Ownership Requirement

Overview

This section explores the ownership requirement for a principal residence exemption under MCL 211.7cc and MCL 211.7dd(a). It examines statutory definitions, case law interpretations, and practical implications for property owners, assessors, and legal practitioners.

To qualify for a principal residence exemption, MCL 211.7cc requires that the property be owned by an owner as defined by MCL 211.7dd(a). 

Eligible owners include a person who owns property or who is purchasing property under a land contract, a person who is a partial owner of property, a person who owns property as a result of being a beneficiary of a will or trust or as a result of intestate succession, a person who owns or is purchasing a dwelling on leased land, a person holding a life lease in property previously sold or transferred to another, a grantor who has placed the property in a revocable trust or a qualified personal residence trust, the sole present beneficiary of a trust if the trust purchased or acquired the property as a principal residence for the sole present beneficiary of the trust, and the sole present beneficiary of the trust is totally and permanently disabled, cooperative housing corporations, or life care facilities. Under MCL 211.7dd(b), a 'person' means an individual. 

Ownership must be legally documented, and verbal agreements do not create valid ownership interests for principal residence exemption purposes. The owner bears the burden of proof to establish he or she was an owner that was eligible for the principal residence exemption.

Ownership Scenarios: Frequently Asked Questions

1. Dawn Smith deeds Blue Acre to Chris, a married man. The deed does not list Chris’ wife as a grantee. Does Chris’ wife qualify as an owner that is eligible for the principal residence exemption?
   No. She is not listed on the deed as a grantee, so she is not an owner and not eligible for the exemption.
2. Chris verbally agrees to sell Blue Acre by land contract to Sarah for $12,000. Is Sarah considered a land contract purchaser eligible for the principal residence exemption?
   No. A land contract must be in writing to satisfy the statute of frauds. Since the agreement was verbal, Sarah is not considered a valid land contract purchaser.
3. What are the “Statute of Frauds” requirements for a land contract to be valid?
   The land contract must: (1) be in writing; (2) identify the parties to the contract (e.g., seller and buyer); (3) identify the property to be sold (e.g., lists a legal description of the property); (4) list the terms of the sale (e.g., sales price); and (5) be signed by the vendor (seller).
4. Sarah entered into a written lease agreement with an option to purchase Blue Acre. Is Sarah a land contract purchaser eligible for the principal residence exemption?
   No. A lease with an option to buy is a rental agreement, not a land contract. She becomes an owner only after exercising the option.
5. Chris entered into a written land contract to sell Blue Acre to Sarah for $12,000 but Chris did not sign the land contract. Is Sarah considered a land contract purchaser eligible for the principal residence exemption?
   No. The land contract is invalid because the vendor did not sign it, so Sarah is not a land contract purchaser. In Re Estate of Moukalled, 269 Mich App 708, 721-722; 714 NW2d 400 (2006).
6. Does a land contract have to be recorded or notarized to be valid?
   No. Michigan law does not require it but notarizing and recording are recommended to protect ownership interests.
7. Must the seller or buyer notify the Assessor of a land contract transfer?
   Yes. Under MCL 211.27a(10), the buyer must file a Property Transfer Affidavit (Form 2766) with the local assessor within 45 days of the transfer.
8. Can the Assessor request a copy of the unrecorded land contract?
   Yes. As part of a due diligence review of a claim, the Assessor, Michigan Department of Treasury, County Treasurer, and/or County Equalization Director may request a copy of the original land contract.
9. Is a Memorandum of Land Contract enough to prove a valid land contract exists?
   No. A memorandum of land contract is to serve as evidence of a purported executed land contract, but it is not a conveyance of ownership. Assessors should require the original contract to confirm validity of the land contract.
10. Chris deeds Blue Acre to the Chris Limited Liability Company (a 99% ownership interest) and to John Doe (a 1% ownership interest). Is John Doe an owner eligible for the principal residence exemption, and is he eligible for only a 1% exemption?
    Yes. John Doe is considered a partial owner of the property and is eligible for a 100% principal residence exemption if he owns and occupies Blue Acre as his principal residence.
11. Chris owns Blue Acre. Chris grants John Doe a life estate. John Doe never owned the property prior to acquiring the life estate. Is John an owner that is eligible for the principal residence exemption?
    Yes. A life estate holder is considered a “partial owner” of the property. As a result, John Doe is an owner that is eligible for the principal residence exemption.
12. Chris and his daughter have a verbal agreement that Chris has a life estate on the property. Is Chris an owner that is eligible for the principal residence exemption?
    No. Any ownership interest in real property must be in writing to be valid. Since there was only a verbal agreement, Chris is not an owner that is eligible for the principal residence exemption.
13. Blue Acre is owned by Jane Doe, who deeded the property to Chris but reserved a life estate and full power to convey during her lifetime (including selling, gifting, mortgaging, leasing, or disposing of the property and keeping proceeds).Is Chris an owner that is eligible for the principal residence exemption?
    No. Chris has no current ownership interest because Jane retains full control. Chris becomes owner only upon Jane’s death if she hasn’t exercised her rights. This is an example of a Lady Bird Deed.
14. Jane owns Blue Acre. Jane grants John Doe a life lease. John Doe never owned the property prior to acquiring the life lease. Is John Doe an owner that is eligible for the principal residence exemption?
    No. MCL 211.7dd(a) requires a life lease holder to be an owner before acquiring the lease. Since John Doe was not an owner of the property prior to acquiring the life lease on the property, he is not an owner that is eligible for the principal residence exemption.
15. Chris leases Blue Acre and places a dwelling on it which he owns. Is Chris an owner eligible for the principal residence exemption?
    Yes. Chris owns the dwelling but not the land. He qualifies for the exemption on the dwelling only. The assessor must assign separate parcel numbers for the land and dwelling.
16. Does limited liability companies (LLC) or corporations that are not a cooperative housing corporation, or a registered living care facility qualify as owners that are eligible for the principal residence exemption?
    No. LLCs and corporations are not owners that are eligible for the principal residence exemption unless they are a cooperative housing corporation or a registered living care facility. Vanderwerp v Plainfield Twp, 278 Mich App 624; 752 N.W.2d 479 (2008).
17. Does a sole individual owner/member of a limited liability company (LLC), qualify as an owner that is eligible for the principal residence exemption?
    No. A member of a LLC holds no interest in specific limited liability company property. A member’s interest in a limited liability company is considered personal property. As a result, a member of an LLC is not an owner that is eligible for the principal residence exemption. Vanderwerp v Plainfield Twp, 278 Mich App 624; 752 N.W.2d 479 (2008) & MCL 450.4504.
18. Does an individual shareholder of a corporation qualify as an owner that is eligible for the principal residence exemption?
    No. A corporation is a legal entity that is distinct from its shareholders. Thus, ownership of corporate property is vested in the corporation itself and not the shareholders. As a result, a shareholder of a corporation is not an owner that is eligible for the principal residence exemption. Power v Michigan Department of Treasury, 301 Mich. App. 226; 835 NW2d 622 (2013).
19. Blue Acre is owned by a cooperative housing corporation. Does the cooperative housing corporation qualify as an owner that is eligible for the principal residence exemption?
    Yes. A cooperative housing corporation qualifies as an owner that is eligible for a principal residence exemption. (MCL 211.7dd(a)).
20. Is a cooperative housing corporation entitled to a 100% principal residence exemption?
    Maybe. A cooperative housing corporation gets an exemption based on the percentage of units owned and occupied by tenant stockholders, reduced by the taxable value of units not owned and occupied by them. (MCL 211.7cc(28)).
21. Does a Trust qualify as an owner that is eligible for the principal residence exemption?
    No. A Trust is not considered an “owner” under MCL 211.7dd and does not qualify. However, the grantor or beneficiaries may qualify.
22. In what circumstances is a grantor of a trust an owner that is eligible for the principal residence exemption?
    A grantor of a trust is an owner that is eligible for the principal residence exemption if: (1) the grantor of the trust is an individual/person and (2) the trust is either a revocable trust or a qualified personal residence trust.
23. What is a qualified personal residence trust?
    A “qualified personal residence trust” is an irrevocable trust, funded with cash and the personal residence of the grantor, who retains the right to dwell in the residence for a specified term of years. Black’s Law Dictionary Deluxe (9th ed. 2009). The trust document must state it is a qualified personal residence trust.
24. Blue Acre is owned by Smith Living Trust, which is a revocable trust. John is the grantor of the Trust and occupies the property. Is John an owner that is eligible for the principal residence exemption?
    Yes. John is eligible for the principal residence exemption because he is a grantor of the trust and the trust is a revocable trust.
25. Blue Acre is owned by the Smith Living Trust, an irrevocable trust. John is the grantor of the trust. Is John an owner eligible for the principal residence exemption?
    No. John is not an eligible owner as the grantor because the trust is irrevocable, not revocable or a qualified personal residence trust. He may still qualify as a beneficiary.
26. Blue Acre is owned by the Smith Living Trust, an irrevocable qualified personal residence trust. According to the terms of the irrevocable qualified personal residence trust, John retains the right to occupy the property for 20 years. Is John an owner that is eligible for the principal residence exemption? If so, how long?
    Yes. As grantor of a qualified personal residence trust, John is an owner and is eligible for the principal residence exemption for those 20 years if he occupies the property as his principal residence.
27. Under what circumstances is a beneficiary of a trust or will, who is not totally and permanently disabled, an owner that is eligible for the principal residence exemption?
    A person is an owner that is eligible for the principal residence exemption if: (1) the person is a beneficiary of the trust or will and (2) the terms of the trust or will provide ownership rights to that beneficiary. (MCL 211.7dd(a)(iii)).
28. Under what circumstances is a beneficiary of a trust, who is totally and permanently disabled, an owner that is eligible for the principal residence exemption?
    A person is an owner that is eligible for the principal residence exemption if: (1) the person is the sole beneficiary of the trust; (2) the trust purchased/acquired the property for the sole beneficiary; and (3) the sole beneficiary is totally and permanently disabled as defined in Section 216 of Title II of the Social Security Act, 42 USC 416.
29. What does it mean to be totally and permanently disabled?
    Totally and permanently disabled is defined as: (1) the inability to engage in any substantial gainful activity by reason of any medically determined physical or mental impairment which can be expected to result in death or has lasted or can be expected to last for a continuous period of not less than 12 months; and/or (2) blindness. (Section 216 of Title II of the Social Security Act, 42 USC 416).
30. What documents would prove a person is totally and permanently disabled?
    Social Security statements along with doctor’s affidavits will help a person prove that he or she is totally and permanently disabled.
31. What does “Intestate Succession” mean?
    Intestate Succession is the method used to distribute property owned by a person who dies without a valid will.
32. If a person dies without a valid will, how does one determine who is the owner?
    If a person dies without a valid will, a person must refer to Michigan Statute, MCL 700.2101- 2106 to determine ownership rights in the property.
33. Chris quit claim deeds Blue Acre his LLC on June 1, 2008. In 2016, Chris executes a “Corrective Quit Claim Deed” reserving a life estate retroactive to June 1, 2008. Does this corrective deed make Chris an owner eligible for the principal residence exemption?
    No. Corrective deeds only fix minor errors, not change ownership rights. Chris lost eligibility when he transferred the property to the LLC in 2008; the later deed is ineffective. Donald E. Lewallen and Ronald L. Lewallen v Porter Twp unpublished opinion per curiam of the Court of Appeals, issued February 20, 2014 (Docket No. 431811) & Michigan Land Title Standard 3.3.