September 19, 2021

Volume XI, Number 262

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September 17, 2021

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Michigan Court of Appeals Holds That Development Agreement Obligations are Extinguished in Tax Foreclosure

The Michigan Court of Appeals recently held that assessments on a property under a development agreement between a city and the property's former owner did not survive a tax foreclosure and therefore were not liens against the property in the hands of the party that purchased it at tax auction.

On April 22, 2021, the Michigan Court of Appeals decided Petersen Financial, LLC v. City of Kentwood and Kent County Treasurer, docket no. 350208, 2021 WL 1582835 (unpublished). The former owner of a property had entered into a Voluntary Special Assessment Development Agreement (VSADA) with the City prior to its tax foreclosure by the County. The question was whether the lien granted by agreement between the City and prior owner survived the tax foreclosure.

The City created a special assessment that paralleled the VSADA, and the City and County agreed to extend the time for payments under the VSADA until after the foreclosure. The City argued that as a result, the lien survived the foreclosure.

The buyer at the tax sale argued that the lien was extinguished because real property tax liens are extinguished after a foreclosure and the buyer acquires the property free and clear other than for future installments on special assessments and private deed restrictions. The taxpayer argued that the payments under the VSADA were all due prior to the tax foreclosure, and that the only post-foreclosure obligations were those created by an agreement between the City and County, which was not enforceable against it.

The Court found that although the VSADA itself was not a special assessment, the city had created a special assessment that paralleled the VSADA and could have required future installments that would have survived tax foreclosure. However, it found that all of the payments under that special assessment were due before the tax foreclosure. While the City and County subsequently negotiated an extension of the payments under the special assessment until after the foreclosure, the Court held that this agreement was void on public policy grounds because it sought to recharacterize delinquent payments under the VSADA and special assessment as future installments after the foreclosure had occurred.

© 2021 Miller, Canfield, Paddock and Stone PLC National Law Review, Volume XI, Number 125
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About this Author

Scott R. Lesser Real Estate Attorney Miller Canfield
Principal

As a leader on Miller Canfield's highly experienced Commercial Real Estate Workout Team, Scott uses his knowledge and expertise to avoid and resolve his clients' concerns before they develop into true issues. Although this often means employing creative strategies to amicably resolve disputes in a way that serves his clients' underlying business purpose, Scott does not shy away from receivership, foreclosure, guaranty or other litigation actions when appropriate.

Scott prides himself on guiding his clients and fellow practitioners alike to practical solutions to distressed real...

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Gregory A. Nowak Attorney Tax Lawyer Miller Canfield
Senior Counsel

Gregory Nowak is one of Michigan's leading experts on state and local tax issues. With more than 20 years experience, he focuses his practice on both structural tax planning and state tax controversy matters. 

Throughout his career, he has represented many major companies on multistate tax matters including clients in the manufacturing, retail, and transportation industries. Greg has litigated and negotiated issues involving all of Michigan's major taxes and has played an active advisory role in most of the significant Michigan tax controversies in recent years. He served as a...

313-496-7963
Steven A. Roach Litigation Attorney Miller Canfield
Principal

Steven A. Roach brings more than 30 years of commercial transaction and litigation experience in restructuring lending relationships and enforcing loan transactions. He applies this experience to provide a unique perspective as both a trial and transactional lawyer when representing and counselling the firm's financial institution clients. 

Steve has represented lenders in a variety of lending structures, including syndications, financing leases, structured debt and equity financings, multi-jurisdictional and international transactions. He has...

313.496.7933
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