Bank of Three Oaks v. Lakefront Properties
| Decision Date | 30 August 1989 |
| Docket Number | 105695,Docket Nos. 105692 |
| Citation | 444 N.W.2d 217,178 Mich.App. 551 |
| Parties | BANK OF THREE OAKS, Plaintiff-Appellee, v. LAKEFRONT PROPERTIES, a/k/a Rainbow Cove Resort, Herbert R. Trochelman, and Kay P. Ettington, Defendants-Appellees, and Kim E. Cook and Terry H. Cook, Defendants-Appellants. BANK OF THREE OAKS, Plaintiff-Appellee, v. LAKEFRONT PROPERTIES, a/k/a Rainbow Cove Resort, Herbert R. Trochelman and Kay P. Ettington, Defendants-Appellants, and Kim E. Cook and Terry H. Cook, Defendants-Appellees. |
| Court | Court of Appeal of Michigan — District of US |
Donald L. Bleich, St. Joseph, for plaintiff-appellee.
Lawrence Frankle, New Buffalo, for Lakefront Properties.
Kinney, Cook, Lindenfeld & Kelley by Mark S. Bowman, St. Joseph for Kim and Terry Cook.
Before MACKENZIE, P.J., and WEAVER and QUINNELL, * JJ.
Defendants appeal as of right from a judgment holding defendants jointly and severally liable to plaintiff in the sum of $15,550.48 plus statutory interest and costs. We reverse.
This case was tried under the following statement of stipulated facts:
A Note and a Mortgage to the Plaintiff Bank of Three Oaks were executed by Defendant Lakefront Properties, an Illinois partnership and a Michigan co-partnership, on November 28, 1983. As part of that transaction, and on that same date, the individual partner Defendants also executed a form Guarantee prepared by the Bank. While those documents were not formally admitted as evidence at trial, they were annexed to the Complaint filed by the Bank, and their authenticity was admitted. All three documents were standard printed forms, prepared and/or provided by the Bank.
After default, the Bank foreclosed by advertisement. At the foreclosure sale held on August 6, 1985, the Bank bid $147,129.42, which was the amount of principal and interest owing to the Bank on the Note and Mortgage as of that date, plus the costs of foreclosure and statutory attorneys fees related to the foreclosure.
The redemption period expired, and the sheriff's deed became operative, on February 7, 1986, at which time the Bank became the titled owner of the property. Subsequent to the expiration of the redemption period, the Bank sold the property for $150,000.00, with the closing of that sale transaction taking place on June 2, 1986.
On September 19, 1986, the Bank filed its Complaint against all these Defendants. On November 12, 1986, by consent, Plaintiff filed its First Amended Complaint, that being a two-count action: in Count I, the Bank sought to recover an alleged 'deficiency' of $29,349.30, while in Count II, the Bank sought to recover the same amount by virtue of an alleged breach of the Guarantee executed by the individual Defendants. That sum sought by the Bank included interest which had accrued on the mortgage debt after the date of the foreclosure sale, and after the expiration of the redemption period, as well as additional insurance costs, taxes, and actual attorneys' fees. All Defendants thereafter filed their Answers and Affirmative Defenses to the First Amended Complaint, denying liability therefor.
The parties synthesize the trial court's ruling as follows:
[F]irst, the Bank's bid of the total amount due it as of the time of the foreclosure sale does not satisfy the underlying debt, so as to discharge the individual guarantors of the debt. Second, the Guarantee executed by the individual guarantor/Defendants is not coterminous with the Note and Mortgage executed by the Partnership, and affords the Bank greater protection than the Note and Mortgage alone. Third, the Bank is entitled to recover only those expenses and costs which were incurred or accrued up through February 7, 1986, that being the date the sheriff's deed became operative, but not any of the expenses incurred in the subsequent resale of the property to a third party. Finally, the Court also determined that the Bank was not entitled to actual attorneys' fees in this matter.
Defendants Trochelman, Ettington, and Kim and Terry Cook executed a contract guaranteeing the payment of the liability of defendant Lakefront Properties to the plaintiff Bank of Three Oaks. Our first inquiry is what, if any, was the liability of Lakefront to the bank following foreclosure of the property, sale, and expiration of the redemption period without redemption?
When property is purchased at a foreclosure sale for an amount equal to the amount due on the mortgage, the debt is satisfied. Guardian Depositors Corp. v. Hebb, 290 Mich. 427, 432, 287 N.W. 796 (1939); Powers v. Golden Lumber Co., 43 Mich. 468, 471, 5 N.W. 656 (1880). Moreover, the mortgage is extinguished at the time of the foreclosure sale. New York Life Ins. Co. v. Erb, 276 Mich. 610, 615, 268 N.W. 754 (1936). Here, the bank's purchase of the property for the entire amount of the outstanding indebtedness extinguished Lakefront's debt and mortgage.
The bank argues that notwithstanding the fact that Lakefront's note and mortgage were extinguished at the date of sale, Lakefront became liable for interest, taxes, and insurance premiums accruing between the date of the sale and the date the redemption period expired. We disagree. The Legislature has expressly required a mortgagor to pay for such items if the mortgagor exercises its right of redemption. M.C.L. Sec. 600.3240(1) and (2); M.S.A. Sec. 27A.3240(1) and (2). However, no such statutory requirement exists when, as here, the mortgagor opts not to redeem the premises.
The power to render a deficiency decree in foreclosure proceedings is entirely statutory. Harrow v. Metropolitan Life Ins. Co., 285 Mich. 349, 356-357, 280 N.W. 785 (1938). The statutory authority is found in M.C.L. Sec. 600.3280; M.S.A. Sec. 27A.3280:
When, in the foreclosure of a mortgage by advertisement, any sale of real property has been made after February 11, 1933, or shall be hereafter made by a mortgagee, trustee, or other person authorized to make the same pursuant to the power of sale contained therein, at which the mortgagee, payee or other holder of the obligation thereby secured has become or becomes the purchaser, or takes or has taken title thereto at such sale either directly or indirectly, and thereafter such mortgagee, payee or other holder of the secured obligation, as aforesaid, shall sue for and undertake to recover a deficiency judgment against the mortgagor, trustor or other maker of any such obligation, or any other person liable thereon, it shall be competent and lawful for the defendant against whom such deficiency judgment is sought to allege and show as matter of defense and set-off to the extent only of the amount of the plaintiff's claim, that the property sold was fairly worth the amount of the debt secured by it at the time and place of sale or that the amount bid was substantially less than its true value, and such showing shall constitute a defense to such action and shall defeat the deficiency judgment against him, either in whole or in part to such extent. This section shall not affect nor apply to the rights of other purchasers or of innocent third parties, nor shall it be held to affect or defeat the negotiability of any note, bond or other obligation secured by such mortgage, deed of trust or other instrument. Such proceedings, as aforesaid, shall in no way affect the title of the purchaser to the lands acquired by such purchase. This section shall not apply to foreclosure sales made pursuant to an order or decree of court nor to any judgment sought or rendered in any foreclosure suit nor to any chancery sale heretofore or hereafter made and confirmed.
In New York Life Ins. Co. v. Erb, supra, involving a foreclosure by advertisement, the Michigan Supreme Court distinguished interest and taxes accruing prior to a foreclosure sale from interest and taxes accruing after the sale. In a deficiency action, the mortgagor is properly held liable for the former, but has no liability for the latter. Erb, supra, 276 Mich. at pp. 614-615, 268 N.W. 754. 1
Following the decision in Erb, supra, the Legislature amended the predecessor to Sec. 3280 but did not include any language such as now appears in Sec. 3240(2) which would nullify the Erb Court's suggestion that a mortgagee seeking a deficiency judgment is not entitled to interest and taxes accruing after the foreclosure sale. We believe the statutory scheme reveals the legislative intent that, upon foreclosure by advertisement and expiration of the redemption period without redemption by the mortgagor, the mortgagor cannot be held liable in a deficiency action for interest, taxes, or insurance costs accruing after the foreclosure sale.
We now turn to address the issue of the liability of the remaining de...
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