Bulletin: MI2009005

Dear Associates:

Please find the following guidelines to follow when you are requested to act as project Escrow Agent for new condominium projects pursuant to the provisions and requirements of the Michigan Condominium Act. You are authorized to perform your own review of the documents: Master Deed, Bylaws, Subdivision Plan, Escrow Agreement and Reservation Escrow Agreement, but theMichigan Legal Departmentstands ready to assist you in that review, if requested.

Title Procedures:

• The Master Deed should have conveyancing language transferring title to the subject property into the project.
• There should be an itemization of limited and general common elements.
• There should be a percentage of value for each unit identified (must add up to 100%).
• The Developer should provide the local unit of government with a copy of the architectural plans.
• The Developer should provide evidence that the Section 71 Notices were sent out to all appropriate government agencies.
• There should be Bylaws attached to the Master Deed.
• The Subdivision Plan should be signed by a licensed architect.
• The Subdivision Plan should designate which of the improvements in the project are "must be built" improvements.
• Check the legal description for "good title."
• All mortgagee/lenders should "consent" to the creation of the condominium project.

Escrow Procedures:

• Require submission of the proposed Escrow Agreement and the Reservation Escrow Agreement (if applicable) for review and approval.
• The form and substance should be as provided in the attached exhibits.
• Assure that the Developer has indemnified and held you harmless as provided in Paragraph 9. [Note: You are a mere repository for funds. You are not a guarantor of the accuracy of documents submitted in conjunction with acting as Escrow Agent.]
• You shall act as the repository for all earnest money deposits and purchase money received in conjunction with the execution of a purchase agreement and the sale of a unit.
• The law requires that before any of these funds maybe disbursed to the Developer/seller of the unit, the following must have occurred:

  1. Conveyance of legal or equitable title.
  
  2. Issuance of a certificate of occupancy for the unit, if required by local ordinance.
  
  3. Receipt by the escrow agent of a "certificate of substantial completion" either confirming that those portions of the phase of the project in which the unit is located and which on the condo plans are labeled "must be built" are substantially complete, or determining the amount necessary for substantial completion thereof.
  
  4. Receipt by the escrow agent of a "certificate of substantial completion" either confirming that recreational or other facilities which on the condo plans are labeled "must be built" are substantially complete, or determining the amount necessary for substantial completion thereof.

• Any funds held in escrow which are in excess of the amount shown on the certificate may be released.
• The above-stated requirements apply in all cases such that no funds may be used to pay off underlying mortgages, taxes, or any obligation of the developer unless all such requirements are met. [Note: the Act does contemplate release of the funds in exchange for substitute security acceptable to the Escrow Agent. There can be great liability for doing so, and as such, please contact the Legal Underwriting Department for approval before accepting substitute security.]
• Per Section 66 (j) of the Act, the Developer is contractually obligated to construct buildings, sidewalks, utilities, etc...if they have entered into any binding purchase agreements even on units that are shown as "need not be built" on the subdivision plan. Consequently, you should require the execution of the Affidavit (example attached) which discloses whether the project Developer has entered into any binding contracts for units, etc...If they have done so, the Certificate of Substantial Completion must contemplate those units so contracted for as part of the "must be built's."

MI Escrow Agreement Form (Click to View)

MI Affidavit (Click to View)

MI Reservation Escrow Agreement (Click to View)

If you have questions relating to this bulletin, please contact your local underwriting personnel.

This bulletin relates solely to the State of Michigan.

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