw violation. The Bylaws specifically state the votes must be cast "in person or by proxy...at a given meeting of the members of the Association duly called and held." Although a majority of co-owners did ultimately vote to ratify the lawsuit, the Court of Appeals reversed the trial court's determination that this was a proper ratification. Specifically, there was no provision in the Bylaws allowing for such action without a meeting, even by consent vote to waive the meeting. The Board of Director's consent resolution which was circulated to collect votes stated the co-owners were agreeing to waive a formal meeting and notice of meeting for purposes of the vote. The court held that when a formality is required (here, votes to be placed at a meeting), this formality cannot be waived, even by co-owner consent. The fact that this vote lacked a required formality caused it to fail to ratify the litigation. The broader provisions contained in the Michigan Non-Profit Corporation Act (specifically, MCL 450.2407(3)) did not change this result because the more limiting requirement in the Condominium Bylaws was held to be controlling. Sawgrass Ridge Condominium Association v. Alarie, Unpublished, Case No. 335144, January 9, 2018.
Mark Makower, Steve Guerra, Jeff Vollmer and Doug Alexander were recommended by their peers and named as Leading Lawyers in real estate law for 2018 by Leading Lawyer’s Magazine. The designation as a Leading Lawyer is given to less than five percent of all lawyers licensed in each State. More information on Leading Lawyers can be found on the Leading Lawyer's website.
Jeff Vollmer, along with fellow attorneys Greg Gamalski and Mary Ann O'Neil, are featured in a seminar now available on the Institute of Continuing Legal Education (ICLE) website. This presentation covers a wide range of issues affecting community associations and is available as a learning tool for other attorneys throughout Michigan.
As of March 21, 2017, amending Subdivision Declarations will be slightly easier and more affordable because Governor Snyder signed into law Public Act 355 of 2016. This law adds new Section 5a to the Uniform Electronic Transactions Act ("UETA"). The new Section provides that in single developments containing more than 250 lots or parcels, owners may consent to an amendment of the governing documents by an electronic signature. This ability is only permitted when the owners are otherwise legally able to amend the documents. The UETA defines an electronic signature as an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record. Although the language is broad and provides that a signature can be shown as that of the entitled person in any manner, Subdivision and Homeowner Associations should consider having a system in place which can be used to verify the signature is genuine by using a third-party web service or by having verified email addresses on record.
A recent unpublished case from the Michigan Court of Appeals has particular relevance for condominium associations operating in Michigan. First, the Court ruled that decisions of the Board will be evaluated under the "business judgment rule", meaning that if the Board acts in good faith and within the scope of its authority under the purposes of the corporation, the court will not substitute its judgment for that exercised by the Board. Second, the Court supported expenditures made by the Board for replacing existing Common Elements under the framework found in many communities throughout Michigan. In this case, the Association performed work related to the gutters and downspouts and installed an open fire gas fireplace in place of an existing electric fireplace. The Plaintiff argued that this work was an addition to the Common Elements and the expenditures required approval of the community. The Board argued it had the right to spend money to replace these items without approval of the Co-owners. The Court determined that replacements "do not have to be of the same specific character" or functionality." It was held "the new fireplace assume[d] the function and was a substitute for the prior fireplace." The fact that an electric fireplace was replaced with a gas one was not found to be an "addition." Second, adding gutters and downspouts was not found to be an "addition" requiring a special assessment approval but rather is part of "maintenance" permitting the Board of Directors to assess via its normal budget (specifically, gutters "serve the vital role of diverting rain water away from buildings and structures, which acts to keep the property in good condition", and are therefore considered "maintenance of the common elements under the bylaws" Finally, the court addressed whether money collected via an unapproved special assessment project could be utilized for other authorized items. Here, the Association's annual budget had included a special assessment for installation of a service elevator. When the special assessment was not approved by the requisite number of co-owners, the Board used the money collected for other authorized projects. This expenditure was held to be in compliance with the Bylaws since nothing was spent on constructing an elevator. MJ Development Company, Inc. v Inn at Bay Harbor Association, 330496 (unpublished, February 23, 2017).