Price v. Kosmalski (In re Receivership of 11910 S. Francis Rd.)

• Decision Date: 30 July 2012
• Docket Number: Docket No. 143123.,Calendar No. 9.
• Parties: In re RECEIVERSHIP OF 11910 SOUTH FRANCIS ROAD (PRICE v. KOSMALSKI).
• Court: Michigan Supreme Court

492 Mich. 208

821 N.W.2d 503

In re RECEIVERSHIP OF 11910 SOUTH FRANCIS ROAD (PRICE v. KOSMALSKI).

Docket No. 143123.

Calendar No. 9.

Supreme Court of Michigan.

Argued March 7, 2012.

Decided July 30, 2012.

Allan Falk, P.C., Okemos (by Allan Falk), and Cummins Woods, Lansing (by Thomas E. Woods), for Thomas E. Woods.

The Hubbard Law Firm, P.C., Lansing (by Peter A. Teholiz and Michael G. Woodworth), for Dart Bank.

Kus, Ryan & Associates, PLLC, Auburn Hills (by Michael A. Kus, Marsha J. Greco, and Jeffrey S. Horowitz), for the Community Bankers of Michigan.

Warner Norcross & Judd LLP, Grand Rapids (by Jeffrey O. Birkhold, James H. Breay, and Nicole L. Mazzocco), for the Michigan Bankers Association and the Michigan Credit Union League.

McClelland & Anderson, LLP, Lansing (by Gregory L. McClelland and Melissa A. Hagen), for the Michigan Association of Realtors.

MARY BETH KELLY, J.

This case involves the issue of the priority of competing liens between a court-appointed receiver and the holder of a first-recorded mortgage on real property located in DeWitt, Michigan. The receiver, Thomas Woods, seeks to recover receivership expenses before the holder of the first-recorded mortgage, Dart Bank, satisfies its mortgage interest. In affirming the circuit court's order placing a first-priority lien on the property in the amount of the receiver's expenses, the Court of Appeals relied, in part, on this Court's decisions in Bailey v. Bailey¹ and Fisk v. Fisk² and its own decision in Attica Hydraulic Exchange v. Seslar,³ to hold that because Dart did not object to and benefited from the receivership, it therefore “may be held responsible for the receivership expenses.” ⁴ We granted Dart's application for leave to appeal to determine whether the common-law rule that receivership expenses are entitled to first priority is controlling, notwithstanding that the holder of a prior recorded mortgage is statutorily entitled to priority under MCL 600.3236, and whether a mortgagee must explicitly consent to the receivership before the mortgagee may be required to pay those sums associated therewith.

Before Michigan became a state, English courts developed the general rule that a receiver is entitled to be paid for his or her services on a first-priority basis. In 1846, Michigan revised and consolidated its statutes. Included within the revised statutes was 1846 RS, ch 130, § 10, which provided that the purchaser of a sheriff's deed following a foreclosure by advertisement holds the same title that the mortgagor had at the time the mortgage was executed and that only prior subsisting liens affected the purchaser's interest. In all material respects, the statute has remained unchanged since 1846 and currently exists as MCL 600.3236. Following adoption of the pertinent foreclosure-by-advertisement statute in 1846, this Court applied the English common-law rule in situations not involving foreclosure by advertisement. So far as we can discern, the common-law rule has never been applied in Michigan to divest the purchaser of a sheriff's deed of the purchaser's statutory right of priority.

This case requires us to determine whether this general common-law rule permittingthe court to give priority to a receiver should be extended to the foreclosure-by-advertisement context even though application of that rule would contradict the priorities established by a statute that has been in existence since 1846.

We decline to extend the common-law rule to the situation before us. Rather, we hold that MCL 600.3236 controls and, by its plain language, requires that any liens preexisting the mortgage that is the subject of the foreclosure remain in the same order of priority as they existed at the time of the mortgage's execution. Assuming a receiver's lien postdates the mortgage subject to foreclosure under MCL 600.3236, as the receiver's lien does here, it is clear that the receiver's interest under the lien will be subordinated to the interests of the purchaser and any prior lienholders. Further, it is clear from our caselaw that a mortgagee may waive its right of first-priority satisfaction of its lien. Thus, we also hold that a mortgagee that forecloses consistently with MCL 600.3236 may waive its statutory right of priority and, if that occurs, the receiver may be entitled to compensation before the mortgagee, but only if the mortgagee's waiver is explicitly and unequivocally given.

Because the Court of Appeals in this case failed to recognize the applicability of MCL 600.3236 and erroneously extended the holdings in Bailey and Fisk to support its conclusion that even in the absence of affirmative consent, Dart could nevertheless be required to pay the receiver's costs and fees, we reverse the judgment of the Court of Appeals and remand this case to the circuit court for entry of an order releasing the escrow funds in favor of Dart.

I. FACTS AND PROCEDURAL HISTORY

The real property involved in this action was previously owned by Rudaford Sterrett, Jr., and secured by a single mortgage held by Dart, which was duly recorded on August 8, 2003. Upon Sterrett's death in April 2007, the real property was bequeathed to Lori Jean Kosmalski. At that time, the property was valued at $350,000, and the mortgage balance was less than $170,000.

In September 2007, Nastassia Price and Erin Duffy–Price instituted an action against Kosmalski to collect a judgment in an unrelated lawsuit. When they learned that Kosmalski had inherited the real property from Sterret, they moved for the appointment of a receiver to seize and sell the real property in order to satisfy all or part of the judgment against Kosmalski. Dart was not provided notice of Price and Duffy–Price's motion for receivership.

In April 2008, the circuit court granted Price and Duffy–Price's request for receivership and appointed Thomas Woods as receiver.⁵ One week later, the circuit court entered an amended stipulated order of appointment, which authorized the receiver to take immediate possession of the property and keep, manage, operate, and preserve it until further order of the circuit court. The powers and duties conferred on the receiver incident to his appointment included the authority to expend the property's equity or borrow funds for the repair, maintenance, and operation of the property necessary to preserve the property and make it saleable. Because the property was uninhabitable, the receiver borrowed approximately $20,000 to finance substantial repairs. These repairs included cleaning the home and its grounds, repairing the heating and air conditioning systems, installing an alarm system, repairing the water system and pool area, and installing a fence.

Approximately one month before the receiver's appointment, Kosmalski had defaulted on the mortgage, and Dart initiated foreclosure proceedings by advertisement in mid-April 2008.⁶ At the June 5, 2008, sheriff's sale, Dart—the sole bidder—purchased the property for $169,312.50, which was the balance due on its mortgage,and obtained a sheriff's deed to the property subject to a one-year redemption period.⁷ On May 18, 2009, the receiver moved to void the sale, arguing that Dart had violated the court's receivership order, which prohibited any interference with the receiver's possession and management of the property. Dart subsequently intervened in opposition to this motion, asserting that Dart had validly initiated foreclosure proceedings and that, during the pendency of the redemption period, it had not interfered with the receiver's possession of the property. The circuit court denied the receiver's motion but extended the redemption period until August 25, 2009, to allow the receiver additional time to sell the property. When the receiver was unable to sell the property within the extended redemption period, Dart received title to the property effective August 26, 2009.

In October 2009, the receiver filed a motion seeking to hold Dart liable for payment of the costs and fees incurred in the administration of the receivership. The receiver claimed $41,874.57 in total expenses, which reflected the costs incurred in repairing, maintaining, and attempting to sell the property, fees for his professional services, and costs for attorney fees incurred as a result of the receiver's motions to enforce the receivership order. At the motion hearing, the receiver argued that because Dart had acquiesced in the receivership and the receiver's expenditures, he was entitled to reimbursement of his costs and fees from Dart. Dart responded that it could not be charged with the receiver's costs and fees when it had not consented to those surcharges.

The circuit court accepted the receiver's argument and entered an order on November 5, 2009, approving the receiver's final report and granting the receiver a lien on the net proceeds from the sale of the property in the amount of $41,874.57, which was given priority over Dart's preexisting mortgage. The lien order further required that the receiver relinquish possession of the property to Dart and discharged the receiver and canceled his bond.⁸

Dart appealed as of right the circuit court's order granting the receiver a first-priority lien over the property, arguing that a receiver is not entitled to any greater rights than the original owner would have had and, therefore, the receiver took title to the property subject to Dart's preexisting mortgage. The Court of Appeals affirmed and, citing Bailey,⁹Fisk,¹⁰ and Attica,¹¹ held that Dart could be held responsible for the receivership expenses.¹² Under its interpretation of these cases, the Court of Appeals concluded that even without explicitly consenting to the receiver's appointment, Dart could nevertheless be required to pay the receiver's costs and fees because it benefited from the receivership.¹³

We granted leave to appeal to consider, in relevant part, “whether the statutory right of first priority belonging to the holder of the recorded...