Michigan real estate disputes – 5 common reasons to file a quiet title action

A quiet title action is a type of lawsuit that resolves a dispute as to the ownership of real estate or resolves a dispute regarding an interest in real estate relating to somebody that may not be the owner of the real estate. Quiet title actions are often necessary to ensure that a property owner retains possession of their property and to ensure that the property owner has marketable title that can later be transferred. In Michigan, a quiet title action is authorized by statute. MCL 600.2932 provides as follows:

 

600.2932 Quieting title; interest of plaintiff; action by mortgagee; establishment of title; tenancy in common; actions.

(1) Any person, whether he is in possession of the land in question or not, who claims any right in, title to, equitable title to, interest in, or right to possession of land, may bring an action in the circuit courts against any other person who claims or might claim any interest inconsistent with the interest claimed by the plaintiff, whether the defendant is in possession of the land or not.

(2) No action may be maintained under subsection (1) by a mortgagee, his assigns, or representatives for recovery of the mortgaged premises, until the title to the mortgaged premises has become absolute, or by a person for the recovery of possession of premises, which were sold on land contracted, to whom relief is available under subdivision (1) of section 5634.

(3) If the plaintiff established his title to the lands, the defendant shall be ordered to release to the plaintiff all claims thereto. In an appropriate case the court may issue a writ of possession or restitution to the sheriff or other proper officer of any county in this state in which the premises recovered are situated.

(4) Any tenant or tenants in common who recovers any undivided interest in lands in an action under subsection (1) against a person or persons who may be in possession thereof, but who does not show in the trial of such action that he or they have any interest therein or title thereto, may take possession of the entire premises subject to all of the rights and interest of the other tenant or tenants in common therein.

(5) Actions under this section are equitable in nature.

Common examples of situations in which a quiet title action is filed are as follows:

Property acquired from a mortgage foreclosure sale

Michigan law allows for an owner that loses real estate in a mortgage foreclosure sale to challenge the validity of the foreclosure in certain limited circumstances. Specifically,

The Michigan Supreme Court has held that statutory foreclosures will only be set aside if “very good reasons” exist for doing so. Markoff v. Tournier, 229 Mich. 571, 575, 201 N.W. 888 (1925). ” ‘[I]t would require a strong case of fraud or irregularity, or some peculiar exigency, to warrant setting a foreclosure sale aside.’ ” Sweet Air Investment, Inc. v. Kenney, 275 Mich.App. 492, 497, 739 N.W.2d 656 (2007), quoting United States v. Garno, 974 F.Supp. 628, 633 (E.D.Mich., 1997). “Statutory foreclosures are a matter of contract, authorized by the mortgagor, and ought not to be hampered by an unreasonably strict construction of the law.” White v. Burkhardt, 338 Mich. 235, 239, 60 N.W.2d 925 (1953).

Kubicki v Mortgage Elec Registration Sys, 292 Mich App 287, 289; 807 NW2d 433, 434 (2011).

While is it rare that a mortgage foreclosure sale is set aside, it is not impossible. Accordingly, in order to ensure that a former property owner does not later challenge the validity of the foreclosure sale, a purchaser of property that has been subject to a mortgage foreclosure should file a quiet title action to obtain a court order establishing that their ownership is superior to all former owners.

Property acquired from a tax foreclosure sale

 

The Michigan General Property Tax Act (GPTA), MCL 211.1 et seq., appears to preclude a subsequent challenge to a tax foreclosure sale on its face. Specifically, MCL 211.78k(5) provides, in part:

The circuit court shall enter final judgment on a petition for foreclosure filed under [MCL 211.78h] at any time after the hearing under this section but not later than the March 30 immediately succeeding the hearing with the judgment effective on the March 31 immediately succeeding the hearing for uncontested cases or 10 days after the conclusion of the hearing for contested cases. All redemption rights to the property expire on the March 31 immediately succeeding the entry of a judgment foreclosing the property under this section, or in a contested case 21 days after the entry of a judgment foreclosing the property under this section….

(b) That fee simple title to property foreclosed by the judgment will vest absolutely in the foreclosing governmental unit, except as otherwise provided in subdivisions (c) and (e), without any further rights of redemption, if all forfeited delinquent taxes, interest, penalties, and fees are not paid on or before the March 31 immediately succeeding the entry of a judgment foreclosing the property under this section, or in a contested case within 21 days of the entry of a judgment foreclosing the property under this section….

(g) A judgment entered under this section is a final order with respect to the property affected by the judgment and except as provided in subsection (7) shall not be modified, stayed, or held invalid after the March 31 immediately succeeding the entry of a judgment foreclosing the property under this section, or for contested cases 21 days after the entry of a judgment foreclosing the property under this section.

MCL 211.78k(6) provides, in part:

Except as otherwise provided in subsection (5)(c) and (e), fee simple title to property set forth in a petition for foreclosure filed under [MCL 211.78h] on which forfeited delinquent taxes, interest, penalties, and fees are not paid on or before the March 31 immediately succeeding the entry of a judgment foreclosing the property under this section, or in a contested case within 21 days of the entry of a judgment foreclosing the property under this section, shall vest absolutely in the foreclosing governmental unit, and the foreclosing governmental unit shall have absolute title to the property …. The foreclosing governmental unit’s title is not subject to any recorded or unrecorded lien and shall not be stayed or held invalid except as provided in subsection (7) or (9). [Emphasis added.]

MCL 211.78k(7) adds that “[t]he foreclosing governmental unit or a person claiming to have a property interest under [MCL 211.78i] in property foreclosed under this section may appeal the circuit court’s order or the circuit court’s judgment foreclosing property to the court of appeals,” and clarifies that “[t]he circuit court’s judgment foreclosing property shall be stayed until the court of appeals has reversed, modified, or affirmed that judgment.”

However, the Michigan Supreme Court created a judicial exception to challenge a tax foreclosure sale if the foreclosing governmental unit failed to provide adequate notice to the former property owner. Specifically, the Michigan Supreme Court held that:

…the statute permits a foreclosing governmental unit to ignore completely the mandatory notice provisions of the GPTA, seize absolute title to a taxpayer’s property, and sell the property, leaving the circuit court impotent to provide a remedy for the blatant deprivation of due process. That interpretation, allowing for the deprivation of due process without any redress would be patently unconstitutional. Unfortunately, as noted above, the plain language of the statute simply does not permit a construction that renders the statute constitutional because the statute’s jurisdictional limitation encompasses all foreclosures, including those where there has been a failure to satisfy minimum due process requirements, as well as those situations in which constitutional notice is provided, but the property owner does not receive actual notice. In cases where the foreclosing governmental unit complies with the GPTA notice provisions, MCL 211.78k is not problematic. Indeed, MCL 211.78l provides in such cases a damages remedy that is not constitutionally required. However, in cases where the foreclosing entity fails to provide constitutionally adequate notice, MCL 211.78k permits a property owner to be deprived of the property without due process of law. Because the Legislature cannot create a statutory regime that allows for constitutional violations with no recourse, that portion of the statute purporting to limit the circuit court’s jurisdiction to modify judgments of foreclosure is unconstitutional and unenforceable as applied to property owners who are denied due process.

In re Treasurer of Wayne Co for Foreclosure, 478 Mich 1, 10–11; 732 NW2d 458, 462–63 (2007).

Accordingly, since 2007, many former property owners attempt to invalidate a tax foreclosure sale by later file an action and arguing that they did not receive proper notice of the sale. A quiet title action should be filed in order to avoid such claims by a purchaser at a tax sale before the purchaser develops or transfers the property to ensure clear title.

Forged Deed

 

In Michigan, a party cannot hold title to property based upon a forged deed. Specifically,

…”[t]here can be no such thing as a bona fide holder under a forged deed, whose good faith confers any rights against the party whose name has been forged, or those claiming under him.” VanderWall v. Midkiff, 166 Mich.App. 668, 685, 421 N.W.2d 263 (1988), citing Horvath v. Nat’l Mortgage Co., 238 Mich. 354, 360, 213 N.W. 202 (1927). To the contrary, “[w]here a deed is forged, those innocently acquiring interests under the forged deed are in no better position as to title than if they had purchased with notice.” VanderWall, supra at 685, 421 N.W.2d 263. Thus, as a matter of law, plaintiff can claim no interest in the property through Boykin’s conveyance to it.

Special Prop VI v Woodruff, 273 Mich App 586, 591–92; 730 NW2d 753, 756 (2007).

Accordingly, while MCL 750.249b makes forging a deed a crime in Michigan, it is not uncommon for someone to forge a deed and attempt to sell property that they do not in fact own. A quiet title action is needed to remove a forged deed from the chain of title, as it clouds the title of the true owner if recorded in the register of deeds.

A Break in the chain of title

 

A break in the chain of title is one of the most common reasons to file a quiet title action. A break in the chain of title occurs when a property owner cannot trace their title back to a prior recorded deed in the register of deeds. This often occurs in a situation where a prior owner forgets to record a deed, a prior owner is deceased and their estate is not administered or a prior owner inadvertently switches the name of the seller on a deed in a subsequent transfer. According, a quiet title action would be filed to ensure that the break in the chain of title is repaired and that the current owner has good title.

Removal of an invalid or satisfied lien

 

Removal of a lien is another common reason to quiet title. It is not uncommon for a lienholder to forget to remove a lien on property, even if it has been satisfied. Common examples of liens that need to be removed that can cloud title are as follows:

    • Child Support Liens
    • Construction Liens
    • Credit Liens
    • HELOC
    • IRS Liens
    • Judgment Liens
    • Property Tax Liens
    • UCC Lien

If a lien has been paid in full, and not discharged, a quiet title action would be an appropriate way to remove the lien. If the lien was accidentally placed on the property as a result of an incorrect legal description, a quiet title action could remove the lien.  In other circumstances, a lien was improperly placed on a property or placed after the allowable time by law.  All of these circumstances would justify the removal of a lien via a quiet title action.

Conclusion

In certain circumstances, title insurance will be able to insure over potential defects in title. However, obtaining a court order that validates title to real estate through a quiet title action is the only way to ensure that an owner will have marketable title.

Kevin Hirzel is a Partner at Cummings, McClorey, Davis & Acho, P.L.C. and leads the Real Estate Practice Group. He has been recognized as a Super Lawyer Rising Star in Real Estate Law from 2013-2016.  This is a peer review designation given to only 2.5% of the attorneys in Michigan.  He frequently represents clients throughout the State of Michigan. Cummings, McClorey, Davis & Acho, P.L.C. has Michigan offices in Clinton Township, Grand Rapids, Livonia and Traverse City. Mr. Hirzel can be contacted at (734) 261-2400 or khirzel@cmda-law.com. Please view The Michigan Real Estate Law Blog at michiganrelaw.com for additional resources on Michigan Community Association Law.

 

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