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Michigan Construction Law Update

Real estate transactions can be complex.

Real estate lawsuits can be complex.

Sometimes a statute or case does not speak directly on point to the exact circumstances of a legal dispute.

This latest case is a good reminder of those points.

 

Today I read a construction law case issued on September 13. The case involved  an issue of first impression – an issue not decided before, under the Michigan Construction Lien Act.

You can check out the case of Stock Building Supply, LLC v Crosswinds, et al.

This case involved a Construction Project gone bad.

In construction projects there are multiple levels of parties involved, from owners, to general contractors, to sub-contractors, to suppliers, tradesman, lenders, etc…

This is one of those cases.  You can read the facts, I will paraphrase:

  • Contractors obtained construction liens and foreclosed on those liens. Also, lenders foreclosed on their mortgages.
  • It appears that a receiver was appointed to sell off condo units.
  • The main issue in this case was that the receiver sold units “free and clear from all liens”.
  • One of the contractors came back years after such a sale and claimed it had mortgages on the property that were not discharged.

(The Trial Court would dismiss the case for the reasons set forth below. The trial court also dismissed the case under the doctrine of laches – see my prior post for a discussion on this topic.)

The issue that came up: Whether a trial court is permitted to discharge mortgages pursuant to a sale by a receiver of encumbered property.

The Statute in issue:

MCL 570.1123(2):

“The receiver may petition the court for authority to sell the real property interest under foreclosure for cash or on other terms as may be ordered by the court…

The Court of Appeals indicated in its opinion that it was concerned with that language – what did it mean?

The contractor who claimed it had a mortgage argued that nothing in that statute expressly provides a court with authority to discharge its mortgage.

The Court recognized that the particular language in the statute “on other terms” is not defined.

The Court went on to interpret the statute and held that its plain reading allowed the Court the authority to determine the terms that it would place on the sale.

In sum, the Court of Appeals saw no reason why a trial court could not place as a condition for “terms of sale” that property be sold “free and clear of all claims, liens and encumbrances.”

The courts in that county had been doing this in practice. Now they had legal binding precedent to do so.

 

Take away for Real Estate professionals:

This is now (unless appealed to the Michigan Supreme Court) a clarified issue of law that construction industry folk can rely on.

However, it is a good example that many sticky situations that those in the real estate industry find themselves  in (I’m particularly thinking about the application of MCL 600.3238, for example) are not as clear. Maybe the statute is silent. Maybe there is no case law developed on the issue.

 

http://www.dwlawpc.com

e-mail: Jeshua@dwlawpc.com

 

 

 

 

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