Don't Bet the Business

Sometimes lawyers wait around for the courts to state the obvious just so we can then say they said it. The Michigan Court of Appeals decision in the case of Can IV Packard Square, LLC v Packard Square, LCC, ___ Mich App ___; 2019 WL 2517591 (June 18, 2019), is just such an occasion.

For those familiar with mortgage foreclosure law, MCL 600.3140(1) establishes, in certain circumstances pertaining to judicial foreclosures, the time period for a borrower/mortgagor to redeem real property that has been lost after a foreclosure sale. That section provides, in part, that:

The mortgagor . . . may redeem the entire premises sold as ordered under section 3115 by paying, within 6 months after the sale, to the purchaser or the purchaser’s personal representative or assigns, or to the register of deeds in whose office the deed of sale is deposited as provided in the court rules, for the benefit of the purchaser, the amount that was bid with interest from the date of the sale at the interest rate provided for by the mortgage.

When a borrower/mortgagor fails to timely redeem the property by paying the amount described in §3115, MCL 600.3130 states that “the deed shall become operative as to all parcels not redeemed, and shall vest in the grantee named in the deed, his heirs, or assigns all the right, title, and interest which the mortgagor had at the time of the execution of the mortgage or at any time thereafter.” Seems clear enough, right?

In the case of Bryan v JPMorgan Chase Bank, 304 Mich App 708, 713; 848 NW2d 482 (2014), the Michigan Court of Appeals held that a mortgagor’s failure to redeem property as provided in MCL 600.3236 extinguishes all of the borrower/mortgagor’s rights in the property.  However, the Bryan decision dealt specifically with foreclosures by advertisement, not judicial foreclosure. As noted in Packard Square, “[t]his Court has not had occasion to determine whether a mortgagor’s failure to redeem a property within the time limit provided by MCL 600.3140(1) results in the extinguishment of all the mortgagor’s rights in and to the foreclosed property.” Now it has.

The question the appellate court addressed in Packard Square is whether the distinction between a judicial foreclosure and foreclosure by advertisement is material when assessing the effect of an expired redemption period. The appellate court concluded it was not. In fact, the appellate court ruled that any distinction in the type of foreclosure is “irrelevant.” 

Although MCL 600.3240 provides for redemption in a foreclosure by advertisement, and MCL 600.3140 provides for redemption in a judicial foreclosure, Packard Square makes clear that any distinction between the two scenarios is without a material difference. Both statutes provide for redemption rights, and both describe what happens when a borrower/mortgagor fails to timely redeem.  See, MCL 600.3236 (foreclosure by advertisement) and MCL 600.3130 (judicial foreclosure).

When the appellate court compared the two statutes it found that the Michigan Legislature’s intention was “plain.” “[I]n both circumstances, a mortgagor would have a set period of time to redeem the property and that the failure to do so would result in the extinguishment of the mortgagor’s rights in and to the property.” Thus, the appellate court held that, “under MCL 600.3130, if a mortgagor fails to avail itself of the right of redemption, all the mortgagor’s rights in and to the property are extinguished.” This ruling aligns completely with the appellate court’s prior ruling in Bryan, 304 Mich App at 713 and with the Michigan Supreme Court’s ruling in Piotrowski v State Land Office Bd, 302 Mich 179, 187; 4 NW2d 514 (1942).

The ruling in Packard Square may seem obvious, but until the appellate court says it is so, doubt existed. The law is now clear. The right of redemption exists regardless of the manner of foreclosure used, but the failure to timely exercise the right has the same effect. Good to know.