NATIONAL ACCEPTANCE COMPANY OF AMERICA v. Mardigian

• Decision Date: 30 September 1966
• Docket Number: Civ. A. No. 26806.
• Citation: 259 F. Supp. 612
• Parties: NATIONAL ACCEPTANCE COMPANY OF AMERICA, a Delaware corporation, Plaintiff and Cross Defendant, v. Henry C. MARDIGIAN, Barbara J. Mardigian, Stephen Dombek and Annie Dombek, Defendants and Cross Defendants, and M.B.M. Fabricators, Inc. and National Bank of Wyandotte, a Federal banking corporation, Defendants and Cross Plaintiffs.
• Court: U.S. District Court — Western District of Michigan

259 F. Supp. 612

NATIONAL ACCEPTANCE COMPANY OF AMERICA, a Delaware corporation, Plaintiff and Cross Defendant, v. Henry C. MARDIGIAN, Barbara J. Mardigian, Stephen Dombek and Annie Dombek, Defendants and Cross Defendants, and M.B.M. Fabricators, Inc. and National Bank of Wyandotte, a Federal banking corporation, Defendants and Cross Plaintiffs.

Civ. A. No. 26806.

United States District Court E. D. Michigan, S. D.

September 30, 1966.

Edward M. Miller, Levin, Levin, Garvett & Dill, Detroit, Mich., and Schimberg, Greenberger, Krauss & Jacobs, Chicago, Ill., for plaintiff.

John E. MacDonald, Tinkham, Snyder & MacDonald, Wayne, Mich., for Stephen Dombek and Annie Dombek.

John P. Babcock, Babcock & Babcock, Detroit, Mich., for Henry C. Mardigian and Barbara J. Mardigian.

Frank I. Kennedy, Detroit, Mich., Richard W. Look, Wyandotte, Mich., of counsel, for M.B.M. Fabricators, Inc. and National Bank of Wyandotte.

OPINION

FREEMAN, District Judge.

On October 16, 1961, defendant Union Wrecking Company, Inc. (Union) signed an installment negotiable note payable to the order of plaintiff, National Acceptance Company (N.A.C.), in the amount of $250,000. The last installment was due on April 20, 1964. This note was secured by a mortgage upon certain property in Romulus Township, Wayne County, Michigan (herein referred to as the Romulus property). In addition, Henry and Barbara Mardigian at the same time guaranteed payment of the Union debt, and to secure this guaranty the Mardigians signed another promissory note, also payable to the order of N.A.C., for the sum of $50,000.¹ This second note was itself secured by a mortgage on certain residential property in Dearborn, Michigan (herein designated the Dearborn property). It appears from the complaint that the mortgage on the Dearborn property was recorded on October 16, 1961, and that the mortgage on the Romulus tract was recorded on October 25, 1961.

Union is now bankrupt;² and, according to the complaint some $162,000 is still owing to plaintiff — an amount that it now seeks to collect by foreclosing on its mortgages on both the Romulus and the Dearborn properties.

This matter is now before the Court on motions of defendants for partial summary judgment. These motions involve only the Romulus property. They arise largely because of complications attributable to the fact that plaintiff's mortgage on this land, when obtained, was only a second mortgage. More precisely, the instant questions stem from the additional facts that the senior mortgagees, defendants Dombek and wife, had begun foreclosure proceedings in the state court in early June of 1961 — at least four months before plaintiff obtained and recorded its mortgage — and that plaintiff never became a party to that foreclosure litigation.

The Dombeks purchased the Romulus property when it was finally sold in September, 1963, at a judicial sale pursuant to a decree entered in their foreclosure suit.³ Subsequently, the Dombeks sold a portion of the land to defendant M.B.M. Fabricators, Inc. (M. B.M.), which, in turn, mortgaged its interest to defendant National Bank of Wyandotte (Bank). These defendants — the Dombeks, M.B.M., and Bank — have moved this Court for partial summary judgment on the grounds that whatever interest plaintiff may have had in the Romulus property has been cut off by the foreclosure and sale under the Dombek senior mortgage, or, if plaintiff's interest survived, then plaintiff is, nevertheless, barred from foreclosing on it at this time because of laches and estoppel and because plaintiff did not seek to intervene in the Dombek foreclosure proceedings despite notice that such proceedings were in progress.

At the outset it should be observed that unopposed affidavits show conclusively that plaintiff was aware, at least sometime prior to the entry of a decree of foreclosure in favor of the Dombeks in July of 1963, that the Dombeks were in the process of foreclosing on their interest in the Romulus tract. Conversely, these same documents make it apparent that, before the Dombeks purchased at the judicial sale, they had equal notice of plaintiff's second mortgage.

Much of the discussion in the briefs filed in conjunction with the present motions deals with the significance, in light of the Michigan procedural rules in effect at the time of the Dombek foreclosure, of the fact that, after the first foreclosure proceedings had been commenced, the mortgagor, Union, made several additional payments on its obligation to the Dombeks and of the fact that thereafter the Dombeks filed a supplemental bill of foreclosure. Counsel argue whether or not this supplemental bill actually began a new foreclosure proceeding when plaintiff's second mortgage was clearly of record. Doubtless, if the sale to the Dombeks really did take place under a foreclosure commenced when they, as mortgagees, had constructive notice of plaintiff's interest in the Romulus property, many of the difficulties otherwise inherent in the present questions would be absent. Nevertheless, it is not necessary to delve into the fine points of dated Michigan procedure in order to reach the correct result in ruling upon the pending motions.

We begin, rather, with a basic proposition of mortgage law: a junior mortgagee's interest in property, if properly recorded prior to the commencement of proceedings to foreclose a senior encumbrance, is not cut off by the foreclosure unless he is made a party thereto. Avery v. Ryerson, 34 Mich. 362 (1876); Baker v. Pierson, 6 Mich. 522 (1859). This rule does not mean, of course, that the junior interest is superior to the senior interest, nor that the unjoined junior interest holder can automatically oust the purchaser at the sale conducted pursuant to a decree of foreclosure entered on behalf of the senior encumbrancer. It means only that the second mortgage is still unforeclosed and that whatever rights were possessed by the junior mortgagee prior to foreclosure of the senior mortgage are still intact. By the same token, the rights of the mortgagor, now held by the purchaser, are still viable as against the unforeclosed junior mortgagee. Thus, the purchaser can redeem the interest held by the junior encumbrancer. See generally 59 C.J.S. Mortgages § 524.

The specific question presented by these motions is whether this fundamental principle is somehow rendered inapplicable by the fact that the junior encumbrance in the present case arose and was recorded a few months after the senior encumbrancers had filed an action to foreclose their mortgage but some two years before the sale pursuant to the foreclosure proceedings took place. It appears that the answer is in the negative.

That this is the conclusion reached, of course, does not necessarily mean that plaintiff is not bound by the foreclosure decree; nor does it appear that plaintiff contends otherwise. It is important to realize exactly what the typical foreclosure decree adjudges and directs.⁴ Essentially, such an order shows only that a court has found that a mortgagor is in default on his obligation to the mortgagee and that the mortgagee is entitled to have the mortgaged property sold in partial or total satisfaction of the debt. In entering a decree of foreclosure, a court does not vest title to the property in the mortgagee. Much less does it determine, other than among the parties before it, who does and who does not have certain interests in the property. The court does not guarantee that the eventual purchaser pursuant to its decree is going to get a particular estate, or any estate for that matter, in return for his purchase price. See generally Janower v. F. M. Sibley Lumber Co., 245 Mich. 571, 222 N.W. 736, (1929). Therefore, the fact that plaintiff may be bound by the Dombek foreclosure decree does not mean that by virtue of that order alone any interests which it might otherwise have had in the property which was the subject of the decree were cut off. For these reasons, unless plaintiff is attacking — and it is not — a determination actually made by the court which conducted the foreclosure proceedings, e. g., the decision that the Dombeks had a right to foreclose their mortgage, cases such as Carpenter v. Carpenter, 136 Mich. 362, 99 N.W. 395, (1904), cited by defendants, are inapposite. Likewise, the present case is not one requiring consideration of the rules relating to collateral attacks on judgments such as those principles discussed in Life Insurance Co. of Detroit v. Burton, 306 Mich. 81, 10 N.W.2d 315 (1943).

Two other cases relied upon by defendants in pressing these motions for summary judgment require more detailed analysis. The first is Woods v. Love, 27 Mich. 308 (1873), which is cited for the proposition that a foreclosing senior mortgagee is not bound to join, in order to cut off all interests of junior encumbrancers, a second mortgagee whose interest was not made known actually or constructively to the foreclosing party. In Woods, the mortgagee, who took his interest in 1856, foreclosed during the period between a sheriff's sale pursuant to an 1859 levy and the date, over a year after the sale, when the sheriff finally conveyed a deed to the sale purchaser. The party who claimed under the sheriff's deed contended that his interest had not been cut off because he had not been joined in the intervening mortgage foreclosure proceedings. The court appears to have held only that the claimant had not proven that the mortgagee ever had notice of the existence of the rights conferred upon the holder of the sheriff's deed prior to the time when the deed was actually delivered to him. Then, by way of dicta, the court observed that, for all that appeared in the record, the foreclosure was a complete bar to all persons interested in the equity of redemption. This opinion is not controlling because the court did not indicate that the mortgagee could disregard the existence of a junior interest holder simply because the...