High-risk erosion area due diligence for Michigan self-directed IRA property

A shoreline bank that has been losing ground for years does not advertise it in the listing. It shows up as the walkway that keeps ending further from the water, the fence line tilting toward the lake, the gravel driveway that needs repaving every few years, or the neighbor who mentioned the state came out to look at the erosion. For a West Michigan parcel on Lake Michigan, Lake Huron, or one of the inland lakes, the question to settle early is whether the parcel sits inside a designated high-risk erosion area, and what that means for where the house, the septic field, and the driveway can go.

For a self-directed IRA, the erosion question lands in two places. First, on the property side: a high-risk erosion area, or HREA, can narrow where the account may build and add a state permit step before construction begins. Second, on the account side: the permit application, the engineering, and any shore stabilization work that follows have to move through the custodian without giving the owner a personal benefit or a personal signature. A lot that looks like a clean slice of shoreline can still carry an erosion boundary that changes the whole plan, and that is worth finding out while the offer is still open.

A high-risk erosion area is a designated boundary, not just a steep bank

Part 323 of the Natural Resources and Environmental Protection Act, NREPA, at Michigan Compiled Laws 324.32301 and following, is the shorelands article, and it is administered by EGLE's Water Resources Division. Under it, EGLE designates high-risk erosion areas where erosion is occurring on a shoreline and where the conditions make continued erosion likely if the area is not stabilized. The designation is mapped, and it is a legal boundary with consequences, not a visual judgment about which banks look worse off than others.

That is why the first task is to place the parcel against the current HREA designations rather than against the listing description or the seller's recollection. A property can sit inside an HREA and feel like ordinary shoreline, or it can sit just outside the line where the rules are different. The answer for a specific address comes from the current designation records and the permitting office, not from a photo taken in summer. Get the HREA status for the exact parcel, save the source and the date, and treat a clean result as a screen rather than a guarantee that no erosion conditions exist on the ground.

Screen the parcel against the state's designations

• Confirm the parcel's HREA status against the current official designation and note the date and source
• Compare the boundary with the current aerial imagery and the parcel's drainage patterns
• Walk the shoreline for cutbanks, exposed roots, failing revetment, or standing water against structures
• Note where the house, septic components, driveway, and dock sit relative to the waterline and the boundary
• Write down which conditions are uncertain enough to warrant a professional erosion assessment

Field evidence tells part of the story. A bank that retreats several feet a year, an existing riprap or seawall that is failing, or a septic drainfield that is already close to the waterline are the kinds of conditions that an engineer or a geotechnical professional can put into a defensible assessment. The assessment should be tied to the parcel's corners and the legal description, so the permit office, the surveyor, and the buyer's attorney can all work from the same plan.

The permit is a package, and the process has a shape the budget should respect

Within an HREA, regulated shoreline work is where Part 323 applies. Building or adding structures near the shoreline, grading or fill, installing or replacing septic components, and stabilizing the bank are the typical activities that trigger the permit question. The specific list is project-specific, so the responsible move is to confirm with the permitting office which items on the plan require authorization before the account commits to a design.

EGLE reviews the application and the staff can visit the site to assess the proposed work. When the project reaches waters of the United States, the U.S. Army Corps of Engineers, Detroit Office, takes a role under section 404 of the Clean Water Act, and EGLE and the Corps coordinate that review through a joint permit application submitted through MiEnviro, EGLE's online permitting system. Some projects require a public hearing. Those windows are general, they can move, and they interact with the purchase contingency dates, so the account's team should build the real calendar from the specific parcel and the specific project. Ask the permitting office for the current application fees and any state or local charges, because the process costs are real line items even before the construction.

Where the erosion boundary meets the plans is where the real questions start

Once the boundary and the bank conditions are known, put them on the same plan as the building pad, the driveway, the septic tank and drainfield, and any proposed dock or shore work. Then ask what each of those would do to the eroding shoreline. A septic field that has no workable distance from a receding bank is a different problem from a septic field with forty feet of dry ground. A driveway that crosses an active cutbank is a different problem from one that crosses stable ground. The permit review will look at these relationships, and the buyer's engineer should be looking at them before the offer is written.

How the bank gets stabilized matters too. EGLE's shorelands guidance generally steers owners toward natural, bioengineered shoreline treatments, such as live stakes, stone with vegetation, or engineered living shorelines, before hardening the bank with riprap or a seawall. That guidance runs in two directions. It can make an existing hard wall harder to renew or replace, and it shapes what the account is allowed to build going forward. For an older property, the buyer also needs to know whether existing structures were built under an older standard or an earlier designation, and whether a change in use or a repair now pulls the structure back into the permit process. Both questions deserve a current, parcel-specific answer from the permitting office.

Price the constraint, not the view

An HREA is not a reason to walk away, but it is a reason to stop pricing the property the way an unrestricted lot is priced. If the building pad shifts to stay clear of the eroding bank, what does that do to the footprint and the foundation plan? If the septic field moves, does the parcel still have usable ground for it? If the driveway needs a permit and the bank needs stabilization, what do the application fees, the engineering, and the construction add? The account also needs enough liquidity to carry the engineering, the permit fees, and the construction while it keeps paying the property taxes and insurance. A lot that prices low against the neighborhood can still be the wrong price once the buildable ground and the permit path are counted honestly.

Do not offset a known erosion or permitting cost against assumed rent, occupancy, appreciation, or a seller concession that may never arrive. None of those results is guaranteed, and none of them pays for a permit the account may still need. The same caution applies to the timeline: a shoreline project that needs a public hearing can move slowly, and the purchase contract should give the account's advisors real time to finish the review before the contingency dates close.

Keep the erosion work inside the IRA's process

Every step in this review has an account-side version. The IRA owns the property, so the erosion assessment, the permit application, and any stabilization work belong to the account, not to the individual. The account, through its custodian, is the applicant and the owner. The owner does not sign the application in a personal name, pay the engineer or the contractor from a personal account, or do the shore work with personal labor. IRS Pub 590 and the prohibited-transaction rules are what keep a personal lakeshore project from becoming a problem for the whole account, and the custodian should confirm how the account names itself on the application, who is authorized to sign, and how each payment leaves the account.

For a rental, decide who monitors the property, keeps the permit and assessment records, and handles an erosion event, and make sure those procedures are applied consistently. Tenant selection and property management must comply with the Fair Housing Act and applicable Michigan and local protections. Shoreline conditions, permit limits, or a stabilization plan are property facts, not a reason to treat any applicant or tenant differently on the basis of a protected characteristic. Have Michigan counsel review the rental policies for the specific property.

This article is educational, not legal, tax, financial, environmental, engineering, fair-housing, retirement-plan, or investment advice. No property, HREA determination, permit, or strategy is approved or endorsed by the IRS. Have your own self-directed IRA custodian, CPA, Michigan attorney, qualified erosion or geotechnical professional, licensed land surveyor, septic professional, EGLE, the U.S. Army Corps of Engineers, and other qualified advisors review the account, the parcel, the HREA boundary, and any proposed work before taking action.

What Rennie can coordinate

Primary sources for the public-rule portions of this review are Part 323 of the Natural Resources and Environmental Protection Act at Michigan Compiled Laws 324.32301 and following, EGLE's shorelands and high-risk erosion area program pages, the U.S. Army Corps of Engineers' authority under section 404 of the Clean Water Act and the EGLE/USACE joint permit application through MiEnviro, and IRS Pub 590 and the prohibited-transaction rules. Those sources describe the framework in general. The answer for one parcel and one project comes from the current designation records, the permitting office, and the buyer's own qualified professionals.

Rennie can help identify West Michigan shoreline property and organize the real estate side of the review: the HREA status for the exact parcel, the public records, the offer calendar that gives the account's advisors time to finish the permit work, and the coordination with the permitting offices. The erosion determination, the permit questions, the tax treatment, and the retirement-account structure stay with the buyer's own custodian, CPA, attorney, and environmental professionals.