In an unpublished opinion, the Michigan Court of Appeals provided guidance on how the priority of a condominium lien is evaluated if the lien is recorded after a first and second mortgage. In addition, the decision shows that lenders may successfully plead and claims of unjust enrichment and slander of title when a condominium association fails to properly discharge a lien.
Stonehenge Condominium Association v Bank of New York Mellon Trust Company, NA, No. 339106 (MI Court of Appeals, July 24, 2018) By assignment, JP Morgan Chase held a first mortgage interest in a condominium unit in the Stonehenge Condominium which was recorded in 2003. Similarly, by assignment, Defendant Bank of New York Mellon Trust (“Mellon”) held a second mortgage interest in the same condominium unit through a mortgage recorded in 2007. Subsequently, the Plaintiff Stonehenge Condominium Association (the “Association”) recorded a lien for unpaid assessments in March 2015.
The unit owner and the Association eventually reached a settlement so that the unit owner was released from liability under the lien in exchange for a quit claim deed transferring title to the Association. The deed was recorded in June 2015, but the Association failed to discharge its lien after the deed was recorded. The Association began leasing out the unit to tenants.
In November, 2015, Mellon started foreclosure proceedings on its second mortgage and paid off the first mortgage held by JP Mortgage Chase. In May, 2016, he Association tendered the redemption funds after the expiration of the redemption period which had been shortened to 30 days because of abandonment. Mellon refused to accept the funds.
The Association filed a quiet title lawsuit and Bank of New York Mellon filed a counter claim for slander of title and unjust enrichment since the Association was collecting rental payments on the unit after title had passed to Mellon. As the basis for its quiet title action, the Association argued that pursuant to MCL 558.208, the condominium lien had priority over the Bank of New York Mellon second mortgage.
To reach its decision, the Court of Appeals spent some time reviewing MCL 559.2018(1) which provides that a condominium lien has priority over “all liens other than tax liens and a first mortgage of record.” The Court noted that if the March 2015 condominium lien had not been settled and paid in full, it would have had priority over the Bank of New York second mortgage recorded in 2007. However, the Court noted that “the assessment lien ceased to provide any enforceable interest” of the Association after conveyance of the property by quit claim deed.
The Court agreed that the Association had filed a “misdirected lawsuit” with a “malicious purpose” to enforce a lien that had been paid in full. It affirmed that the Association had slandered title and was entitled to damages in the amount of rental payments the Association collected after the expiration of the redemption period.
The decision provides helpful guidance to portfolio managers regarding the priority of condominium liens over second mortgages in Michigan and the basis upon which slander of title and unjust enrichment can be successfully argued if a condominium lien is not timely discharged.