CHECKING THE LIST TWICE: BUYING A CONDOMINIUM UNIT IN MICHIGAN DURING THE COVID-19 PANDEMIC

Buying a new home can be a stressful, frustrating experience – buying a home during the COVID-19 pandemic may be even worse.  By the time you have found the perfect home, you may just want to sign all the papers put in front of you; however, whether buying a condominium unit during a pandemic or not, you should carefully review these documents and ensure you have been provided with all the information you need to make an informed purchase.

If your perfect home is a new construction condominium unit in Michigan, the Michigan Condominium Act requires a condominium developer to provide you with certain information so your review of these documents should ensure the developer has provided you with all the statutorily-required information. Whether you’re considering buying either a new construction condominium unit or an already-existing condominium unit, you will also want to review the condominium’s governing and financial documents to ensure the condominium project will be a good fit for your lifestyle.

Buying a New Construction Condominium Unit

You have found your perfect home, a new construction condominium unit* and the developer has presented you with a stack of various papers to review and sign. You should first review these documents to verify whether the developer has provided you with all the information required by the Michigan Condominium Act (“MCA”), which includes the following:

1. A purchase agreement

The purchase agreement must be in a form that you can sign and include the following statements (MCL 559.184(4)(a)-(e); MCL 559.184a(1)(b)):

• All funds paid by you in connection with the purchase of a condominium unit will be deposited in an escrow account with an escrow agent (including the name and address of the escrow agent) and will be returned to you within 3 business days after withdrawal from the purchase agreement

• Unless you waive the right of withdrawal, you may withdraw from a signed purchased agreement without cause or penalty if the withdrawal is made before conveyance of the unit and within 9 business days after receipt of the documents required by MCL 559.184a (explained below), including the day on which the documents are received if that day is a business day

• After the expiration of the withdrawal period, the developer is required to retain sufficient funds in escrow or to provide sufficient security to assure completion of only those uncompleted structures and improvements labeled under the terms of the condominium documents as “must be built”

• “At the exclusive option of the purchaser, any claim which might be the subject of a civil action against the developer which involves an amount less than $2,500.00, and arises out of or relates to this purchase agreement or the unit or project to which this agreement relates, shall be settled by binding arbitration conducted by the American arbitration association. The arbitration shall be conducted in accordance with applicable law and the currently applicable rules of the American arbitration association. Judgment upon the award rendered by arbitration may be entered in a circuit court of appropriate jurisdiction.”

• The escrow agreement between the developer and the escrow agent is incorporated into the purchase agreement by reference

2. The recorded master deed for the condominium (MCL 559.184a(1)(a))

3. A copy of the escrow agreement (MCL 559.184a(1)(b))

4. A condominium buyer’s handbook (MCL 559.184a(1)(c)). This is published by the Michigan Department of Licensing and Regulatory Affairs and is available here.

5. A disclosure statement

The disclosure statement must include the following information (MCL 559.184a(1)(d)):

• An explanation of the association’s possible liability in the event a mortgagee of a first mortgage of record or other purchaser obtains title to a condominium unit due to foreclosure of the first mortgage

• The names, addresses and previous experience with condominiums of each developer and any management agency, real estate broker, residential builder and residential maintenance and alteration contractor

• A projected budget for the first year of the association’s operation

• An explanation of the escrow arrangement between the developer and the escrow agent

• Any express warranties undertaken by the developer, together with a statement that express warranties are not provided unless specifically stated

• If the condominium is expandable, an explanation of the contents of the master deed relating to the election to expand the project and an explanation of the material consequences of expanding the project

• If the condominium is contractable, an explanation of the contents of the master deed relating to the election to contract the project, an explanation of the material consequences of contracting the project and a statement that any structures or improvements proposed to be located in a contractable area are “need not be built”

• If there are both “must be built” and “need not be built” structures and improvements in the condominium, an identification of all structures and improvements labeled “need not be built” and the extent to which financial arrangements have been provided for completion of all structures and improvements labeled “must be built”

• Other material information about the condominium and the developer that the Michigan Department of Licensing and Regulatory Affairs requires

• If a project is a conversion condominium (an already-existing residential building that is converted into a condominium), then the following additional information must be provided:
  • A statement, if known, of the condition of the main components of the building, including the roofs; foundations; external and supporting walls; heating, cooling, mechanical ventilating, electrical and plumbing systems; and structural components. If the condition of any of the components of the building listed in this subparagraph is unknown, the developer must fully disclose that fact.
  • A list of any outstanding building code or other municipal regulation violations and the dates the premises were last inspected for compliance with building and housing codes.
  • The year or years of completion of construction of the building or buildings in the project.

Verifying the developer has provided you with all the above information is not only necessary for ensuring you are armed with sufficient information to make an informed decision in your property purchase but also may be important if either you need to withdraw from the purchase agreement before closing on the new construction condominium unit or if you are adversely affected by developer’s failure to provide all the above information.

MCL 559.184(2) states, in pertinent part, the following:

… [A] signed purchase agreement shall not become binding on a purchaser and a purchaser may withdraw from a signed purchase agreement without cause and without penalty before conveyance of the unit and within 9 business days after receipt of the documents required in section 84a.

In at least three unpublished opinions, the Michigan Court of Appeals has held a developer must strictly comply with the MCA’s purchase agreement and disclosure statement requirements and even substantial compliance does not result in a binding purchase agreement. See Shinney v Cambridge Homes, Inc, unpublished per curiam opinion of the Court of Appeals, issued Feb 22, 2005 (Docket No. 250123) (holding the disclosure statement did not comply with MCL 559.184a(1)(d)(ii) so purchaser was allowed to withdraw from the purchase agreement without cause or penalty); Bridgewater Condos, LC v Boersema, unpublished per curiam opinion of the Court of Appeals, issued Dec 14, 2010 (Docket Nos. 293935, 293936, 293937, 293938, 293939, 293940, 293941, 293942, 293943, 293944, 293945, 293946, 293947, 293962, 293963) (holding that the failure to include the name and address of the escrow agent in the purchase agreement did not comply with the MCA and purchaser could withdraw from the purchase agreement without cause or penalty); and Bank of America, NA v Bridgewater Condos, LLC, unpublished per curiam opinion of the Court of Appeals, issued Nov 22, 2011 (Docket No. 299441) (reaching the same conclusion as the panel in Bridgewater Condos, LC, supra).

Accordingly, if the developer’s purchase agreement, disclosure statement or other documents do not strictly comply with MCL 559.184(4) and MCL 559.184a(1), you may have a basis to withdraw from the purchase agreement without cause or penalty.

Even if you closed on your purchase and moved into your new construction condominium unit, if the developer did not provide you with all the information required by the MCA and their failure to disclose material information has resulted in damages, you may have a basis to hold the developer liable for their failure to comply with MCL 559.184a.

Whether you are considering purchasing a new construction condominium unit, need to withdraw from a purchase agreement for a new construction condominium unit or may have suffered damages due to the developer’s failure to disclose certain material information about your new construction condominium unit, you should consult counsel knowledgeable in Michigan condominium law to review the documents provided by the developer and advise you accordingly.

Buying Either a New Construction or Already-Existing Condominium Unit

Whether purchasing a new construction or already-existing condominium unit, you should also consider the following information before signing a purchase agreement and closing on your home:

• Can I afford the current and anticipated association assessments? In addition to your mortgage, property taxes and home insurance, you also will be responsible for paying assessments to your governing association. Accordingly, you should request a copy of the current budget, the association’s most recent financial statement and information on whether any major expenses are planned in the upcoming future. When reviewing the current budget and most recent financial statement, you may also want to see whether the association’s incoming revenue matches its proposed budget as this may be a sign the association is not timely collecting assessments from its co-owners, a problem which may become worse due to the COVID-19 pandemic.

• Are there any unpaid assessments, interest, late charges, fines, costs or attorney fees outstanding on the condominium unit? You should request a payoff prior to closing for any outstanding amounts as if no payoff is requested, then you will be responsible for paying those amounts remaining due.

• Are there any building or use restrictions that are a dealbreaker for you? You should carefully review the Master Deed, Condominium Bylaws and rules and regulations adopted by the association before deciding to live in the condominium to ensure the restrictions align with your desired lifestyle. Common restrictions include architectural and modification restrictions, renting, holiday decorations, landscaping, pets, parking and smoking.

• Does the condominium unit currently comply with the building or use restrictions? You may be responsible for your unit’s violation(s) of the governing documents, even if these were caused by your seller, as recently held by the Michigan Court of Appeals in Fox Pointe Association v Ryal.

Counsel knowledgeable in Michigan condominium law can assist you in obtaining and reviewing the necessary condominium documents to help you confidently close on your condominium unit.

*If you are buying an already-existing condominium unit, then this section will not be applicable to your review; however, you should read on for the second layer of review regarding what to consider in determining whether the condominium will be a good fit for your lifestyle.

Kayleigh B. Long is an attorney with Hirzel Law, PLC and focuses her practice in the areas of appellate law, community association law and civil litigation. Ms. Long received her Bachelor of Arts degree in International Studies from Indiana University. Prior to attending law school, Ms. Long joined Teach for America, teaching kindergarten in Harper Woods, Michigan and southeast Washington, D.C., and received a Master of Arts in Teaching from Oakland University. Ms. Long then obtained her Juris Doctor degree from Indiana University Robert H. McKinney School of Law, where she graduated in the top 5 of her class and served as the Senior Executive Editor on the Indiana Law Review. Her law review note was published in the Indiana Law Review, and she has published a law review article in the Denver Law Review. She can be reached at (248) 478-1800 or klong@hirzellaw.com.