850 N.W.2d 649
Mich. Ct. App.2014Background
- The Reserve at Heritage Village is a 205-unit condominium; Winnick acquired 76 units subject to a Fifth Third mortgage which was later assigned to Warren; Warren received fee title by covenant deed with an express nonmerger clause in 2009.
- Plaintiff (the condominium association) recorded an assessment lien against Warren in December 2011 and sued Warren in January 2012 to collect unpaid condo assessments; Warren assigned the mortgage to Reserve, Reserve foreclosed and bought the 76 units in July 2012.
- Plaintiff amended its pleadings to add numerous defendants and detailed a long-running alleged fraudulent scheme (discounted/under-collected assessments and diversion of funds) and multiple tort, contract, and declaratory claims (Counts I–XXX).
- Defendants moved for declaratory relief (seeking to set aside the assignment/sale to Reserve and allow Warren to foreclose) and partial summary disposition arguing lack of standing and that many counts were time-barred under MCL 559.276(1).
- The trial court: (1) found the parties intended nonmerger but concluded nonmerger had no adverse third‑party effect at the time of conveyance and allowed Warren to foreclose (and set aside the assignment/sale to Reserve), and (2) dismissed Counts IV–XXX as time‑barred under MCL 559.276(1); plaintiff appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Merger / nonmerger clause: whether mortgage merged into fee and whether Warren could foreclose | Nonmerger exception shouldn’t apply because Warren is trying to avoid paying its own debt to the association; equities (unclean hands) preclude nonmerger here | Express nonmerger clause in covenant deed shows intent to keep mortgage alive; no assessments were due at time of conveyance so third parties not adversely affected | Court reversed: despite express nonmerger language, equitable merger applies because nonmerger would injure plaintiff (a third party); Warren cannot foreclose; foreclosure/sale must be vacated |
| Applicability of MCL 559.276(1) to defendants | Statute applies only to the developer (HVSF) and manager (Whitehall); not to other defendants, agents, directors, or successive developers | Statute reaches developer, successive developers, managers, and persons alleged as agents/alter egos; factual allegations tie other defendants to developer control | Court affirmed that statute applies broadly here (to HVSF, successive developers, managers, and others alleged as alter egos/agents) |
| Whether plaintiffs claims (Counts IV–XXX) are time‑barred under MCL 559.276(1) (transitional control date, accrual, relation‑back, fraudulent concealment) | Transitional control date had not occurred or tolling/ relation‑back save the claims | Transitional control date was Jan 27, 2009; many causes of action accrued before or within statutory windows and amended claims don’t relate back; no adequate fraudulent concealment tolling | Court affirmed dismissal of Counts IV–XXVII (and most of XXVIII–XXX on other grounds): transitional control date Jan 27, 2009; many claims accrued earlier and amended complaints did not relate back; fraudulent concealment not pleaded/supported to toll limitations |
| Validity / ripeness of claims attacking 2012 conveyance (Counts XXVIII–XXX) after vacatur of assignment/sale | Those claims (fraudulent transfer, slander of title, quiet title) survive because remedies (including equitable relief/attorney fees) remain available | Defendants argued claims are moot after agreed vacatur of assignment and sale | Court held Counts XXVIII–XXX were not time‑barred but dismissed XXVIII–XXIX as moot in substance because plaintiff had agreed to vacate assignment/sale; overall dismissal of those counts was affirmed though on different reasoning |
Key Cases Cited
- Byerlein v. Shipp, 182 Mich. App. 39 (Mich. Ct. App. 1990) (discusses equitable exception to merger and controlling intent rule)
- First Nat. Bank of Utica v. Ramm, 256 Mich. 573 (Mich. 1932) (express intention at time of transaction controls merger question)
- Union Bank & Trust Co. v. Farmwald Dev. Corp., 181 Mich. App. 538 (Mich. Ct. App. 1989) (third‑party awareness can mean nonmerger does not affect junior lienholder)
- Clark v. Federal Land Bank of St. Paul, 167 Mich. App. 439 (Mich. Ct. App. 1987) (rights of junior lienholder not affected when aware of senior mortgage)
- US Leather, Inc. v. Mitchell Mfg. Group, Inc., 276 F.3d 782 (6th Cir. 2002) (applying Michigan law: equitable merger where nonmerger would unfairly prefer insider debt over third‑party creditor)
- Titus v. Cavalier, 276 Mich. 117 (Mich. 1936) (awareness a factor in third‑party rights analysis)
- Tower v. Divine, 37 Mich. 443 (Mich. 1877) (early statement that junior mortgagee’s position is not worsened when aware of senior mortgage)