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Michigan Court of Appeals Affirms Assigned First Mortgage Priority Over Condo Liens

Written by Zana Tomich on November 14, 2012 Category: Banking, Financial Institutions

A recent decision by the Michigan Court of Appeals provided some relief to the financial services industry by holding that a first mortgage of record has priority over a later recorded lien to secure unpaid condominium dues, even though the mortgage was assigned after the lien was recorded.

In Coventry Parkhomes Condominium Ass’n v. Federal National Mortgage Ass’n, Mich App ( October 25, 2012, for publication), the Circuit Court reversed the trial court decision that granted summary disposition in favor of the Condo association that it had priority of the mortgage assigned to FNMA and that FNMA was liable for the unpaid assessments.

The Court cited that Michigan is a race-notice state, and owners of interests in land can protect their interests by properly recording those interests. Under MCL 565.29, the holder of a real estate interest who first records his or her interests generally has priority over subsequent purchasers. A later interest holder may take priority over a prior conveyed interest only where the later interest holder takes in “good faith”. “A good-faith purchaser is one who purchases without notice of a defect in the vendor’s title.” Mich Nat’l Bank & Trust Co v. Morren, 194 Mich App 407, 410; 487 NW2d 784 (1992).

The Court held that it is well established that an assignee stands in the shoes of an assignor acuriign the same rights and being subject to the same defenses as the assignor. When a mortgage is assigned, the assignee, for all beneficial purposes claimed under it by him, becomes a party to the mortgage, and stands in the place of the mortgagee.” Moreover, the Court affirmed Michigan case law providing that a mortgage assignee has the same priority rights as the original mortgage assignor.

The parties agreed that the Condominium Act , MCL 529.208(1) governed the priority of the dispute, but the court found the plain language of the statute demonstrated that a “first mortgage of record” has priority over a condominium-association lien if the “first mortgage of record” was recorded before the condominium-association lien. However, the condominium-association lien would have priority over a second mortgage even if the second mortgage was recorded before the condominium-association lien.

Therefore, the Court reasoned that in the present case, Walsh’s mortgage to Chase was the first mortgage of record under MCL 559.208(1). It was recorded pursuant to the laws of the state before any other mortgage, and before Coventry’s lien was recorded. Even though Chase assigned its interest in the mortgage to FNMA, the mortgage was still the first mortgage of record because it was recorded before any other mortgage pursuant to the laws of this state relating to the records of deeds. The Court found it was still a first mortgage of record recorded before Coventry’s lien was recorded and that the assignment to FNMA did not change this. Therefore, the assignment to FNMA had priority over Coventry’s lien because it was a first mortgage of record recorded before Coventry’s lien was recorded. The Court stated that nothing in the statute supported the conclusion that an assigned mortgage was no longer first mortgage of record.

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