by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Thanks to Howard Lax of the Michigan Bar for this case. Howard reports that it can be found on the Web at http://www.icle.org/mictapp/1997/12/final/197138.htm.
TAX FORECLOSURES; FIXTURES: Mobile home on a concrete foundation is a fixture and lien interest in it, even properly perfected, is extinguished at tax foreclosure sale at which mobile home lienholder receives proper notice, notwithstanding "waiver of attachment" signed by property owner.
Ottaco, Inc. v. Gauze, LC No. 95-501790 Ch. Mich. Ct. App. (December 5, 1997)
The structure in question here was a 1300 square foot thing that the manufacturers and parties in their original agreements denominated "manufactured home." The trial court call it a "mobile home," and the appeals court attached no significance to labels. The debtors signed a purchase money security interest under a specific state mobile home statute, which interest, the court assumes, had the "superpriority" over real estate liens that would ordinarily apply to properly recorded "fixture filings."
The debtors attached the property to a concrete foundation, surrounded it with plantings and fencing, and treated is as an ordinary tract home. The trial court concluded, and the appeals court agreed, that the method of affixation demonstrated an intent upon the part of the debtors to make the manufactured home a part of the realty. The court commented: "In every respect, the mobile home was integrated with and adapted to the use of the real property, which property was zoned for single family residential use. Notwithstanding the fact that the home could be eventually moved from its foundation to another location, the objective factsmanifest the Gauzes' intent to make the mobile home a permanent accession to the realty.
Creditor, however, pointed to a document entitled "Landlord's Waiver," which was signed by debtor and creditor That waiver provided that "the collateral is not a part of the premises and will not be attached or become a part of the premises during the time this waiver is in effect." (Note that the term "landlord's waiver" is misplaced here, since the debtors attached the home to their own lot.) The trial court, with the affirmance of the appeals court, held that this document was of no significance with regard to the rights of third parties. The method of affixation controlled over the stated intent.
Having concluded that the home was a fixture, and part of the realty, the court had little difficulty concluding that a property tax foreclosure, which has the typical "superpriority" over all other liens, junior or senior to the sale, in Michigan, wiped out the creditor's lien. The creditor apparently received statutory notice of the six month right to redeem, and in Michigan, receipt of such notice bars any attack on the sale itself.
The court assumed that the same result would apply regardless of whether the lien was viewed as perfected under the special Michigan mobile home act or the UCC.
Comment 1: Nothing really surprising in the tax sale analysis here, but note the phrasing of the Michigan statute, that cuts off creditors rights to contest the sale if they fail to redeem following the sale. The editor is not quite clear on whether such creditors receive notice of the sale itself. If not, and the staute requires notice only of post-sale redemption, then it would appear that there still might be a Constitutional Due Process issue as to whether a conditional six month limitation on the right to raise the notice defect would be satisfactory. Clearly, under Mennonite, the creditor is entitled to notice of the process. Should that notice predate the sale itself?
Comment 2: The really interesting part of the case, to the editor, is the interplay between the statutory waiver of fixture claim and the court's conclusion that the affixation to the realty overcame it. Leaving aside the unfortunate title "Landlord's waiver," isn't there a legitimate question of whether personal property should be characterized as a fixture by the degree of physical attachment even when the parties stipulate to the contrary?
Consider the situation of a tenant permanently attaching "trade fixtures" to property that later is sold at tax foreclosure.
Consider also the case of a contract for the sale of land that stipulates that certain permanently affixed items of personal property do not pass with the deed.
In both of the above cases, the editor would contend, there is no question that the court would recognize that the parties' understanding of the relationship of personal property to the land would control over the physical characteristics of attachment.
Here, of course, there is the further question of the third party purchasers at a tax foreclosure sale. If they lacked notice of the parties' stipulation of intent, then perhaps an estoppel should arise. But the court's opinion does not address the problem from that viewpoint. It adopts a rule that would appear to apply whether or not the waiver of affixation was recorded or even actually known by the foreclosure sale purchaser. The court simply interprets the tax foreclosure laws to apply. This is not necessary. Further, when there are no innocent third parties' interests intervening, it is not appropriate. If neither the debtor or creditor viewed the mobile home as part of the realty, why should the state so view it for tax foreclosure purposes?
Comment 3: A possible rejoinder to the above challenge to the court's result could be that the mobile home was taxed under the property tax laws, and thus should pass through a property tax foreclosure. The court does not point out whether this was the case here, and clearly does not rest its analysis on that issue.
Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1-6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Stacy Walter at the ABA. (312) 988 5260 or email@example.com
Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.