2009-PA-0029 (House Bill No. 4453) [PDF]
2009-PA-0030 (House Bill No. 4454) [PDF]
2009-PA-0031 (House Bill No. 4455) [PDF]

With an average of more than 10,000 foreclosure filings in each quarter, Detroit documented the highest annual foreclosure rate among the nation’s 100 largest metropolitan statistical areas. Foreclosure filings in the city represented 4.9 percent of all households — or one foreclosure filing for every 21 households. The city’s foreclosure rate was 4.5 times the national average.

The Michigan Court of Appeals recently held that Michigan’s Real Estate Transfer Tax should be assessed on the value of the property at the time of transfer, and not on the value of the property after the home is built. Lake Forest Partners 2, Inc. v. Dept. of Treasury, — Mich. App. — (Mich. Tax Tribunal, June 6, 2006, Docket No. 257417).

In the Lake Forest case, the Michigan Department of Treasury took the position that 45 lots sold to individual buyers under a purchase agreement to construct a new home, should be taxed on the value of the entire purchase agreement. Each purchase agreement contained a price for the empty lot, plus an amount to be paid by the buyer for the house to be built by the developer on the lot. The Court pointed out that the transfer tax assessment happens at the time of transfer. In the Lake Forest case, the lots were transferred by deed at the signing of the purchase agreement. The Appeals Court held that at this point, the buyer owns a contract right to a finished home as specified in the purchase agreement, but no more. There could be a failure to build, or circumstances of construction could change at any point in the future–at which point the buyer might have a legal right to money damages, which might easily be more or less than the amount specified to be paid by the buyer in the purchase agreement.

A transactions planning opportunity for those of us structuring these deals.

“Waterproofing job” out of seller’s mouth somehow became “waterproofing job with transferable warranty” in Realtor’s marketing brochure. Buyers experienced problems, finding out that the warranty didn’t exist. The obvious happened–Buyers sued everybody. The Sellers, the listing agent, and the Realtor–claiming they were entitled to rely on the brochure they picked up off the “For Sale” sign. It was in writing, for cripes’ sake.

I suspect the Michigan Court of Appeals was not too amused by all this. While it dismissed the case against the real estate professionals handling the closing and scolded the Buyers for failing to investigate all the information at their disposal (the listing printout they received prior to closing did not list the warranty, and their pre-closing home inspection report had noted that there were problems with the waterproofing and urged them to investigate), it also found the Broker to be “recklessly negligent” for inflating a feature of the deal.

This Realtor was very lucky…and “lucky” in this case means the privilege of paying thousands of dollars in combined court and attorneys’ fees to defend one trial and two appeals — to ultimately avoid a judgment on fraud and misrepresentation and possible loss of license.

Reckless negligence — them’s fightin’ words. (The dissenting judge went even further, calling the brochure a “fabrication” and an “outright lie” which represented “unethical and devious conduct.”)

How A Buyer’s Attorney Adds Value to Real Estate Purchases
A buyer’s attorney could have looked over the paperwork and flagged the discrepancy — but only if buyers actually hired an attorney early on. Buyers usually only hire an attorney to come to the closing. The reasoning goes like this: “Real estate professionals are filling out professional looking typeset real estate forms which happen to also be legally binding contracts — what could possibly go wrong?” It’s rare for an attorney to be hired sufficiently in advance to receive all the underlying paperwork and discover this type of problem.

Husinka v. Real Estate Unlimited, Inc. (Mich. App., February 28, 2006, Docket No. LC-04-437916-AV, unpublished opinion).

Note: Realtor® is a registered trademark of a professional association of real estate agents.