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March 15, 2015

COA holds real estate broker liable for slander of title for failing to comply with the Commercial Real Estate Broker’s Lien Act

The Michigan Court of Appeals in Anton, Sowerby & Associates, Inc., v Mr. C’s Lake Orion, L.L.C., held that a commercial real estate broker that fails to comply with the Commercial Real Estate Broker’s Lien Act (“CREBLA”) may be liable for slander of title and the opposing party’s costs and attorney’s fees.
 
Anton Sowerby & Associates (“Anton”), a commercial real estate brokerage firm, entered into an exclusive rights agreement to sell, lease, or exchange a piece of property in Lake Orion with GAM Properties (“GAM”). The agreement provided that Anton would receive 5 to 6% commission if the property were sold. Anton introduced Mr. C’s Lake Orion, L.L.C. (“Mr. C’s”) to GAM, and thereafter GAM and Mr. C’s engaged in secret negotiations to avoid paying a commission to Anton when the sale was complete.
 
During these negotiations, however, GAM defaulted on a mortgage, and a receiver was eventually appointed to continue the sale of the property. The receiver and Mr. C’s reached a sale agreement and, before, consummating the sale, Anton recorded a lien on the property under CREBLA.  The sale was completed with Mr. C’s as the buyer, but Anton never received its commission as per the exclusive rights agreement.  Learning of the lien, Mr. C’s set up an escrow account, as required under CREBLA, and deposited $75,000 into the account to pay Anton—an amount almost $15,000 more than the lien.
 
Anton then filed suit to recover the fees as it was not aware of the escrow account. However, after filing, Mr. C’s notified Anton that the amount requested was put into escrow, but Anton refused to dismiss the suit. Thus, Mr. C’s filed a counterclaim alleging slander of title for failing to remove the lien, and requested attorney’s fees.
 
The COA ruled in favor of Mr. C’s. It first determined that “parties to a transaction” as defined under CREBLA does not include a commercial real estate broker. Thus, the parties establishing an escrow account to remove a lien under CREBLA are not required to notify the broker, nor does the broker have a say in the negotiations to determine the amount put into the escrow account. Accordingly, the COA determined, when the escrow account was established, this extinguished the lien, and Anton was obligated to remove the lien from the property when it learned of the escrow account.
 
At the same time, when Anton failed to remove the lien from the property after learning of the escrow account and then filed the lawsuit, it was liable for slandering the title of Mr. C’s property. The Court determined that once Anton had notice that a sufficient amount to cover the lien was placed in escrow, the lien was extinguished and Anton was obligated to release it. Failing to release the lien, the Court held, demonstrated the appropriate level of malice to warrant liability for slandering Mr. C’s property title.  The court then awarded Mr. C’s attorney’s fees under the slander of title statute, MCL 565.108. 

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