Does your subdivision have residential only deed restrictions that prevent a waste dump, slaughterhouse, or other businesses from moving in? Is your only lake access through a subdivision wide agreement? Are you located on a private road and have a written agreement amongst the co-owners for how the road is going to be maintained and paid for? For commercial property owners, did you sell off an outlot knowing that you restricted the property so that a direct competitor, an adult entertainment establishment, or other unwanted activities couldn’t occur right in front of your building? Have those restrictions been around for 40 years or longer? If so, your rights may be terminated by a little-known provision of Michigan law called the Marketable Record Title Act if you do not take action.
The Marketable Record Title Act became law in Michigan in 1945 as an effort to make researching ownership of land easier. Previously, to make sure that an owner had clean title, an attorney or title company would have to review documents back to the original grant from the government to be sure there were no issues. At the time the act was passed, that already meant going back more than 100 years, making the costs of researching a piece of property extensive, unpredictable and in some cases, impossible. With that in mind, the Michigan Legislature created the Marketable Record Title Act as a solution.
The Marketable Record Title Act essentially said that if you could establish a clear chain of ownership for 40 years, any ownership or regulations on the property older than that would be wiped out. There were a few exceptions, including if the person who held an older claim recorded a document to extend the life of their claim. This could be accomplished either by recording a notice for the specific purpose of extending an older claim, or it could also be made by reference in another document recorded on the property (commonly called “recording by reference”).
The recording by reference became a standard practice in the real estate industry. Property was often bought and sold with the language “subject to building and use restrictions, easements and other matters of record,” or similar, in the deed transferring title. The general practice in the real estate industry was that the “subject to” language above was enough to extend the life of older claims.
A recent change to the Marketable Record Title Act shut down this interpretation. An extension beyond the 40 years would only be effective if it described the old claim specifically. So something like “Easement Agreement between John Smith and Mary Jones recorded in Liber 1234, on Page 456, Oakland County Records” would probably be effective, but the “subject to” language without identifying the parties creating the restriction and reference to the recorded instrument (by Liber and Page) would not.
This may seem like a minor change, but given that industry practice for at least the past several decades has been to rely on this “subject to” language, there are huge swathes of deed restrictions and other agreements that everyone thought were being regularly extended without any specific action on their part, but that is not the case any longer.
Unless specific action is taken to extend these rights, or a legislative fix can be passed in Lansing, any of these rights that date back to 1980 (and the early parts of 1981) are likely to be terminated on March 29, 2021. To make matters even more complicated, the process of extending the rights and who has the authority to do so under the Act is unclear.
For a more detailed discussion on the issue, we have recently published an article on this subject in the Michigan Real Property Review.
For questions about this contact Kemp Klein.