4th Quarter Commercial Corner-The Recording and Perfecting of a Lost Mortgage by Affidavit

While the recording of Lost Document or Lost Mortgage Affidavits has been a long standing practice, when such an original document appears to have been lost between execution and the intended recording, Case Law and Bankruptcy Trustee challenges have left a lack of clarity as to the validity, enforceability and priority of such Affidavits.  But, after a great deal of hard work spearheaded by the Michigan Land Title Association, the Michigan Legislature recently (finally) passed a series of laws (Public Acts 347, 348 and 349 of 2014), resulting in revisions to MCL 565.201(6) and MCL 565.451a.

The statutes set forth requirements for the contents of such Affidavits which must be followed, including a statement by the affiant that “to the best of the affiant’s knowledge, the original mortgage was delivered from the mortgagor to the mortgagee.”  Additionally, the affiant must state that he/she either mailed a copy of the affidavit and unrecorded mortgage by first-class mail or registered mail, return receipt requested, to the mortgagor at their last known address, or personally served a copy of said documents on the mortgagor.

These statutes, designed to eliminate ambiguities and confusion regarding such recorded documents, are retroactive, and apply to mortgages already recorded in this manner.  This serves to codify common practices and should result in fewer title claims and more security for mortgage lenders.  Congratulations to the MLTA and all who were involved with this effort.

Estate Planning Variations and Deeds – One Popular Option, the Lady Bird Deed

Through the years people have sought economical ways of streamlining succession plans of owning real estate and avoiding the prospect of probate court upon the owner’s demise.  Often this resulted in a parent or parents deeding property to themselves and their heirs or desired successors, as joint tenants with rights of survivorship.  In many cases that achieved the desired goal, passing title to the designated survivor(s) and voiding the time and expense involved with probating an estate.

But such a practice was not without potential issues or problems.  What if: (1) the grantor changed his or her mind as to who should get (or share) the real estate after his or her death?  Of course, there could be numerous factors that might change the relationships or appropriate nature of the grantees.  Perhaps one of the heirs (grantees) moved across the country and thus had no need or interests in the real estate.  What if one of the heirs had been the principal care giver in recent years and was deserving of a greater share?  Or what if there was a falling out between the grantor and one of the heirs?  How could the grantor change his or her mind and undo what had been previously put in place?

With such “joint tenant” deeds, it would take the cooperation of all of the grantees to re-convey into the configuration now desired by the original grantor.  That might be simply undertaken.  But there is certainly no guarantee.  Equally problematic might be the scenario where the original grantor now wishes to take out a mortgage on the property or refinance.  Of course, that mortgage will need to be signed by ALL the title holders (even though they are not the “borrower”).  The same would apply should the grantor decide to the sell the property.  All this ties the original grantor’s hands, in exchange for avoiding probate.  Is there a better way?

Perhaps, yes.  A different estate planning tool, developed 40+ years ago by U.S. President Lyndon Johnson to transfer property to his wife “Lady Bird” Johnson, seems to have gained popularity in recent years.  Simply put, the grantor conveys his or her (or their) interest in the property, while at the same time retaining a life estate, coupled with the full power to convey, mortgage or otherwise alienate the property during the grantor’s lifetime.  If the grantor does not exercise this power during his or her lifetime, the grantee(s) (remaindermen) become vested in fee title without any further action or probate court process.

There are variations as to the language and style that can achieve this end result.  And, as always, estate planning and the drafting of such specifically worded deeds should only be done by a real estate attorney after the necessary counseling with the grantor/client.  But it is another estate planning tool.  This form of conveyance and reservation is supported by Michigan Land Title Standards 9.3 and 9.9, and Michigan Compiled Law 565.114.