With the proliferation of the condominium development structure to avoid burdensome platting and land division laws, commercial loan collateral not infrequently includes business or residential condominium units.  First mortgagees and condominium associations in Michigan have battled for years over the question of when the foreclosing condo unit mortgagee’s liability for condominium assessments begins. The Michigan Court of Appeals, in Wells Fargo Bank v Country Place Condominium Association, a published opinion issued March 18, 2014, has now resolved that question.

Under the applicable provision of Michigan’s Condominium Act, a foreclosing condo unit first mortgagee is “not liable for the assessments by the administering body chargeable to the unit that became due prior to the acquisition of title to the unit by that mortgagee . . . .”  MCL 559.158.  The “acquisition of title” date is the heart of the first mortgagee/condominium association dispute, with condominium associations asserting that date to be the date of the foreclosure sale, and mortgagees asserting that date to be the much later date when Michigan’s statutory foreclosure redemption period expires.

Even though in Michigan a foreclosing mortgagee does not obtain the right to possession of the mortgaged property until expiration of the statutory redemption period (absent voluntary turnover of possession sooner by the mortgagor), the Michigan Court of Appeals held that the nature of the equitable title obtained by the purchaser at the foreclosure sale supports a holding that “acquisition of title” occurs at the foreclosure sale date.  This clear victory for condominium associations puts additional pressure on condo unit first mortgagees to understand the assessment situation pertaining to its condo unit collateral before beginning the foreclosure process and even as part of the underwriting process.