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American College of Mortgage Attorneys — Partner with the Best®

Formed in 1974, the American College of Mortgage Attorneys (ACMA) is comprised of over 500 lawyers in North America who are experts in mortgage law.

United States

Michigan

Several types of mortgages are recognized in Michigan, including the common mortgage, trust mortgage and deed of trust. Michigan's statutory form of mortgage uses the following granting language: “A.B. mortgages and warrants to C.D. (here describe the premises), to secure the repayment of (here describe the indebtedness or obligations the mortgage secures).” MCL &sect;&nbsp;565.154. A mortgage that omits the words “and warrant” is valid and enforceable, but without a warranty. “Trust mortgage” is statutorily defined as “any trust mortgage, trust indenture or deed of trust given to secure bonds or other obligations issued and authenticated as therein set forth.” MCL &sect;&nbsp;451.401. The mortgagor grants a trust mortgage to a trustee, who has the “power and authority to repair, maintain, protect, preserve and operate or lease the property until such time as a sale or other disposal thereof shall be approved or directed.” MCL &sect;&nbsp;451.404. Deeds of trust are exceedingly rare and should not be used absent a compelling reason to do so. Deeds of trust are governed by the law of mortgages.

SECURITY INSTRUMENT USED

Michigan law (MCL &sect;&nbsp;565.201(1)) requires that in order for an instrument to be received for recording, it must comply with each of the following requirements: <ul>
 <li>The name of each person who executed the instrument is legibly printed, typewritten, or stamped upon the instrument immediately beneath his or her signature and the signature or mark is in black or dark blue ink. (Although note that some Registers of Deeds will reject blue ink signatures).</li>
 <li>A discrepancy does not exist between the person's name as it appears as printed, typewritten, or stamped beneath the signature and in that person's signature in the acknowledgment or jurat.</li>
 <li>The name of any notary public whose signature appears upon the instrument is legibly printed, typewritten, or stamped on the instrument and appears on the same page near the notary's signature.</li>
 <li>The address of each of the mortgagors and mortgagees in each mortgage or assignment of real estate interest, including the street number if located within territory where street number addresses are in common use, or, if not, the post office address, is legibly printed, typewritten, or stamped on the instrument.</li>
 <li>Each sheet of the mortgage complies with all of the following:</li>
</ul> <ul>
 <li>Has a margin of unprinted space that is at least 2&frac12;” at the top of the first page and at least &frac12;” on all remaining sides of each page.</li>
 <li>Displays on the first line of print on the first page of the instrument a single statement identifying the recordable event that the instrument evidences.</li>
 <li>Is electronically, mechanically, or hand printed in 10-point type or the equivalent of 10-point type.</li>
 <li>Is legibly printed in black ink on white paper that is not less than 20-pound weight.</li>
 <li>Is not (and contains no attachment that is) less than 8&frac12;” wide and 11” long or more than 8&frac12;” wide and 14” long.</li>
</ul> <ul>
 <li>Unless state or federal law, rule, regulation, or court order or rule requires that all or more than 4 sequential digits of the social security number appear in the instrument, the first 5 digits of any social security number appearing in or on the instrument are to be obscured or removed. MCL &sect;&nbsp;565.201(1)(g).</li>
 <li>If the instrument or any part of it is in any language other than English, a written English translation must be attached to the instrument.</li>
 <li>The instrument must contain the name and business address of the person who drafted the instrument.</li>
</ul> Note that some Registers of Deeds may request and it is good practice to ensure proper indexing that a property tax identification number and/or a common address be included for the mortgaged property. Also, when recording documents other than mortgages or deeds some Register of Deeds will not accept a document for recording unless it contains a title upon a list of documents approved for recording. The statute also provides that a mortgage may not be recorded if its title at the top of the first page purports to evidence more than one recordable event. MCL &sect;&nbsp;565.201(3). Therefore, a document entitled “Mortgage, Assignment of Leases and Rents, and/or Security Agreement” is likely to be rejected for recording. The document should have a singular name such as “Mortgage.” This recording requirement may not prevent a document from serving multiple legal functions and including language for an assignment of leases and rents or a security agreement within the document's text. The Register of Deeds is required to note on the instrument the date, hour, and minute the document is “delivered” for recording. MCL &sect;&nbsp;565.24. However, such date and time will not become the effective recording date until (a)&nbsp;the instrument is reviewed and approved by the Register of Deeds for compliance with the recording requirements and (b)&nbsp;a liber and page is assigned to the instrument, at which time the effective date of recording will relate back to the date and time of delivery. Instruments rejected for filing for failing to satisfy the recording requirements must be redelivered for recording with new delivery dates and times noted on the instruments. Thus, the delivered date and time may not be relied upon until the instrument is approved by the Register of Deeds and assigned liber and page numbers. Effective March 12, 2019, Michigan has repealed the Uniform Recognition of Acknowledgments Act, MCL &sect;&nbsp;565.261 et seq. and replaced it with amendments to MCL &sect; 55.261 et seq. now called the Michigan Law on Notarial Acts (see MCL &sect; 55.285a). This new section of the act also permits a conveyance of Michigan land to be acknowledged outside of Michigan by a notary with seal, and in some circumstances, in a foreign country. Registers of Deeds may accept electronic documents for recording under the Uniform Real Property Electronic Recording Act. MCL &sect; 566.841 et seq. Michigan now permits the remote and electronic notarization of documents. See, e.g., MCL &sect; 55.286b(5).&nbsp;

RECORDING REQUIREMENTS

None. However, mortgagees commonly require mortgagors to waive the statutory requirement that distinct farms, tracts, or lots be sold separately. (MCL&nbsp;&sect;&nbsp;600.3224; MCL &sect;&nbsp;600.3165.) See Metropolitan Life Ins. Co. v Foote, 95 Mich. App. 399, 290&nbsp;N.W.2d 158 (1980).

STATUTES TO BE WAIVED

Where the mortgagor is required to make periodic payments that include sums to be allocated to an escrow account for the purpose of paying taxes, insurance, or improvements to the mortgaged property, the mortgagee or agent receiving the periodic payments is required to furnish the mortgagor with a statement within 60 days of the close of the calendar year, showing the beginning balance of the escrow fund, total receipts received by the fund during the calendar year, an itemized statement of all expenditures from the fund during the calendar year, and the balance in the fund at the end of the calendar year. MCL &sect;&nbsp;565.161. Michigan law also provides that in connection with certain real estate transactions where the security is a single-family dwelling unit, a lender shall not charge a prepayment fee or penalty in excess of 1% of the amount of any prepayment made within 3 years of the date of the loan, or any prepayment fee or penalty at all thereafter, or prohibit prepayment at any time. MCL &sect;&nbsp;438.31c(2)(c). The foregoing prohibition does not apply to any loan insured or guaranteed by the federal government or any agency of the federal government. MCL &sect;&nbsp;438.31c(2).

UNUSUAL TREATMENT OF STANDARD PROVISIONS

A future advance mortgage is a mortgage that secures expressly, or by implication, a future advance.&nbsp; MCL &sect;&nbsp;565.901(b). In a commercial mortgage, no special language is required for the mortgage to secure future advances. Commercial mortgages typically include a statement that the mortgage secures future advances in both the text of the document and in bold type below the document's title on the first page. In a residential mortgage, however, a lender must include a specific disclosure on the first page stating that it is a “future advance mortgage” and specifying the maximum principal amount (excluding protective advances) of the mortgage. MCL &sect;&nbsp;565.903a(1). A future advance under a future advance mortgage, whether a residential or commercial mortgage, will have priority as if it were made on the date the mortgage was recorded. MCL &sect;&nbsp;565.902. There are 2 exceptions to this rule: construction liens and state and federal tax liens both of which may take priority with respect to advances made subsequent to the priority date of the construction lien or tax lien. MCL &sect;&nbsp;565.905.

SECURING FUTURE ADVANCES

Mortgages can be written to secure additional advances to protect the collateral, including funding of expenses in order to maintain the property, and payment of insurance and delinquent taxes. MCL &sect;&nbsp;565.901.

SECURING ADDITIONAL ADVANCES TO PROTECT THE COLLATERAL, INCLUDING PAYMENT OF TAXES AND INSURANCE

TRUSTEE UNDER DEED OF TRUST N/A.

Lenders may foreclose in Michigan by judicial action or by advertisement. Both types of foreclosure procedures are governed by statute, MCL&nbsp;&sect;&nbsp;600.3101 et seq.; MCL &sect;&nbsp;600.3201 et seq., respectively. To foreclose by judicial action, the mortgagee must file suit in the circuit court in the county where the property is located requesting that the court declare a default and order the sale of the property in order to satisfy the debt that is owed. MCL &sect;&nbsp;600.3101. The foreclosure sale cannot take place until at least 6 months after the foreclosure complaint was filed. MCL &sect;&nbsp;600.3115. Notice must also be published prior to the foreclosure sale. MCR 3.410(C). In a judicial foreclosure, the judgment of foreclosure should include a determination of which parties, if any, will be liable for a deficiency and provide for a judgment against such person(s) if a deficiency exists after the foreclosure sale. MCL &sect;&nbsp;600.3150. The judicial foreclosure sale should be confirmed by court order. This has always been held to be necessary in the foreclosure process even though not required by statute or court rule. Michigan Land Title Standards (6th Ed.), &sect; 16.33. No separate action against the mortgagor on the debt may be pursued without leave from the court in which the foreclosure takes place. MCL &sect;&nbsp;600.3105(2). The alternative to judicial foreclosure is foreclosure by advertisement. This enables the property to be sold without judicial supervision by advertising the property for sale for at least 4 consecutive weeks in a newspaper of general circulation published in the county where the property is located. MCL &sect;&nbsp;600.3208. Although the statute only requires 4 weeks of publication, the foreclosure notices are generally published for 5 successive weeks to meet the statutory requirement that the sale be held not less than 28 days after the first publication. Michigan Land Title Standard 16.23. Immediately after the publication, the property may be sold by the county sheriff to the highest bidder at a public auction. MCL &sect;&nbsp;600.3216. Foreclosure by advertisement is not permitted unless the mortgage (and any assignments thereof) are recorded, and unless the mortgage contains a power of sale clause in its text. MCL &sect;&nbsp;600.3201; MCL &sect;&nbsp;600.3204. Lenders typically include a conspicuous notice regarding the “power of sale” in the mortgage as follows: WARNING: THIS MORTGAGE CONTAINS A POWER OF SALE AND UPON THE OCCURRENCE OF AN EVENT OF DEFAULT MAY BE FORECLOSED BY ADVERTISEMENT. IN FORECLOSURE BY ADVERTISEMENT, NO HEARING IS INVOLVED AND THE ONLY NOTICE REQUIRED IS TO BE PUBLISHED NOTICE IN A LOCAL NEWSPAPER AND TO POST A COPY OF THE NOTICE ON THE PROPERTY. Foreclosure by advertisement will not resolve priority disputes. MCL &sect;&nbsp;600.3236. Thus, if there are any priority disputes between a foreclosing lender and other individuals claiming an interest in the property such as construction lien holders, then a foreclosure by advertisement may not be advisable, as subsequent litigation may be required to resolve priority disputes. If the mortgage or underlying obligation provides for personal liability of the mortgagor, then the lender may bring a separate action for a deficiency following the foreclosure by advertisement. Guardian Depositors Corp. v. Powers, 296 Mich. 553, 560; 296 NW 675 (1941). To initiate a foreclosure by advertisement, a party must have a certain interest in the indebtedness or the mortgage. Under Michigan law, a party may foreclose by advertisement if, among other things, the party foreclosing the mortgage is the owner either of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage. MCL &sect;&nbsp;600.3204(1). However, in Residential Funding Co. v. Saurman, 490 Mich. 909, 805 N.W.2d 183 (2011), the Mortgage Electronic Registration System (MERS), acting as nominee of the mortgagee, was also authorized to foreclose by advertisement even though it did not own an interest in the indebtedness secured by the mortgage or service the mortgage. Reversing the Court of Appeals, the Michigan Supreme Court held that MERS (and its assignees) are as record-holder of the mortgage, owned a security lien on the properties, the continued existence of which was wholly contingent upon the satisfaction of the indebtedness, and was therefore authorized to foreclose by advertisement under MCL&nbsp;&sect;&nbsp;600.3204(1)(d). The Court reasoned that MERS “is the owner &hellip; of an interest in the indebtedness secured by the mortgage &hellip; because [MERS'] contractual obligations as mortgagee were dependent upon whether the mortgagor met the obligation to pay the indebtedness which the mortgage secured.” Residential Funding Co. See also Rush v. MAC, 792 F.3d 600, 605 (6th Cir. 2015) (foreclosure statute only requires record chain of title of the mortgage such that “any severance of the mortgage from the note - even through securitization - had no bearing on [assignee's] right to foreclose the mortgage”).

BRIEF DESCRIPTION OF PROCEDURE

A lender is precluded from foreclosing its mortgage by advertisement if legal proceedings are pending in which judgment on the mortgage debt may be rendered or if a judgment has been rendered and execution has not been returned unsatisfied in whole or in part. MCL &sect;&nbsp;600.3204(1)(b). A lender choosing to foreclose its mortgage by judicial proceedings is subject to the following limitations: (a)&nbsp;if a judgment has been obtained in another civil action on all or a part of the mortgage debt, no action to foreclose the mortgage may be maintained unless execution has been returned unsatisfied in whole or in part and the sheriff or proper officer has certified that the mortgaged premises is the only property to satisfy the execution, and (b)&nbsp;after a judgment has been rendered in a pending judicial foreclosure proceeding, no separate proceeding for the recovery of the debt secured by the mortgage may be maintained unless authorized by court. MCL &sect;&nbsp;600.3105. MCL &sect;&nbsp;600.3204(1)(b) may operate to preclude a lender from foreclosing its mortgage by advertisement when there are pending actions brought to enforce guaranties that are secured by the mortgage. See Greenville Lafayette, LLC v. Elgin State Bank, 296 Mich. App. 284; 818 N.W.2d 460 (2012) (holding defendant-mortgagee's foreclosure by advertisement was invalid pursuant to the one-action rule, MCL &sect;&nbsp;600.3204(1)(b), because the lender earlier brought an action to collect on 2 commercial guaranties that were secured by the mortgage). However, the decision in the Elgin case does not extend to preclude a simultaneous nonjudicial foreclosure action and action to enforce a guaranty, if the guaranty is not secured by a mortgage. United States v. Leslie, 421 F.2d 763 (6th Cir. 1970). A lender likewise will not be prevented from foreclosing by advertisement by an action to have a receiver appointed (Calvert Assocs v. Harris, 469 F.Supp 922 (E.D. Mich. 1979); MCL &sect; 600.3204(1)(b)(i)) or an action to enforce an assignment of rents (MCL &sect; 600.3204(b)(ii)). Both of these latter clarifications were made by statute effective May 7, 2018 and September 22, 2022, respectively. In December 2012, the Michigan Supreme Court held that a foreclosure sale that was invalid because the foreclosing mortgagee did not have a proper “record chain of title” rendered the sale voidable, and not void. Kim v JP Morgan Chase Bank, N.A., 493 Mich. 98; 825 N.W.2d 329 (2012); Conlin v. Mortgage Elec. Registration Sys., 714 F.3d 355, 360 (6th Cir. 2013). Actual prejudice to the mortgagor is required to set aside a foreclosure sale. Burniac v. Wells Fargo Bank, 810 F.3d 429 (6th Cir. 2016). Even where there are defects and irregularities, the mortgagor must have been prejudiced as a result of a mortgagee's failure to comply with MCL &sect; 600.3204 in order to set aside the foreclosure sale. In order to prove such prejudice, a mortgagor must show that it “would have been in a better position to preserve [its] interest in the property absent [the mortgagee's] noncompliance with the statute.” Kim, 493 Mich. at 116.

LIMITATIONS ON FORECLOSURE ACTIONS

The shortest timeframe for a foreclosure by advertisement is approximately 7 months, and the shortest timeframe for a judicial foreclosure is approximately 13 months. The timeframe for a foreclosure by advertisement includes the following: (a)&nbsp;approximately 6 weeks to reach foreclosure sale, including the time period for publication, and (b)&nbsp;a statutory redemption period of 1 to 12 months (typically 6 months) as discussed below. The timeframe for a judicial foreclosure includes the following: (a)&nbsp;a 6-month period after the filing of the complaint before a judgment of foreclosure can be entered, (b)&nbsp;approximately 6 weeks to reach foreclosure sale, including the time period for publication, and (c)&nbsp;a statutory redemption period of 6 months. The judicial foreclosure timeframe is also subject to delays inherent in litigation.

TYPICAL LENGTH OF PROCEDURE

If the mortgaged premises to be sold consists of distinct parcels not occupied as one parcel, they must be sold separately, and no more of them can be sold than are necessary to satisfy the amount due on the mortgage at the date of the notice of sale, plus costs. MCL &sect;&nbsp;600.3165(1); MCL &sect;&nbsp;600.3224. A mortgagee in a foreclosure sale by advertisement is entitled to purchase the premises at the sale. MCL &sect;&nbsp;600.3228. A mortgagee who purchases at the sale need not pay any cash unless its bid exceeds the unpaid loan balance. New Freedom Mortgage Corp. v. Globe Mortgage Corp., 281 Mich. App. 63, 68; 761 N.W.2d 832 (2008). All other purchasers must pay cash or the equivalent in the amount of a successful bid.

FORECLOSURE BID REQUIREMENTS

After the property is sold at a foreclosure sale, the mortgagor has a specified redemption period in which to pay all outstanding amounts owed and retain title to the property. The length of the redemption period following a foreclosure by advertisement depends upon the character of the property and the proportion of the indebtedness paid by the borrower. MCL &sect;&nbsp;600.3240. The redemption period following a judicial foreclosure is 6 months in all cases. MCL &sect;&nbsp;600.3140. The redemption price is generally the amount bid by the purchaser plus interest from the date of sale to the date of redemption at the rate provided in the note or mortgage, and may also include property taxes, insurance premiums paid by the purchaser, and amounts paid to redeem senior liens subsequent to the sale. MCL &sect;&nbsp;600.3140; MCL &sect;&nbsp;600.3145; MCL &sect;&nbsp;600.3240. The redemption periods are as follows: <ul>
 <li>For a mortgage executed on or after January&nbsp;1, 1965, on commercial or industrial property, or multifamily residential property in excess of 4 units, the redemption period is 6 months. MCL &sect;&nbsp;600.3240(7).</li>
 <li>For a mortgage executed on or after January&nbsp;1, 1965, on residential property not exceeding 4 units, if the amount claimed to be due on the mortgage at the date of the notice of foreclosure is more than 66-2/3% of the original indebtedness secured by the mortgage, the redemption period is 6 months. MCL&nbsp;&sect;&nbsp;600.3240(8).</li>
 <li>For abandoned residential property not exceeding 4 units, the redemption period is 30 days if abandonment is established in accordance with MCL &sect;&nbsp;600.3241a. (If abandonment is established, under an alternative statute, MCL&nbsp;&sect;&nbsp;600.3241, the redemption period is 1 month, depending on whether the amount of the indebtedness was more or less than 662/3% of the original indebtedness). MCL &sect;&nbsp;600.3240(9).</li>
 <li>In any other case, the redemption period is 1 year from the date of the sale. MCL&nbsp;&sect;&nbsp;600.3240(12).</li>
 <li>Under MCL &sect; 600.3238 a mortgage foreclosure sale purchaser may request an interior and exterior inspection of the property. If it is unreasonably refused or if damage is imminent or has occurred, the purchaser may immediately commence summary proceedings for occurred possession. MCL &sect; 600.3238(6). If a judgment of possession is entered in favor of the purchaser, the right of redemption is extinguished. MCL &sect; 600.3238(10).</li>
</ul> The redemption period is or can be extended by the following: <ul>
 <li>By agreement of the mortgagor and mortgagee, Macklem v. Warren Construction Co., 343 Mich. 334; 72 N.W.2d 60 (1955) (foreclosure by advertisement); or</li>
 <li>Until 60 days following a bankruptcy filed before the expiration of the statutory redemption period, In re Dowding, 124 Fed. Appx. 921, 2005 FED app 0090N (6th Cir. 2005).</li>
</ul> Under current case law, failure to record the sheriff's deed within 20 days does not toll the redemption period. Kessler v Longview Agricultural Asset Management, LLC, ___ NW2d ___, Mich App No 360375 (Jan 12, 2023). Kessler is presently on appeal to the Michigan Supreme Court, however, and standing in contrast with the long-standing rule that, if the sheriff's deed was not timely recorded, the redemption period commenced on the date of recording. Michigan Land Title Standards (6th Ed.), &sect; 16.28; Perkins v. Keller, 43 Mich. 53; 4 N.W. 559 (1880). The rights of the parties during the redemption period are somewhat unusual in Michigan. The mortgagor retains the right to possession during the redemption period unless, in commercial foreclosures, a receiver is appointed. An assignment of rents continues to be effective during the redemption period—but only to the extent of any deficiency. MCL &sect; 554.1054(4). If the purchaser at the sheriff's sale is not the mortgagee, then the purchaser at the foreclosure sale becomes the assignee under the assignment of rents by operation of law. MCL &sect; 554.1054(4)(a). The mortgagee is not liable for premises liability claims during the redemption period. Kubczak v. Chemical Bank & Trust Co., 456 Mich. 653; 575 N.W.2d 745 (1998). The mortgagee's election to enforce the assignment of rents post-default does not render it a mortgagee in possession.&nbsp; MCL &sect; 554.1061.

REDEMPTION PERIOD AND PRICE

An agreement purporting to destroy or impair the mortgagor's right of redemption made prior to the mortgagor's default is invalid in Michigan. Russo v. Wolbers, 116 Mich. App. 327, 336-337; 323&nbsp;N.W.2d 385 (1982). The mortgagor cannot agree in the mortgage itself or other contemporaneous agreement to waive or release the right of redemption upon the occurrence of a future default. The mortgagor may, however, release the equity of redemption to the mortgagee after default for good and valuable consideration, if done voluntarily, and if there is no fraud and no undue influence brought to bear upon the mortgagor for that purpose by the creditor. Id. at 336, quoting Batty v. Snook, 5 Mich. 231, 239-240 (1858). See also, reduction of redemption period pursuant to MCL &sect; 600.3238(6) and (10) described above. While deeds in lieu of foreclosure impair the redemption rights of the borrower, they do so after default for new consideration — generally the lender's waiver of the right to a deficiency. Therefore, if properly handled, deeds in lieu of foreclosure are not considered to be invalid restrictions upon redemption and are enforceable. Hogan v. Hester Investment Co., 257 Mich. 627, 634-635; 241 N.W. 881 (1932). Acceptance of a deed in lieu may destroy the grantee's mortgage interest in the property, unless appropriate non-merger language is included in the deed in lieu. Sylvania Savings Bank v. Turner, 27 Mich. App. 640, 644-645; 183 N.W.2d 894 (1970).

WAIVER OF REDEMPTION; REDUCTION OF REDEMPTION PERIOD

A lender may recover a deficiency in a judicial foreclosure and may bring a separate action for a deficiency following a foreclosure by advertisement. Michigan foreclosure law does not specifically provide a time limit in which a lender must bring a separate action for a deficiency following a foreclosure by advertisement, but generally actions to recover sums due for breach of contract must be brought within 6 years and actions founded upon covenants in deeds and mortgages must be brought within 10 years. MCL 600.5807(5) and (9). Generally, the deficiency amount is equal to the difference between the amount bid on the property on the day of the foreclosure sale and all amounts owed on the debt secured by the mortgage. There is no fair value hearing required to establish a borrower's (or guarantor's) liability for deficiency. However, Michigan law provides that in the case of a foreclosure by advertisement where the mortgagee becomes the purchaser or takes title at the sale and later seeks a deficiency judgment, it is competent and lawful for the defendant against whom the deficiency judgment is sought to show as a defense and set-off, but only to the extent of the amount of the deficiency claim, that the property sold was fairly worth the amount of the debt secured by it at the time and place of the sale or that the amount of the bid was substantially less than its true value, and such showing shall defeat an action for a deficiency judgment, in whole or part, to such extent. MCL &sect;&nbsp;600.3280. Some courts have held that a broad waiver provision in a guaranty waives this statutory defense. See Crown Life Ins. Co. v Hicks, 1994 U.S.&nbsp;Dist. LEXIS 5562, at *15-16 (E.D. Mich. January 7, 1994); KSI Capital Corp. v Pagan, 2008 U.S.&nbsp;Dist. LEXIS 56460, at *7-8, 2008 WL 2941087 (E.D. Mich. July 25, 2008); 8375 Honeytree Blvd. Holdings, LLC v Starman, 2012 WL 683379 (E.D. Mich. March 2, 2012).

DEFICIENCIES

The effect of foreclosure upon leases depends upon whether the lease or mortgage has priority. In the absence of a subordination agreement, the priority of a lease, is likely to be determined by the time of possession of the leasehold by the tenant. Dolese v. Bellows-Claude Neon Co., 261 Mich. 57, 59; 245 N.W. 569 (1932) (in a foreclosure situation, a lease entered into after the creation of a mortgage terminates at the end of the redemption period unless the mortgagor redeems the property). If the mortgage has priority over the lease, a foreclosure will extinguish the subordinate lease at the expiration of the redemption period. However, if the lease has priority over the mortgage, then the purchaser at the foreclosure sale takes the property subject to the lease. Michigan law permits the mortgagee to subordinate its mortgage lien to any other lien or mortgage. MCL &sect;&nbsp;565.391. There is, however, no specific statutory provision for the subordination or elevation in priority of a lease.

EFFECT OF FORECLOSURE UPON LEASES

The State's maximum legal interest rate is 5% per annum (7% per annum for written obligations). MCL &sect;&nbsp;438.31. Many exceptions exist, including a variety of exceptions for business and mortgage loans. Non-bank lenders otherwise qualifying for the 7% rate may charge up to 11% per annum for land contracts. MCL &sect;&nbsp;438.31c(6). In addition, the interest rate on installment payments of interest may not exceed the rate of 10% simple interest per annum, or 7% if the contract is otherwise silent on the rate of interest. MCL 438.101. Some exceptions permit the payment of “any rate of interest,” but charging interest in excess of 25% per annum is a criminal offense. MCL &sect;&nbsp;438.41. MCL &sect;&nbsp;438.32 prohibits the recovery of delinquency or collection charges in connection with a mortgage that does not comply with the statutory interest rate limitations. See Patrick v. Shaw, 275 Mich. App. 201; 212; 739 N.W.2d 365 (2007). Neither the statute nor case law has established the amount, rate, and type of delinquency, collection, or late fees or charges that may be assessed. A lender that seeks to enforce charges that are later construed by a court as interest, and which cause the rate to exceed the criminal usury rate, may be prohibited from charging any interest at all under the “wrongful-conduct rule” - even if the loan documents include a usury savings clause. Soaring Pine Capital Real Estate and Debt Fund II, LLC v. Park Street Group Realty Services, LLC, 337 Mich. App. 529, 976 N.W.2d 674 (2021).

USURY CEILING

By statute, a corporation, a limited partnership, or a limited liability company may agree in writing to pay any rate of interest. MCL &sect;&nbsp;438.61 and MCL &sect;&nbsp;450.4212. A non-profit corporation may also agree to pay a rate of interest in excess of the legal rate. MCL &sect;&nbsp;450.1275. Subject to the 25% criminal usury maximum, business loans with no interest rate ceiling may be made to unincorporated businesses or individuals if the borrower has executed a sworn statement specifying the type of business and the business purpose of the loan. MCL &sect;&nbsp;438.61. Lenders that are depository institutions or “regulated lenders” under Michigan law may charge any rate of interest up to 25% per annum. MCL &sect;&nbsp;445.1854. A lender making a loan of at least $100,000, “the bona fide primary security for which is a lien against real property other than a single family residence,” may also charge “any rate of interest.” MCL &sect;&nbsp;438.31c(11). The Michigan Attorney General has opined that such loans are not subject to the 25% criminal usury maximum. OAG 1980, No. 5740, July 17, 1980. Lenders that are approved as mortgagees under the National Housing Act and licensed first mortgage lenders under Michigan law may charge any rate for loans secured by first-priority mortgage liens on the borrower's principal residence. The lender may not, however, provide that the rate initially effective may increase over the term of the loan “for any reason.” MCL &sect;&nbsp;438.31c(2). A rate of interest tied to an objective standard beyond either party's control may not violate MCL&nbsp;&sect;&nbsp;438.31c. Manufacturers National Bank v. Pink, 128 Mich. App. 696, 702; 341 N.W.2d 181 (1983) (involving the use of the prime interest rate). For exemption specifics, Michigan statutory and case law should be consulted.

USURY EXCEPTIONS

To perfect a security interest granted in goods, including fixtures, a Uniform Commercial Code financing statement must be filed. See, generally, MCL &sect;&nbsp;440.9101 et seq. In addition, if the secured party wishes to obtain the benefits of a “fixture filing,” in addition to the requirements of a typical financing statement, i.e. the name of the debtor, the secured party and the collateral, the financing statement must also indicate that it covers fixtures, indicate it will be filed in the real estate records, describe the real estate and, if the debtor does not own an interest in it, naming the record owner.&nbsp; The financing statement must be recorded in the Office of the Register of Deeds for the county where the real estate to which the items will be annexed is located. MCL &sect;&nbsp;440.9501, &sect;&nbsp;440.9502. Personal property filings (including filings with respect to fixtures that are not intended to be fixture filings) are made in the office of the Secretary of State in the state of the debtor's organization. MCL &sect;&nbsp;440.9501(1)(b).

LOCATIONS FOR FILING

A copy of a mortgage is sufficient in Michigan as a financing statement filed as a fixture filing if it contains all of the information required by Michigan law to be contained on a fixture financing statement and is duly recorded. MCL&nbsp;&sect;&nbsp;440.9502(3). &nbsp;The financing statement may be filed prior to the security agreement or the grant of the security interest. MCL &sect;&nbsp;440.9502(4).

SECURITY INSTRUMENT AS FIXTURE FILING

Michigan adopted the uniform revisions to the UCC effective July 1, 2013, in Public Act 76 2013, in MCL &sect;&nbsp;440.9101 et seq.

ADOPTION OF REVISED UCC

UNUSUAL PROVISIONS OR REQUIREMENTS

In the case of an absolute and unconditional guaranty, the mortgagee is not required to foreclose on the real estate or proceed against other collateral before seeking payment from the defendant guarantor. Comerica Bank v. Cohen, 291 Mich. App. 40, 49; 805 N.W.2d 544 (2010). Thus, the mortgagee may choose to proceed on the guaranty before foreclosure.&nbsp;More specifically, (1) the compulsory joinder rule, MCR 2.203(A), does not require a mortgagee to join claims for foreclosure in a guaranty action, (2) res judicata would not bar a foreclosure proceeding after an earlier guaranty action that was joined with a claim against the mortgagee for appointment of a receiver to collect rents and (3) mortgagee could seek non-judicial enforcement of the assignment of rents after dismissal of the guaranty action. Marketplace of Rochester Hills v. Comerica Bank, 309 Mich. App. 579 (2015) vacated in part at 871 N.W.2d 710 (2015). In recent years, many lenders have greatly expanded the scope of exceptions to nonrecourse provisions (also referred to as “carveouts”) to include catchall clauses that state the entire loan becomes recourse to the borrower and the guarantor for virtually all defaults under the loan documents except for the failure to pay interest and principal due on the loan. A Michigan court has held that even the failure to pay principal and interest alone may trigger total recourse liability if the language in the nonrecourse and carveout provisions is so drafted and interpreted. See 51382 Gratiot Ave. Holdings, LLC v. Chesterfield Dev. Co., LLC, 2011 (E.D. Mich. Dec. 12, 2011). Shortly after Chesterfield, another Michigan court similarly held that borrower's failure to remain solvent “breached the covenant to maintain its status as [“a single purpose entity”] and triggered the full recourse provision of the mortgage.” See Wells Fargo Bank, N.A. v. Cherryland Mall Ltd. Partnership, 295 Mich. App. 99 (Mich. App. Ct., 2011). The Chesterfield and Cherryland decisions have been effectively overruled, however, by the Michigan state legislature in the Nonrecourse Mortgage Loan Act (NMLA). MCL &sect;&nbsp;445.1591 et seq. The NMLA regulates the enforceability of certain loan covenants in nonrecourse commercial loans in Michigan and was passed in response to the holdings in the Chesterfield and Cherryland cases. It provides that any provision in loan documents that does not comply with the prohibition against a post-closing solvency covenant being used, directly or indirectly, as a nonrecourse carveout or as the basis for any claim or action against a borrower, guarantor, or other surety, would be invalid and unenforceable. MCL &sect;&nbsp;445.1593. The NMLA has retroactive application in that it applies to the enforcement and interpretation of all nonrecourse loan documents in existence on, or entered into on or after, the effective date of the NMLA, which was immediately effective on March 29, 2012. MCL 445.1595. Also see Wells Fargo Bank, NA v. Cherryland Mall Ltd. Partnership, 2013 Mich. App. LEXIS 651 (Mich. Ct. App. Apr. 9, 2013). The statute would not apply to other full recourse carveout triggers such as filing bankruptcy. 111 Debt Acquisition Holding LLC v. Six Ventures Ltd., 413 Fed. Appx. 824 (6th Cir. 2011) (full recourse guaranty liability triggered by bankruptcy even where guarantor objected to the bankruptcy filing).

SPECIAL PROBLEMS IN ENFORCEMENT OF GUARANTY

After foreclosure by advertisement and expiration of the redemption period without redemption by the mortgagor, the mortgagor cannot be held liable in a deficiency action for interest, taxes, or insurance costs accruing after the foreclosure sale where the mortgagee has bid the entire amount of the indebtedness. Bank of Three Oaks v. Lakefront Properties, 178 Mich. App. 551, 444&nbsp;N.W.2d 217 (1989). As a result, despite the broad language of a guarantee contract that extended to any debts, obligations, and liabilities of the borrower arising out of credit granted by the bank, the guarantors could not be liable for a liability that the borrower never incurred. Bank of Three Oaks, 178 Mich. App. at 558-559. Furthermore, when a lender bids the entire amount of the indebtedness at the foreclosure sale, no deficiency exists and the absence of a deficiency removes any potential claim of the lender under the guarantee. Bank of Three Oaks, 178 Mich. App. at 561. However, a full credit bid will not bar contract claims against non-borrower third-party defendants.&nbsp;Bank of America v. First American Title Ins. Co., 499 Mich. 74; 878 N.W.2d 816 (2016) (mortgagee's claims against title agencies and title company for violation of closing protection letters issued in connection with loans involved fraudulent appraisals).

ISSUES AND GUIDELINES RELATED TO SEEKING/OBTAINING DEFICIENCY JUDGMENTS

The statute of limitations for mortgage foreclosure actions is 15 years after the mortgage becomes due or the date the last payment was made. MCL&nbsp;&sect;&nbsp;600.5803. The limitations period is 10 years for actions founded upon covenants in deeds and mortgages of real estate, MCL &sect;&nbsp;600.5807(5), and 6 years for most actions to recover damages or sums due for breach of contract, including default under a promissory note. MCL &sect;&nbsp;600.5807(9).

STATUTE OF LIMITATION PERIOD

A mortgage must be discharged by the mortgagee once the obligation has been paid or otherwise satisfied. MCL &sect;&nbsp;565.41 (“the mortgagee shall prepare a discharge of the mortgage, file the discharge with the register of deeds for the county where the mortgaged property is located, and pay the fee for recording the discharge”). Unless there is some manifest intention to retain liability on the covenant and a mortgage to pay the indebtedness, the discharge of the note discharges a mortgage securing it. See Fox v. Mitchel, 302 Mich. 201; 4 N.W.2d 518 (1942). A sufficient tender by the mortgagor and a willful refusal by the mortgagee (without just cause) to accept the tender is sufficient to discharge a mortgage. Federal Discount Corp. v. Rush, 269 Mich. 612; 257&nbsp;N.W. 897 (1934). Upon the tender of the whole amount due, or upon full performance of the condition of the mortgage, and payment of mortgagee's reasonable charges, the mortgagee shall execute and record a written discharge of mortgage within 60 days of the mortgagor's request or the mortgagee is liable for $1,000 plus actual damages suffered by the mortgagor due to the mortgagee's failure to provide the discharge of mortgage. MCL &sect;&nbsp;565.44. The Court may, in its discretion, award double costs in an action under this section. While the discharge of a mortgage can be in the form of either a formal discharge of the mortgage or a deed of the property from the mortgagee to the mortgagor, mortgage discharges are more commonly used. See Fletcher v. Morlock, 251 Mich. 96; 231 N.W. 59 (1930). A mortgage that is not renewed is considered discharged 30 years after the due date stated in the mortgage or, when no due date is set forth, 30 years after the mortgage was recorded. MCL&nbsp;&sect;&nbsp;565.382.

REQUIREMENTS FOR RELEASE OF LIEN

A married person cannot, without his or her spouse's signature, create a valid lien upon any interest in the premises that constitutes their homestead (not exceeding in value $3,500), except by a mortgage given to secure all or part of the purchase price. However, the withdrawal of Michigan Land Title Standards (6th Ed) &sect;&nbsp;5.3 raises some question as to the proper scope of such mortgage invalidity. There is a 25-year period after which an unchallenged mortgage becomes valid against a homestead, MCL &sect;&nbsp;600.6023(g)(ii), but it is not clear how this period relates to other applicable statutes of limitation. Until April 6, 2017, a wife had a dower right in lands in which her husband was seized of an estate of inheritance during the marriage. See generally MCL &sect;&nbsp;558.1 et seq. After April 6, 2017, only a wife whose husband died prior to that date is entitled to dower rights. Otherwise dower is abolished in Michigan. MCL &sect;&nbsp;558.30.

HOMESTEAD AND DOWER ISSUES

MORTGAGE TAX

On Note: None. On Foreclosure Sale or Deed in Lieu of Foreclosure: See below.

DOCUMENTARY STAMP TAX

Michigan imposes transfer taxes upon the sale or conveyance of Michigan real property, both at the state and county levels. The amount of county tax is generally 55&cent; per $500 (0.11%) of the purchase price. MCL &sect; 207.504. The state also imposes an additional transfer tax of $3.75 per $500 (0.75%) of the purchase price upon the sale of Michigan real property. MCL &sect;&nbsp;207.525. Certain instruments and transfers are exempt from transfer tax, such as instruments where the consideration is less than $100. Additional exemptions may be found in MCL &sect;&nbsp;207.505(a)-(o), MCL&nbsp;&sect;&nbsp;207.526(a)-(w) and MCL &sect;&nbsp;207.527. Only the state ($3.75 per $500), and not the county, transfer tax applies to contracts for the transfer or acquisition of a controlling interest in any entity if the real property owned by that entity comprises 90% or more of the fair market value of the entity's assets. MCL &sect;&nbsp;207.523. A controlling interest for this purpose is defined as more than 80% of the total value of all classes of stock of a corporation, more than 80% of the interest in the capital and profits of a partnership, association, limited liability company, or more than 80% of the beneficial interest in a trust. MCL &sect;&nbsp;207.522(a). The tax is typically paid in connection with the recording of a memorandum of the transaction. The law exempts certain transactions from taxation, including transfers between a corporation and its stockholders or creditor and transfers between a limited liability company and its members. MCL &sect;&nbsp;207.526(p).

TRANSFER TAX

On March&nbsp;1 of each year, the taxes levied in the immediately preceding year that remain unpaid are returned as delinquent for collection. Except for certified abandoned property (as defined in MCL &sect;&nbsp;211.79), property with delinquent taxes levied in the second year are forfeited to the county treasurer for the total of unpaid taxes plus interest (at a non-compounded rate of 1% per month), penalties, and fees (an administration fee of 4%). MCL &sect;&nbsp;211.78a. The county treasurer must give notice of the forfeiture pursuant to MCL &sect;&nbsp;211.78b, 211.78c and &sect;&nbsp;211.78f. The foreclosing governmental unit does not have a right to possession of the property until the April&nbsp;1 immediately after the entry of judgment foreclosing the property (upon expiration of the taxpayer's right of redemption on March 31). MCL &sect;&nbsp;211.78k. A mortgagee desiring notice of tax delinquency of its mortgagor must pay an annual fee not to exceed $1 per parcel to the county treasurer. The fee is in addition to the fees charged for recording of the mortgage. MCL &sect;&nbsp;211.78a.

REAL ESTATE TAX FORECLOSURE

The county transfer tax (55&cent; per $500) is applicable to foreclosure sales as well as to deeds in lieu of foreclosure, but a written instrument transferring an interest in property pursuant to a foreclosure of a mortgage, or deed in lieu of foreclosure, is exempt from the additional state transfer tax of $3.75 per $500. This exemption does not apply to a subsequent transfer of the foreclosed property by the entity that foreclosed on the mortgage. MCL &sect;&nbsp;207.526(v).

TRANSFER TAX ON FORECLOSURE SALE OR DEED IN LIEU OF FORECLOSURE

Michigan law will govern issues relating to the creation, perfection, priority, enforcement, remedies (including but not limited to receivership remedies) and foreclosure of the liens and security interests created by the mortgage. See, e.g., Commerce Acceptance Co. v. Denton, 357 Mich. 394; 98 N.W.2d 663 (1959). With respect to other issues, a contractual choice of law provision seeking to apply the law of another state will probably be enforceable in Michigan unless a court determines that (1)&nbsp;the chosen state has no substantial relationship to the parties to the mortgage or the transactions described therein, or (2)&nbsp;the result obtained from applying the laws of that state will be contrary to the public policy of Michigan. Chrysler Corp. v. Skyline Indus. Services, 448&nbsp;Mich. 113; 528 N.W.2d 698 (1995).

ENFORCEABILITY OF AGREEMENT OF BORROWER AND LENDER AS TO CHOICE OF LAW

Effective as of May 7, 2018, Michigan adopted a variation on the Uniform Commercial Real Estate Receivership Act, now called the Receivership Act. MCL &sect; 554.1011 et seq. The Receivership Act applies to a receivership of an interest in commercial real property and any personal property related to or used in operating the real property. MCL &sect; 554.1014(1); MCL &sect;&nbsp;554.1040. Under the Receivership Act, an action to appoint a receiver may be made in connection with a judicial or non-judicial foreclosure action (or other action to enforce a mortgage). MCL &sect;&nbsp;554.1016(2). A receiver may be appointed where the mortgagor agreed in the loan documents or other signed record to the appointment of a receiver upon a default. MCL &sect; 554.1016(2)(b). Thus, while the appointment of a receiver was historically sought as ancillary to a judicial foreclosure of commercial property or an action to enforce an assignment of rents, under the Receivership Act, a lender may initiate an action to appoint a receiver at any time even before a judicial or non-judicial foreclosure action is commenced. The Receivership Act also provides a receiver with the authority (upon court approval) to sell real property free and clear of subordinate liens and redemption rights. MCL &sect; 554.1026(3). Additional statutory authority for the appointment of a receiver exists in the circuit courts' exercise of their general equitable powers. Michigan statutes provide that, “Circuit court judges in the exercise of their equitable powers, may appoint receivers in all cases pending where appointment is allowed by law.” MCL &sect; 600.2926. The phrase “allowed by law” has been construed to refer “to (1) those cases where appointment of a receiver is provided for by statute and (2) those cases where the facts and circumstances render the appointment of a receiver an appropriate exercise of the circuit court's equitable jurisdiction.” Petitpren v. Taylor Sch. Dist., 104 Mich. App. 283, 294, 304 N.W.2d 553 (1981). Michigan permits an assignment of rents in connection with mortgages other than those improved by 1 to 4 dwelling units (and, even then, may apply if certain criteria are met). See generally MCL &sect;&nbsp;554.1051 et seq.; see MCL &sect;&nbsp;554.1054(5) (addressing properties improved by one to four dwelling units). This statute, which is effective September 22, 2022 and applies to all assignments of rents enforced after that date, expressly authorizes appointment of a receiver to enforce an assignment of rents post-default. See MCL &sect; 554.1057. The assignee seeking appointment must serve its request for a receiver on all persons who held a record interest in the property 10 days before it filed its petition. MCL &sect; 554.1057(3). Once appointed, the receiver is entitled to collect rents and employ other powers stated in other statutes and the order of appointment. MCL &sect; 554.1057(5). In addition, the mortgagor and mortgagee may agree in the mortgage that the failure of the mortgagor to pay real estate taxes assessed against the mortgaged property or any insurance premium upon the policies covering the mortgaged property constitutes waste. MCL &sect; 600.2927(1). If the mortgage contains this “statutory waste” provision and the mortgagor fails to pay the taxes or insurance premiums under the terms of the mortgage, the mortgagee may request the appointment of a receiver of the property “for the purpose of preventing such waste.” The statute provides that in such case “the receiver may collect the rents and income from such property and shall exercise such control over such property as such court may seem proper.” MCL &sect; 600.2927(2). Other factors may also be considered by courts evaluating whether to appoint a receiver. For example, Michigan common law broadly construes waste as “anything which tends to destroy the security” of the mortgagee. Nussbaum v. Shapiro, 249 Mich. 252, 263; 228 N.W. 785 (1930). Many commercial mortgages include a provision to the effect that the mortgagor consents to the appointment of a receiver upon default, and that in such circumstances the mortgagee is entitled to such relief as a matter of strict right and without regard to the value of the security. Although no reported Michigan case specifically holds that the mortgagor's consent to the appointment of a receiver upon default is conclusive, a combination of policy that contracts should be enforced as written (Wilke v. Auto-Owners Ins. Co., 469 Mich. 41; 664 N.W.2d 776 (2003); Rory v. Continental Ins. Co., 473 Mich. 457; 703 N.W.2d 23 (2005)) and recent statutory developments in both the Receivership Act (MCL &sect; 554.1016(2)(b)) and Assignment of Rents Act (MCL &sect;&nbsp;554.1057(1)(a)(i)) strongly suggests that such agreements will be upheld. A receiver may also be appointed in any action to foreclose a mortgage or construction lien where the improvement to the mortgaged property is not complete as of the date of commencement of the action. MCL &sect; 570.1122. The receiver's authority to sell real estate under this statute was discussed at length in Stock Bldg. Supply LLC v. Crosswinds Communities, Inc., 2016 WL 4768678 (Mich. App. September 13, 2016). The court held that MCL &sect; 570.1123(2) permits pre-foreclosure sales of real estate free and clear of all liens and encumbrances if the proceeds of sale would be applied to the liens. The receiver's right to sell real estate in this instance was based upon specific statutory authority under the construction lien act. The receiver is appointed “upon the motion of a party” or on the court's own initiative “for good cause shown.” MCR 2.622(A). An evidentiary hearing is unnecessary, particularly if the facts are “totally uncontroverted.” However, an evidentiary hearing “may often be necessary before a court exercises its inherent equitable authority to appoint a receiver.” Hofmeister v. Randall, 124 Mich. App. 443, 447; 335 N.W.2d 65 (1983). MCR 2.622(B) has extensive provisions with respect to the selection of the receiver, many of which are now included as part of the Receivership Act. MCL &sect;&nbsp;554.1017(4)(a)-(e). The receiver selected by the court “must have sufficient competence, qualifications, and experience to administer the receivership estate.” The court rule states that certain provisions “shall” be included in the order appointing the receiver including the following: (1)&nbsp;bond requirements, (2)&nbsp;identification of the property of the receivership estate, (3)&nbsp;provisions for reasonable compensation of the receiver, (4)&nbsp;reporting requirements, (5)&nbsp;a description of the receiver's duties, (6)&nbsp;a list of property to be surrendered to the receiver and (7) such other provisions “as the court deems appropriate.” MCR 2.622(C). The appointed receiver “is a fiduciary for the benefit of all persons appearing in the action or proceeding.” MCR 2.622(A). The court rule is consistent with the “well established rule that a receiver has a duty of administering the assets of the receivership for the benefit of all of that estate's creditors.” Bogrette v. Young, 132 Mich. App. 431, 434; 347 N.W.2d 193 (1984). Any interested person or entity has the right to move to intervene in the action in which the receiver was appointed. MCR 2.622(H), in accordance with the provisions of MCR 2.209. A receiver must act in good faith and exercise reasonable business judgment. Errors in business judgment of the receiver are not actionable. Leave of the court must be obtained before bringing an action against a court-appointed receiver. In re Venus Plaza, 228 Mich. App. 357; 579 N.W.2d 99 (1998). The Receivership Act further sets forth the authority of a receiver and requires such a receiver to be a true independent third party. MCL &sect; 554.1022; MCL &sect;&nbsp;554.1017.

RECEIVER AVAILABLE

A regulated mortgage lender making a conventional loan secured by a first lien on a single family home may not require a deposit (other than an escrow account or deposit account established and pledged to lender as additional security for the loan), impose or collect, as a condition of the making of the loan, a payment in the nature of a discount, point, or similar system, except that a lender may impose and collect, as a condition of making a loan, all fees, discounts, points, or other charges that lenders are permitted or required to impose, collect, or pay in order to qualify such loan for sale, in whole or in part, or in order to obtain a purchase commitment, under any program authorized by federal statute or regulation. MCL &sect;&nbsp;438.31c(2)(b). A regulated mortgage lender may require a borrower to pay reasonable and necessary charges that are the actual expenses incurred by the lender in connection with the making, closing, disbursing, extending, readjusting, or renewing of a loan. The charges shall be in addition to interest authorized by law and are not a part of the interest collected or agreed to be paid on the loan within the meaning of Michigan law, which limits the rate of interest that may be exacted in a transaction. MCL &sect;&nbsp;445.1673. A state or national bank, except as otherwise provided under federal law, an insurance company may require a borrower to pay reasonable and necessary charges which are recording fees; title examination or title insurance; the preparation of a deed, appraisal, or credit report; plus a loan processing fee. MCL &sect;&nbsp;438.31a. In addition, lenders that are “regulated lenders” under MCL &sect;&nbsp;445.1852 may charge processing fees (not to exceed 2% of the loan amount) and late fees (not to exceed $15 or 5% of the late payment amount, whichever is greater). MCL &sect;&nbsp;445.1856.

ANY PROHIBITION OR SPECIAL RULES REGARDING LOAN APPLICATION, LOAN FEES OR COMMITMENT FEES

MCL &sect;&nbsp;566.132(2), a special Statute of Frauds provision expressly pertaining to financial institutions, specifically bars actions to enforce certain promises or commitments involving bank loans when not in writing and not signed by authorized bank personnel providing, in pertinent part: “(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; An action shall not be brought against a financial institution to enforce any of the following promises or commitments of the financial institution unless the promise or commitment is in writing and signed with an authorized signature by the financial institution: (a)&nbsp; A promise or commitment to lend money, grant or extend credit, or make any other financial accommodation. (b)&nbsp; A promise or commitment to renew, extend, modify, or permit a delay in repayment or performance of a loan, extension of credit, or other financial accommodation. (c)&nbsp; A promise or commitment to waive a provision of a loan, extension of credit, or other financial accommodation.” In applying MCL &sect;&nbsp;566.132(2), the Michigan Court of Appeals upheld and enforced the statutory provisions, and held that oral promises involving the lending of money by financial institutions were unenforceable if they did not meet the statutory requirements. Crown Technology Park v. D&N Bank, 242 Mich. App. 538 (2000). The statute has also been applied to bar affirmative defenses based upon oral promises. Huntington Nat'l Bank v. Daniel J. Aronoff Living Trust, 305 Mich. App. 496; 853 N.W.2d 481 (2014).

STATUTE OF FRAUDS

ENVIRONMENTAL OBLIGATIONS

Costs for which a responsible person is liable under MCL &sect; 324.20126 are a lien on the previously contaminated site if it is owned by the responsible person. The lien has priority over all other liens except those recorded before the date that the state's lien is recorded. MCL &sect;&nbsp;324.20138(1). The lien is perfected against real property when a notice of lien is filed by the department with the register of deeds in the county in which the real property is located. MCL &sect;&nbsp;324.20138(5). A lien on personal property is perfected by following the applicable laws for perfection of a lien on that sort of personal property. MCL &sect;&nbsp;324.20138(5). Thus, for example, a lien on ordinary goods would be perfected in accordance with UCC Article 9. The owner of the property must be given proper notice of the lien at the time of filing.

LIENS GRANTING PRIORITY FROM THE TIME OF FILING

If the attorney general determines that the general lien is insufficient to cover the response costs, the attorney general may seek a superlien. The attorney general may also seek a lien on additional property of the responsible person. Specifically, the attorney general must file a petition in the circuit court seeking a lien that would take priority over all other liens that have been recorded on the facility and seeking a lien on other real and personal property owned by the responsible person which would have priority over all other liens except those recorded before the date that the state's lien is recorded. MCL&nbsp;&sect;&nbsp;324.20138(2). Further, if the response action taken by the state increases the market value of real property the increase in value becomes a lien in favor of the state to the extent the state incurred unpaid costs and damages. This lien is also a superlien having priority over all other liens that have been recorded. MCL &sect;324.20138(4). The court in In re Approximately Forty Acres in Tallmadge Tp., 223 Mich. App. 454, 566 N.W.2d 652 (1997), considered several aspects of this statute regarding the application by the attorney general for a superlien. In In re Approximately Forty Acres in Tallmadge Tp., the attorney general sought a superlien under subsection (2) of the statute. Cleanup was expected to exceed $1,000,000. Another party had a construction lien (“existing lienholder”) on the property for more than $300,000 and opposed the imposition of the superlien. The trial court granted the imposition of the superlien. On appeal, the court first addressed the issue of whether the attorney general has the absolute right to a superlien or whether the statute requires the trial court to exercise its discretion in granting the lien. The court held that by requiring a hearing to obtain a superlien, which is not required in obtaining a general lien, the legislator intended the trial court to exercise its discretion as a check on the attorney general. In re Approximately Forty Acres in Tallmadge Tp., 223 Mich. App. at 459, 655. In In re Approximately Forty Acres in Tallmadge Tp., a hearing was held and the court concluded that the trial court had properly exercised its discretion. Id. The court next held that the lien covered both past and future response costs. In re Approximately Forty Acres in Tallmadge Tp., 223 Mich. App. at 460-461, 655-656. The existing lienholder argued that the trial court had erred in imposing a lien on the entire 40-acre parcel because all 40 acres were not contaminated. The statute places a lien on the “facility,” which is further defined as the place or property where hazardous waste has been “released, deposited, disposed of, or otherwise comes to be located.” In re Approximately Forty Acres in Tallmadge Tp., 223 Mich. App. at 462, 656. The court held that a lien could be placed on the “entire, legally described, parcel of land.” Id. It said, however, that courts should analyze each case since such a broad interpretation could lead to an inequitable result. In In re Approximately Forty Acres in Tallmadge Tp., there was no way to know if the soil beneath the surface was contaminated because it was covered by a landfill. Further, the ground water under over half of the parcel was contaminated. Therefore, the court held that the lien on the entire parcel was appropriate. Finally, the appellant argued that the action was barred by the statute of limitations because it was an action to recover response costs. The court held that an action to impose a superlien was not an action to recover money. The action was an attempt to secure payment until the state files the cost recovery action. The court noted, however, that if the state does not timely file its cost recovery action the superlien will not be enforceable because there will be no underlying enforceable debt. In re Approximately Forty Acres in Tallmadge Tp., 223 Mich. App. at 465, 657-658.

SUPERLIEN LAWS

CONSTRUCTION LIEN PROCEDURE FOR SUBCONTRACTORS AND SUPPLIERS

The Michigan Construction Lien Act, MCL &sect;&nbsp;570.1101 et seq., provides contractors, subcontractors, suppliers, and laborers who provide an improvement (as the term is defined in MCL&nbsp;&sect;&nbsp;570.1104(6)) to real property a lien upon such property to secure payment for the labor or materials provided. Note the definition of improvement includes surveying, engineering and architectural planning and construction management services.

GENERALLY

The Michigan Construction Lien Act requires that prior to the commencement of any improvements an owner or lessee contracting for the improvement prepare a notice of commencement and record it with the register of deeds of the county where the real property is located and keep it posted at the job site at all times. MCL &sect;&nbsp;570.1108(1) and (8). The owner or designee is required to provide a claimant with a copy of the notice of commencement within 10 days after receipt of a written demand sent by certified mail, return receipt requested. MCL &sect;&nbsp;570.1108(5). If an improvement is made on a residential structure, then the owner or lessee contracting for the improvement shall upon request provide a notice of commencement that complies with the special requirements of MCL &sect;&nbsp;570.1108a.

NOTICE OF COMMENCEMENT

A party supplying labor or materials that does not have a direct contractual relationship with the owner must provide a notice of furnishing to the owner or the owner's designee and to the general contractor. A notice of furnishing is a notice that the subcontractor, supplier or laborer is providing labor or material to the owner's property. A claimant must serve the notice of furnishing within 20 days of first supplying labor or material to the project to perfect its lien rights. MCL &sect;&nbsp;570.1109(1). Failure of a claimant to provide a Notice of Furnishing won't defeat the claimant's lien for labor or material supplied before service of the Notice except to the extent the owner made payments based upon a sworn statement or a waiver of lien. MCL &sect;570.1109(6).

NOTICE OF FURNISHING

Pursuant to MCL &sect;&nbsp;570.1110, a general contractor must provide a sworn statement to the owner when (1)&nbsp;payment is due to the contractor, or (2)&nbsp;when a demand for the sworn statement has been made by or on behalf of the owner or lessee. MCL &sect;&nbsp;570.1110(1). Additionally, a subcontractor must provide a sworn statement to the general contractor when payment is due to the subcontractor from the general contractor or when the subcontractor requests a payment from the general contractor. MCL &sect;&nbsp;570.1110(3). A subcontractor is required to provide a sworn statement to the owner upon demand. A sworn statement must be made substantially in the form provided in MCL &sect;&nbsp;570.1110(4).

SWORN STATEMENT

In order to perfect its lien rights, a claimant must file its claim of lien with the register of deeds for the county in which the real property is located within 90 days from the last date the claimant provided labor or material for the improvement. In addition, the claimant must serve a copy of the claim of lien by certified mail, return receipt requested, within 15 days after the date of the filing. MCL&nbsp;&sect;&nbsp;570.1111. A claimant must file a lawsuit to enforce the lien and foreclose within 1 year from the date the lien was recorded. MCL &sect;&nbsp;570.1117. At the time of enforcement a lis pendens is required to be recorded. Claimants in connection with residential structures do not have a right to a construction lien unless certain contract and licensing requirements are satisfied. MCL &sect;&nbsp;570.1114a. The right to a construction lien may not be waived in advance of work by contract. MCL &sect;&nbsp;570.1115(1). A construction lien for work performed on a condominium unit may only attach to the unit(s) upon which the work was performed, or if authorized by the association of co-owners, only to the proportionate extent that the co-owner of the unit is required to contribute to the expenses of administration as provided by the condominium documents. MCL&nbsp;&sect;&nbsp;559.232.

CLAIM OF LIEN

A lien claimant who receives full payment for its contract must provide the owner, lessee, or designee a full unconditional waiver of lien. &sect;&nbsp;570.1115(2). A lien claimant who receives partial payment for its contract must provide the owner, lessee, or designee a partial unconditional lien waiver for the amount received if the owner, lessee, or designee requests the partial unconditional lien waiver. &sect;&nbsp;570.1115(3). The lien waivers must be made substantially in the form provided in MCL &sect;&nbsp;570.1115(9). Retainage that is not payable under a contract until the happening of a certain event in addition to the providing of an improvement is not due as of the date of the providing of the improvement. MCL &sect;&nbsp;570.1115(5). The claim of lien of a contractor, subcontractor, supplier, or laborer may at any time be vacated and discharged if a bond, with the lien claimant as obligee, is filed with the county clerk for the county in which the property covered by the lien is located, and a copy is given to the obligee lien claimant. MCL &sect;&nbsp;570.1116(1). The bond shall be in the penal sum of twice the amount for which the lien is claimed and shall be conditioned on the payment of any sum for which the bond obligee may obtain judgment on the applicable lien claim. The bond may be either a cash bond, executed by a principal, or a surety bond executed by a principal and a surety company authorized to do business in Michigan. If it is a surety bond, the lien claimant has 10 days to object to the sufficiency of the surety. MCL &sect;&nbsp;570.1116.

Michigan

Mortgage Law Summary

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Mortgage Law Summary for Michigan

Michigan

Mortgage Law Summary

Continue reading theMortgage Law Summary for Michigan

Continue reading the
Mortgage Law Summary for Michigan