Condominium living is an attractive option for first time homebuyers, offering a more committed choice than apartment living, but without the full-blown responsibility of homeownership. Full-time workers can also find peace of mind while traveling or away, because neighbors are in close proximity. Families have access to pools, clubhouses, and recreational facilities. Benefits that speak to the elderly include lawn care and snow removal. Whatever your reason for considering or choosing condominium living, I cannot stress enough the importance of understanding your rights and responsibilities associated with your decision.
If you have already purchased a condominium unit and have not taken any of the advice contained in this article, don’t stress. It is never too late to sell (just kidding). It is, however, never too late to arm yourself with knowledge about your investment.
Research to Put Your Best Foot Forward
One of the biggest mistakes condominium purchasers make is to not do their research prior to purchasing. It might not even be your fault – your real estate agent may not have known or disclosed that the new “subdivision” you just bought a home in is actually a site condominium. When most people hear the word “condominium,” they associate it with a community of multi-unit buildings that all look identical. In fact, a lot of new developments with detached housing are being organized as condominium projects.
The first step is to figure out what type of property you are (or will be) purchasing. Although the exterior could give clues, it is impossible to tell just by physically examining a property. If it is attached to other properties, it could be a co-operative or a condominium. If it is detached, it could be a lot with or without a homeowners association, or it could be a site condominium unit. I do not suggest relying on a realtor, because they often make assumptions and/or are not familiar with the differences. Real estate websites like Zillow and Trulia can be edited by current property owners and their real estate agents, so they are not totally reliable either. The easiest way to tell is to look up the tax assessment information for the legal description. Most municipalities in Michigan allow you to search tax assessment information for free. Quite a few subscribe to the BS&A database, which allows you to search by address within the desired municipality. Some municipalities have their own webpage, which you can find by using a search engine. A word of caution: you will need to know or be familiar with the physical location of the property, because the postal address may not correspond with the municipality location. For example, my office has a mailing address of Northville, Michigan, but the office building is physically located within Farmington Hills. In order to look up the tax assessment information for my office, I would need to search in the City of Farmington Hills.
Once you have the tax assessment record, check to see if it is owned by a cooperative (or “co-op,” for short). If it is not, then look at the legal description. Generally speaking, if there is a reference to the municipality and/or the word “addition,” then it is a house which is not in an organized subdivision, subject to the restrictions of the municipality. If the description has the word “subdivision” or “No.” or mentions a community name, then it is likely a house that is additionally subject to a declaration. A condominium will always contain the word “Unit” as opposed to “Lot.” The following are examples of the formats which are most commonly used:
House, not subject to an HOA City of Northville, Crane & Orchard Addition, Lot 51
House, subject to an HOA Winding Brook No. 3, Lot 68
Condominium Westminster Estates, Unit 22
In Michigan, condominiums are governed by the Michigan Condominium Act (or the “Condo Act,” for short). There is no corresponding act which governs traditional subdivisions. If you purchase a lot in a subdivision, you will be restricted by its declaration and articles of incorporation. If you purchase a condominium unit, you are governed by the condominium master deed, bylaws, articles of incorporation, and the Michigan Condominium Act.
Understanding Condominium Documents
I can’t stress enough the importance of reading the documents prior to purchasing. It is likely that you have hired a real estate agent, engaged the services of a title company, and contracted for an appraisal prior to purchasing – so don’t skip reading the owner’s manual! Owning a home or condominium is a very large investment. If you are purchasing or have purchased a property which is subject to a declaration or master deed, then there is an affiliated association, of which you will become a mandatory member. You are effectively joining a business with your neighbors.
Although most of the information from this point forward has some applicability in homeowners associations, the following relates to condominiums only. The declaration may contain similar provisions, but you will have to read it word-for-word to find the parallels, as their formats are not standardized in the same way that condominium documents often are.
Because condominium master deeds are recorded with the Register of Deeds, they are publicly available. You can go in person to the County’s Register of Deeds Office and ask to view it. The clerk will charge you for copies. Most Registers of Deeds also have online databases. You can download the master deed (be sure to search for all amendments as well). You may even find a free copy uploaded to the condominium association’s website, if they have one and are tech-savvy. Or, you could request a copy from the association’s registered agent, which can be found on the LARA website.
Please note: even if you have never heard of the condominium master deed or bylaws, you are charged with reading them at the time of purchase. This means that courts will assume you have read them cover-to-cover and understood their content. Upon acceptance of a deed to a condominium unit, you have entered into a contract with the condominium to abide by its documents. You are not required to sign anything or even acknowledge you were given a copy.
Once you obtain a copy of the master deed and any amendments, start with the most recent amendment and read the documents from most recent to oldest. Then you know what has been changed from the master deed. If you’d rather have the “CliffsNotes” version, I suggest you skip to Exhibit A of the master deed – the bylaws. Scan through them until you find the chapter (“Article”) which addresses assessments (typically Article II).
Assessments and Fees
Of special importance in Article II/Assessments is a section that is typically captioned “Penalties for Default.” Read this paragraph carefully. It will tell you the grace period for paying assessments, if there are any late fees, and whether interest is charged. Please note: interest is capped by law in Michigan, but it can be as high as 7% per annum if it is written in a contract. Also, typically the last sentence, if present, will contain a clause as to how your payments are applied. For example, “Payments on account of installments of assessments in default shall be applied as follows: first, to the costs of collection and enforcement of payment, including actual attorney’s fees; second, to any interest charges and fines for late payment on such installments; and third, to installments in default in order of their due date.” This means you cannot dictate how your payments are to be applied. If, for example, you miss a payment for October, a $25.00 late fee is charged, and in November you send in a payment equal to the October and November assessment amounts, your payment will be applied as follows: the first $25.00 will be applied towards the October late fee; then payment in full of the October assessment; which leaves you with a $25.00 shortfall in the November assessment. In practice, this means that your account will continue to accrue late fees until you bring your account completely current. You cannot “freeze” late fees by resuming payment of the ongoing monthly assessments on time.
Next you will notice a section in Article II/Assessments which gives the association the right to record a lien. Note: any unpaid balance is considered a statutory (automatic) lien under the Condo Act. A lien is, quite simply, a claim to title. By recording notice of the lien, or filing it with the County’s Register of Deeds, the association is putting everyone on notice that the owner(s) of the unit owes money. Once a document is recorded, it is permanent. Only tax liens and judgments are prohibited from being on a credit report. It is unclear whether association liens appear on a credit report or whether they negatively impact your credit rating.
Another innocuous-looking section contained in Article II/Assessments under a heading titled “Waiver of Use or Abandonment of Unit” (typically section 5 or 6, and which also appears in the Condo Act) has major significance. This section states that you cannot exempt yourself from paying assessments because you do not use all or some of the common areas. For example, you are going to be liable for contributing to the shared expenses of your community pool whether you use it or not. Even if you don’t live in the unit, you are still responsible to pay assessments. In fact, the Condo Act takes it one step further by saying it is not a legal defense against owing some or all of the assessments to claim you have not been provided services or management. In other words, there is no right to withhold assessments for work you claim is not completed. (Even a lot of non-condo attorneys don’t know this, and they assume there is a right to withhold assessments like you have a right to withhold rent in a lease.) Your remedy is not to withhold payment of assessments, but to sue the association for breach of contract.
You should also read the section on “Enforcement” contained in Article II/Assessments (usually Section 6 or 7). This section gives the association the authority to bring a lawsuit against you and to foreclose (or both). Typically there is an “acceleration clause” where, if you are delinquent, the association has the right to declare all assessments for the rest of the fiscal year immediately due and payable. So, if your association uses the calendar year as its fiscal year, and you default in January, the association can demand that you pay assessments for the rest of the year immediately. This section also typically allows the association to discontinue furnishing utilities (if the association pays for them) and to prohibit you from using the common areas in the community (except the association cannot prevent you from coming to or going from your unit). You will also typically not be allowed to vote at association meetings until you are current.
One of the biggest shocks I hear from co-owners is that the association has the right to foreclose. I often hear them taunt, “But I have a mortgage – you can’t foreclose!” While it is true that a first mortgage which was recorded prior to the association’s lien has priority over the association’s lien, it does not prohibit the association from foreclosing. The association would then own the property subject to the first mortgage and any tax liens.
I also want to draw your attention to the Article II/Assessments section on “Expenses of Collection” (usually Section 6(d) or 7(d) and in the Condo Act). As the section on “Penalties for Default” hinted at, you will be responsible for the association’s attorneys’ fees (as well as your own, if you choose to hire your own attorney to fight it). Most attorneys will warn you in their letters that you will be charged if you choose to contact their offices. The logic behind this is that condominium associations are non-profit corporations, funded only from the assessments paid by their members. If the legal fees and expenses were not recoverable by the association, it may not be cost-effective to pursue collections against non-contributing members. Additionally, members who do pay are then contributing to the expenses incurred chasing after those who don’t pay.
I strongly encourage you to review the insurance provisions (typically Article IV) with your insurance agent or underwriter. Make sure the reviewer is familiar with condominiums. Any time the association makes changes in responsibilities or insurance provisions, you should be contacting your insurance agent next to let them know. Hopefully, you won’t ever need to rely on those provisions, but there’s nothing like going to file a claim and finding out you don’t have the right type of coverage.
Arguably, the most important part of the bylaws is the article captioned “Restrictions” (typically Article VI). You should review these several times. This is where you will find restrictions on leasing, making modifications/alterations to your unit, pets, prohibited vehicles, landscaping, and other customized restrictions. If you are purchasing an attached unit, the bylaws likely contain a clause (typically in Section 13) which would make you liable for any [negligent] damage to common elements caused by you, your family, your guests, your agents, or anyone you’ve invited into your unit. If you hire a contractor who accidentally floods your unit and the one adjacent to it, the association will fix the damage, but the bill/deductible will be sent to you. You, then, would have to sue your contractor.
All of the attorneys in my office have reviewed hundreds of master deeds and bylaws. We routinely deal with collections, bylaw violations, and insurance/liability interpretation. We are experienced in drafting master deeds and bylaws, as well as amendments thereto. If you are about to purchase a condominium unit or already have and just have some questions, please contact my office for a consultation at (248) 349-6203 . We are here to help protect you and your investment.
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For purposes of conciseness and clarity, I will not further address co-operatives.
M.C.L. §§ 559.101, et seq.
A declaration, which is sometimes referred to as a declaration of covenants, conditions, and restrictions (or “CCR”) is document which creates a subdivision. The declaration is drafted by the developer prior to construction and kept on file (“recorded”) with the Register of Deeds in the county in which it is located.
Articles of Incorporation is a legal document which creates a corporation. In this context, it is the document that creates a condominium association or homeowners association. Articles of Incorporation are filed with the State of Michigan, Department of Labor and Regulatory Affairs (“LARA”).
A master deed is a document which creates a condominium. The master deed is drafted by the developer prior to construction and kept on file (“recorded”) with the Register of Deeds in the county in which it is located.
The condominium bylaws are attached to the master deed as Exhibit A.
If you find a “consolidating master deed” or “amended and restated master deed,” then you only need to view that document and any amendments recorded after that one.
Roman Numeral 2. Articles are traditionally written using Roman Numerals, probably because lawyers like to show off using archaic Latin phrases and fancy Roman Numerals to sound clever.
Usually this is found in Article II, Section 3 or 4.
This is foreshadowing that you will be responsible for the association’s attorney fees incurred in collecting the balance or enforcing the Bylaws.
For a sample ledger and to see how the payments are applied visit https://www.tilchinandhallpc.com/condominium-associations
M.C.L. § 559.208
If a mistake is made, you have to either file an “Affidavit of Scrivener’s Error” – a document that references the original document and states how you messed it up – or re-record the document in its corrected form.
National Consumer Assistance Plan (2015).
M.C.L. § 559.169(4).
“Co-owner” refers to the owner of a condominium unit – it has nothing to do with shared title to a unit. One person can be a co-owner it they are the one on title to a unit.
M.C.L. § 559.208(1).
The association would have priority over a second mortgage, though. Sometimes when a second mortgage holder gets wind of a foreclosure lawsuit, they step up to the plate and pay the association, rather than risk their interest being wiped out.
M.C.L. § 559.206(b).
As our office policy, we do not charge for the first phone call/email or for sending a ledger, unless a significant demand of our time is requested.