To Quality as a Future Advance Mortgage, Correct Language Must By Included in the Recorded Mortgage

A mortgage has priority over other liens on the property from the date it is recorded with the Register of Deeds. The mortgage can also have priority for amounts advanced by the lender after the date of recording if the mortgage contains certain specific language making it a “future advance mortgage”. In Citizens State Bank v. Nakash (2010), the Michigan Court of Appeals considered what happens when a recorded mortgage references a promissory note or agreement that contains the future advance language, but the recorded mortgage itself contains no future advance language. The Court of Appeals ruled that the mortgage creates no priority for future advances by the lender when the promissory note or agreement containing the future advance language is unrecorded. MCL 565.901(b) holds that the instrument creating a future advance mortgage must be recorded. This ruling makes sense, because the recorded mortgage should put other parties on notice that it is a future advance mortgage, and not merely refer to another document that is not part of the chain of title.

To download a PDF of the case click here.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Don’t Sign the Satisfaction Unless You’re Satisfied

The Michigan Court of Appeals recently reaffirmed the Michigan Common Law that when a plaintiff enters into a release and provides an accord and satisfaction to settle a lawsuit, that if the plaintiff seeks to later repudiate the accord and satisfaction, he or she must return all the money that was paid by the defendant originally to settle the suit before a new suit may be commenced.    An accord and satisfaction is more than a release of a claim. An accord and satisfaction requires that the claim be disputed and the substituted performance be agreed upon and accomplished.

In the case decided by the Michigan Court of Appeals, the plaintiff purchased a manufactured home from the defendant.   Soon after the plaintiff took possession, she discovered several serious defects and sued the defendant.    The parties reached an out-of-court settlement, wherein the defendant agreed to repair all the various defects and pay plaintiff and her attorney $8,500.  After the repairs were made, plaintiff inspected the repairs with her attorney and signed off on them, signing both a release and satisfaction.

A year later, plaintiff discovered high levels of toxic mold, later filing suit against the same defendant arguing that the defendant breached the settlement agreement by not completing the original repairs in a workmanlike manner.

The Court of Appeals affirmed the trial court’s holding that nothing prevented the plaintiff from having a professional inspect the defendant’s work before she signed the original satisfaction.   Just because the mold was not visible to the naked eye does not mean the satisfaction does not cover it.    Thus, plaintiff’s second lawsuit was an attempt to repudiate the release that she gave defendants originally.    The Court held that because plaintiff signed the release and satisfaction, and because defendants made the repairs and paid her, the contract was complete.    The Court held because plaintiff was attempting to repudiate the release she must give back the consideration before filing suit.    If she had not signed the satisfaction, she could have filed suit without having to return the money first.

Click here to download a PDF copy of the Michigan Court of Appeals Decision in Bain v Community Sales.

This article was written by Michael R. Dorfman, Senior Associate at Demorest Law Firm.

Separate Appeal of Attorney’s Fees and Costs

The Michigan Court of Appeals decided an interesting procedural issue regarding the appeal of post-judgment orders awarding or denying attorney’s fees. In Mossing v. Demlow Products, Inc. (2010), the trial court denied an award of attorney’s fees and costs to the defendants.  This occurred after the plaintiff had already filed an appeal, and the defendants had already filed a cross-appeal, in the Court of Appeals. In their cross-appeal, the defendants seek to have that fee order reversed. The Court of Appeals ruled that a completely separate appeal must be taken from the post-judgment order. In other words, the appeal cannot be tacked on to the cross-appeal; it must stand alone as a separate appeal.

Click here to download a PDF of the Court of Appeals decision in Mossing v Demlow.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

2009 Federal Tax Benefit for Qualifying Contributions for Haitian Earthquake Relief

The Internal Revenue Service is making a one-time, extraordinary allowance to taxpayers who make qualifying contributions for Haitian earthquake relief.[1]

Individual taxpayers who itemize their deductions for 2009 may deduct on their 2009 income tax return cash contributions to qualifying charities for Haitian earthquake relief made after January 11, 2010 and before March 1, 2010.  A “qualifying charity” for this purpose is a charity which is (1) based in the United States, and (2) is either (a) listed in IRS Publication 78 or (b) a bona fide church.

Publication 78 lists charities which have applied for, and been granted, IRS recognition that contributions to them are deductible as charitable contributions for Federal income tax purposes.  An online version of Publication 78 can be found at http://www.irs.gov/app/pub-78/.

To designate that a contribution is for Haitian earthquake relief, you should specify on the memo line of the check or otherwise in the documentation for the contribution that the contribution is for Haitian earthquake relief.

If you have any question about making a qualifying contribution, please feel free to contact us.

[1] IR 2010-12, Jan. 25, 2010.

This article was written by Stephen J. Dunn, Of Counsel to Demorest Law Firm.

Keeping Property Tax Values Capped Upon the Death of a Joint Tenant

Under Michigan law, a property’s taxable value is capped and may not increase by more than the rate of inflation until ownership of the property is transferred.

However, there are certain types of transfers of ownership that are exempt from this rule and will not cause an uncapping of the taxable value.  These no-transfer-of-ownership exemptions are listed in the General Property Tax Act, Section 211.27a(7).

One particular exemption that has been the subject of recent litigation in Michigan is set forth in Section 211.27a(7)(h). This exemption has to do with a transfer that creates or terminates a joint tenancy.  It has been widely assumed that the death of a joint tenant is considered a transfer that “uncaps” the taxable value of a property and is not exempt under Section 211.27a(7)(h).

However, in December 2009, the Michigan Court of Appeals reversed the decision of the the Michigan Tax Tribunal in the case of Klooster v City of Charlevoix, holding that the death of one joint tenant, even though it terminated the joint tenancy, was not a “conveyance” because there was no instrument that affected title.  In that case, husband and wife first acquired property, wife then quitclaimed to husband, husband then quitclaimed to himself and his son as joint tenants, and the husband/father subsequently died.  It is the death of the father as joint tenant that is the issue of the dispute.  The court disagreed with the City of Charlevoix and the Tax Tribunal’s contention that the death constituted a “transfer” under Michigan statutes.

Just this month, the Michigan Court of Appeals in Klevorn v. City of Boyne City, using Klooster as precedent and citing the similarity of the facts, held that the death of one joint tenant (mother) and the subsequent transfer the other joint tenant with rights of survivorship (son) was not a “conveyance”.  Therefore, the Court held that the property value upon transfer to the son should not have been uncapped and he was entitled to the no-transfer-of-ownership exemption in MCL 211.27a(7)(h).

The Klooster decision has been appealed to the Michigan Supreme Court.  In the meantime, there is precedent to argue that upon the death of a joint tenant, the remaining joint tenant with rights of survivorship is not subject to an uncapping of the property’s taxable value.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.

Religion and Civil Rights Act Exception

The Elliott-Larsen Civil Rights Act (“CRA”), which prohibits discrimination on the basis of race, sex, religion, etc., does not apply to “ministerial” employees of religious organizations.  The Michigan Court of Appeals recently ruled that if an employee’s position can be characterized as ministerial, then this employee falls under the ministerial exception and cannot file a discrimination or retaliation claim under the CRA.  In Weishuhn v. Catholic Diocese of Lansing (2010), a teacher filed a claim under the CRA for retaliatory discharge. The plaintiff was a teacher at a Catholic school, and taught more mathematics classes than religious classes. However, because her duties at the school included religious activities, and because she admitted to incorporating religion into everything she taught, her position was found by the Court of Appeals to be ministerial in nature. As a result, a complaint could not be sustained under the CRA. The Court of Appeals affirmed the dismissal of her lawsuit.

Click here for a PDF copy of the Court’s Decision.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

When is a License Fee Really an Illegal Tax?

Faced with tighter budgets, Michigan cities and townships are looking for additional ways to raise revenue.  Due to the Headlee Amendment, property tax increases are severely restricted.   However, a municipality may establish or increase a fee without violating the Headlee Amendment.  The question is:  Where is the dividing line between a permissible fee and an illegal tax increase?

A tax is solely to raise revenue.   A permissible fee (typically a permit or license fee) has three characteristics: (a) the fee serves a regulatory purpose; (b) the amount of the fee is proportionate to the necessary costs for the municipality to provide that service, and (c) payment of the fee is voluntary.

Several years ago, we were involved in litigation that resulted in the Wayne County Circuit Court declaring a license fee imposed by Sumpter Township illegal.  The Court decided that the fee for a sand excavation license was really being used by the Township to discourage additional landfills from being located in the Township, and that the amount of the fee was excessive in relationship to the Township’s costs to regulate and inspect sand excavation sites.  The Ordinance was set aside.

On January 21, 2010, the Michigan Court of Appeals issued its decision in Wolf v City of Detroit.    The plaintiff claimed that a new Solid Waste Inspection Fee adopted by the City of Detroit was really just a disguised tax.  The inspection fee was imposed on properties that did not use the City’s Department of Public Works for solid waste pick-up.  The Court of Appeals analyzed the three criteria for a fee and decided that the fee was permissible.   A copy of the Court of Appeals’ decision is attached.

Whenever a municipality imposes a new fee, or dramatically increases the amount of a fee, then one should analyze whether the three criteria for a fee are met.  If not, the fee may be challenged as a hidden tax.

Click here to download a PDF copy of the Court of Appeals Decision.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Update on the Asian Carp Dispute

On December 23, we posted an article about the Lake Michigan Asian carp dispute.  In December, Michigan Attorney General Mike Cox asked the United States Supreme Court to close all waterways from Illinois leading to Lake Michigan, to prevent Asian carp from reaching the Great Lakes.

Last week, the Supreme Court refused to immediately close the waterways.  However, the Court did not explain the reasons for its ruling, nor did it indicate whether it would rule to close the waterways at some point.

Just hours after the Court issued its ruling, it was announced that Asian carp DNA had been detected in Calumet Harbor, part of Lake Michigan near Chicago.  It is unclear whether this finding will influence the Supreme Court, or cause it to reconsider its prior ruling.

Michigan has been joined in its fight by Ohio, Indiana, Wisconsin, Minnesota, Pennsylvania, and New York (all the Great Lakes border states except Illinois), as well as Ontario.  President Obama has invited the governors of these states to a summit to be held next month regarding these issues.

Various members of Congress are also looking at possible solutions for the Asian carp problem.  A bipartisan group is looking at measures to poison the Asian carp; to strengthen an electronic barrier in the Chicago waterways; and other options.  Additionally, U.S. Rep. Dave Camp (Midland), introduced a bill called the Carp Act, which would close the waterways, and strengthen protections against Asian carp within the waterways, without the Supreme Court’s involvement.

Not surprisingly, the shipping industry opposes the closure of the waterways leading from Chicago to Lake Michigan.  At this point, it appears to be up to the Supreme Court, Congress, and/or the President to decide whether protecting the Great Lakes from Asian carp is more important than allowing commercial shipping between the Great Lakes and the Mississippi River (through Chicago).

Stay tuned for further updates.  Also, see these articles in The Detroit News for more information: http://bit.ly/cfUu7V, http://bit.ly/83fqws, http://bit.ly/6WoS1, and http://bit.ly/aSDOEd.

This article was written by Melissa L. Demorest, Associate at Demorest Law Firm.

Important Supreme Court Decision on Corporate Free Speech

Last week, the Supreme Court issued an important decision on the free speech rights of corporations.  The law has long recognized that, just like individuals, corporations are protected by the First Amendment to the Constitution.  However, in 1990 (Austin v Michigan Chamber of Commerce) and in subsequent decisions, the Supreme Court had ruled that the government may restrict corporate expenditures to support or oppose political candidates.   The Supreme Court overruled those earlier decisions in Citizens United v Federal Election Commission.  Justice Kennedy wrote:  “The Government may regulate corporate political speech through disclaimer requirements, but it may not suppress that speech altogether.”  In other words, the government may require that the sponsor of the advertisement be disclosed, and whether it was approved by a particular candidate.  However, the government may not prohibit or limit the amount of money spent by a corporation to support or oppose a particular candidate or issue.

Corporations previously used political action committees (PAC’s) to get involved in political activities.  Based on the Supreme Court’s decision, the use of PAC’s may no longer be necessary.

Click here to download a PDF copy of the Supreme Court Decision.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Effective Cross Default Provisions

Many contracts have default provisions.  These provisions set forth what actions or inaction must occur for a party to default under the Agreement and for the non-defaulting party to be entitled to recover damages and/or terminate that particular Agreement.

In some circumstances, and often in the context of a loan, parties may enter into multiple agreements with one another. When there are multiple agreements between the same parties, one party may want to negotiate the inclusion of  “cross default” provisions in those agreements.  A cross default provision provides that a party’s default under one agreement triggers an automatic default of all of the other agreements between the parties. Banks or Lenders often include a cross default provision in their loan documents to protect their financial interests.  Once the cross default provision is invoked, the defaulting party is not likely to have many options for recourse.

In order to be effective, the cross default provision must be included in each of the agreements subject to the cross default. Eagle Ridge LLC v Albert Homes LLC, 2009 Mich App, LEXIS 2382 (November 17, 2009).  In the recent case of Eagle Ridge LLC v Albert Homes LLC, the Michigan Court of Appeals refused to enforce a cross default provision that was found in only one of two simultaneously signed agreements.

The Michigan Court of Appeals used basic contract principals to support its decision.  Quoting Randolph v Reisig, 272 Mich App 331 (2006), the Court found that “an unambiguous contractual provision is reflective of the parties’ intent as a matter of law, and if the language of the contract is unambiguous, we construe and enforce the contract as written.”  Therefore, because one of the agreements at issue did not contain a cross default provision, the Court concluded that the parties must not have intended that the agreement be subject to a cross default provision.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.