7.3Mortgage Foreclosures by Advertisement1
A power of sale is a clause written into a mortgage that authorizes the mortgagee (lender) to foreclose on the mortgage without court involvement in the case of nonpayment of the debt or other sufficient default by the mortgagor (buyer). See Black’s Law Dictionary (9th ed). The mortgagee forecloses by advertising its intentions to foreclose and then having the property sold at a public sale for the outstanding debt. See MCL 600.3201. A power of sale is strictly a contractual arrangement and will not be implied by law; “[a] foreclosure of a mortgage by advertisement is valid only where the mortgage contains a power of sale[.]” Bradway v Miller, 200 Mich 648, 656 (1918). See also Stewart v Eaton, 287 Mich 466, 481 (1939).
A power-of-sale clause is invalid unless it complies with the statutory notice requirements in MCL 600.3208 and MCL 600.3212. See MCL 600.3201; Gherke v Janowitz, 55 Mich App 643, 646-647 (1974). MCL 600.3201 states that a mortgage with a power of sale may be foreclosed by advertisement when there has been a default in any of the mortgage’s conditions.2 However, “[s]tatutory foreclosures are a matter of contract, authorized by the mortgagor, and ought not to be hampered by an unreasonably strict construction of the law.” White v Burkhardt, 338 Mich 235, 239 (1953).
A.Conditions Precedent to Foreclosure3
Foreclosures by advertisement pursuant to a power of sale are regulated by MCL 600.3201 et seq. For a mortgagee to initiate a foreclosure, four conditions must be met. MCL 600.3204.
•First, the mortgagor must have defaulted on a condition of the mortgage, and the default must have triggered the power of sale. MCL 600.3204(1)(a).
•Second, there may not be a suit already instituted to recover the outstanding debt. MCL 600.3204(1)(b). However, if a prior suit on the outstanding debt was initiated but has been discontinued, or if an execution on a judgment obtained on the debt was returned unsatisfied, foreclosure by advertisement on the balance due is permitted. Id.
•Note: An action or proceeding “for the appointment of a receiver” or “to enforce an assignment of rents” “under the Michigan uniform assignment of rents act” is not “an action or proceeding to recover the debt[.]” MCL 600.3204(1)(b).
•Third, the mortgage with the power of sale was duly recorded. MCL 600.3204(1)(c).
•Fourth, the party initiating the foreclosure must be “either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” MCL 600.3204(1)(d).
“If a mortgage is given to secure the payment of money by installments, each of the installments mentioned in the mortgage after the first must be treated as a separate and independent mortgage[, and t]he mortgage for each of the installments may be foreclosed in the same manner and with the same effect as if a separate mortgage were given for each subsequent installment.” MCL 600.3204(2).
If the four prerequisite conditions for initiating foreclosure by advertisement are met, the mortgagee must publish in an appropriate newspaper and post on the premises notice of its intention to foreclose. MCL 600.3208. The notice must contain all of the following:
“(a) The names of the mortgagor, the original mortgagee, and the foreclosing assignee, if any.
(b) The date of the mortgage and the date the mortgage was recorded.
(c) The amount claimed to be due on the mortgage on the date of the notice.
(d) A description of the mortgaged premises that substantially conforms with the description contained in the mortgage.
(e) A description of the property by giving its street address, if any. The validity of the notice and the validity of any eventual sale under this chapter are not affected by the fact that the street address in the notice is erroneous or that the street address is omitted.
(f) For a mortgage executed after December 31, 1964, the length of the redemption period as determined under [MCL 600.32404].
(g) A statement that if the property is sold at a foreclosure sale . . . , under [MCL 600.3278] the borrower will be held responsible to the person who buys the property at the mortgage foreclosure sale or to the mortgage holder for damaging the property during the redemption period.
(h) The name, address, and telephone number of the attorney for the party foreclosing the mortgage.
(i) For a residential mortgage, a statement in the following form: ‘Attention homeowner: If you are a military service member on active duty, if your period of active duty has concluded less than 90 days ago, or if you have been ordered to active duty, please contact the attorney for the party foreclosing the mortgage at the telephone number stated in this notice.’
(j) A statement in the following form: ‘Notice of foreclosure by advertisement. Notice is given under section 3212 of the revised judicature act of 1961, 1961 PA 236, MCL 600.3212, that the following mortgage will be foreclosed by a sale of the mortgaged premises, or some part of them, at a public auction sale to the highest bidder for cash or cashier’s check at the place of holding the circuit court in _________ County, starting promptly at (time), on (date). The amount due on the mortgage may be greater on the day of the sale. Placing the highest bid at the sale does not automatically entitle the purchaser to free and clear ownership of the property. A potential purchaser is encouraged to contact the county register of deeds office or a title insurance company, either of which may charge a fee for this information.’” MCL 600.3212(1). See also MCL 600.3238; MCL 600.3278.
Committee Tip:
Although the applicable statutes, MCL 600.3208 and MCL 600.3212, do not expressly specify it, the date, time, and place of the foreclosure sale should be included in the notice.
Notice of the foreclosure must appear in a newspaper published in the same county where the mortgaged property is located, or if no newspaper is published in that county, in a newspaper published in an adjacent county. MCL 600.3208. However, the notice must not be published in a newspaper in which the foreclosing party, or its agent, has a majority ownership interest. MCL 600.3212(2). The notice must be published at least once a week for four successive weeks. MCL 600.3208. A true copy of the notice “[must] be posted in a conspicuous place upon any part of the premises described in the notice” within 15 days after the notice was first published. Id.
Note: “The statute authorizing foreclosure by advertisement does not require actual notice to the mortgagor.” Robulus v American State Bank, 258 Mich 21, 22 (1932). However, to conclusively presume that a property has been abandoned, a mortgagee must mail notice of foreclosure to a mortgagor. MCL 600.3241(a). Other conditions must also be met before a property may be presumed abandoned. See MCL 600.3241.
Committee Tip:
Notwithstanding the fact that actual notice to a mortgagor is not required in foreclosures by advertisement, mortgagees ordinarily mail a copy of the foreclosure notice to mortgagors.
During the period between the initial default and the foreclosure sale, the mortgagor has the opportunity to reinstate the mortgage by paying the amount claimed to be due. See generally, Sindlinger v Paul, 428 Mich 161, 164 (1987). In Sindlinger, the Michigan Supreme Court adopted “‘the generally prevailing rule . . . that a tender of arrears due on a mortgage containing an acceleration clause, made before the holder of the mortgage has exercised his [or her] option to declare the entire amount of the debt due, prevents the exercise of such option.’” Id., quoting 55 Am Jur, Mortgages, § 389, p 433 (alteration added).
D.Foreclosure Sale and Proceeds
If the mortgage is not reinstated or otherwise resolved, the property must be sold at a public foreclosure sale to the highest bidder. MCL 600.3216. The sale must be conducted between the hours of 9 a.m. and 4 p.m. at the circuit court in the county where all or part of the property is located, and the sale must be conducted by the person so appointed in the mortgage or by the county sheriff, undersheriff, or deputy sheriff. Id.
Any member of the public, including the mortgagee, may bid at the sale. MCL 600.3228. A mortgagee that bids at the sale “‘“is not required to pay cash, but rather is permitted to make a credit bid because any cash tendered would be returned to it.”’” Talmer Bank & Trust v Parikh, 304 Mich App 373, 387 (2014), vacated in part on other grounds 497 Mich 857 (2014)5 (citations omitted). This is called a full credit bid. See id.
Subject to the mortgagor’s right of redemption, the purchaser acquires all the rights and title of the mortgagor; his or her title is subject to any existing liens created prior to the mortgage. MCL 600.3236. However, his or her title is free and clear of any liens vested subsequent to the creation of the mortgage. Id.
Where the mortgaged property is purchased at the foreclosure sale for the amount of the debt, the debt is satisfied and the mortgage extinguished. Guardian Depositors Corp v Hebb, 290 Mich 427, 432 (1939); Talmer, 304 Mich App at 387. “[T]he phrase ‘satisfying the mortgage’ in MCL 600.3252 refers to paying the entirety of the debt secured by the mortgage.” In re Claim for Surplus Funds, 328 Mich App 313, 320 (2019) (the mortgagee’s unsuccessful bid below the mortgage balance did not represent “the amount necessary to satisfy the mortgage,” and the mortgage was not satisfied where a deficiency remained following the successful bid6).
1.Disposition of Surplus Money
The money from the sale is applied first to satisfying the outstanding debt on the mortgage and paying the costs of the sale. MCL 600.3252. Where the bid is greater than the debt owed, any surplus moneys may be paid over to the mortgagor on demand unless a claimant files a verified statement prior to the distribution of the surplus attesting that he or she has a subsequent mortgage or lien on the premises. Id. In the latter case, the person responsible for the distribution of the money files the statement with the circuit court and deposits the money in the court escrow. Id. Upon motion, the court then holds a hearing to determine the proper distribution of the surplus. Id.
“MCL 600.3252 requires the court to distribute surplus proceeds from a mortgage foreclosure sale by advertisement to any subsequent mortgagees or lienholders in accordance with their respective priorities under MCL 565.29 and related case law[; w]hile these interests may compete or conflict, MCL 600.3252 allows the court, in situations involving conflicting interests, to take proofs at a hearing and direct the disposition accordingly[, and a]ny remaining balance may then be distributed to the mortgagor, [or] his [or her] representatives[] or assigns.” In re $55,336.17 Surplus Funds, 319 Mich App 502, 511, 513 (2017) (concluding that “through MCL 600.3252, the Legislature intended to provide a limited avenue for collection of foreclosure sale surplus proceeds to subsequent mortgagees and lienholders, whose security interests in real property have been extinguished by the foreclosure of a senior mortgage, independent of their option to redeem”). Accordingly, because the appellee’s “interest in the surplus funds, as a junior mortgagee, was superior to [the] appellant’s, as the legal representative of the mortgagor[, t]he trial court . . . did not err when it entered an order distributing the $55,336.17 in surplus funds to [the appellee].” In re $55,336.17 Surplus Funds, 319 Mich App at 510, 513-514 (additionally concluding that “[r]egardless of whether [the appellee’s] security interest in the property as junior mortgagee persisted until the expiration of the statutory redemption period, [the appellee] retained a right to claim a priority interest in the surplus funds over the mortgagor as a subsequent mortgagee or lienholder at the time of the foreclosure sale pursuant to the explicit language of MCL 600.3252”).
“[A] foreclosure sale extinguishes [a] mortgage.” In re Claim for Surplus Funds, 328 Mich App 313, 318 (2019). However, the phrase “extinguishing the mortgage” is not synonymous with “satisfying the mortgage” as used in MCL 600.3252. In re Claim for Surplus Funds, 328 Mich App at 319. “[I]t is unambiguous that ‘satisfying the mortgage on which the real estate was sold’ refers to paying off the entirety of the debt secured by the mortgage.” Id. at 319. As such, neither the mortgagee’s bid nor its agreement to that amount in its “bid sheet” represented “the amount necessary to satisfy the mortgage.” Id. at 320. Therefore, proceeds paid in excess of the amount of the mortgagee’s unsuccessful bid were not surplus funds and the mortgage was not satisfied where a deficiency remained following the successful bid. Id. at 320 (thus, there were no surplus funds to distribute to the mortgagor).
Where the highest bid equals the fair market value of the property but is less than the outstanding debt, the mortgagee may bring a suit at law against the mortgagor for the deficiency. New York Life Ins Co v Erb, 276 Mich 610, 613 (1936). See also MCL 600.3280; Talmer, 304 Mich App at 386-87. “The ‘true value’ of the foreclosed property is thus relevant and can aid a defending debtor in a deficiency action when the true value is more than the purchase price.” Talmer, 304 Mich App at 387. However, if the amount of the bid is less than the fair market value, the deficiency is determined by the difference between the mortgage debt and the fair market value, rather than between the mortgage debt and the amount bid. MCL 600.3280; Guardian Depositors Corp, 290 Mich at 432-433.
3.Liability for Interest, Insurance Costs, or Taxes Arising After Foreclosure Sale
Where a mortgagor elects not to exercise his or her right of redemption, the mortgagor is not liable for any interest, insurance costs, or taxes arising after the foreclosure sale. Bank of Three Oaks, 178 Mich App at 555. In contrast, a mortgagor who redeems the property is liable for any interest, insurance costs, or taxes arising between the foreclosure sale and the mortgagor’s redemption. Id.
After the foreclosure sale, the mortgagor, his or her heirs or personal representative, or persons with a recorded interest in the property claiming under any of those individuals have a specific period of time in which to redeem the property by paying the amount that was bid for the premises, with interest at the rate set by the mortgage, plus other costs for which the mortgagor would have been responsible if the mortgagee had not foreclosed on the property, including interest on those costs. MCL 600.3240(1)-(2); MCL 600.3240(4).
The length of the redemption period varies depending on the type of property. Where no other period is specified for the property, and subject to the inspection requirements and prohibition against damage to the property as outlined in MCL 600.3238 the period of redemption is one year from the date of the foreclosure sale. MCL 600.3240(12). Redemption periods specific to certain properties are as follows:
•Subject to the inspection requirements and prohibition against damage to the property as outlined in MCL 600.3238, six months for commercial or industrial property or multifamily residential property with more than four units. MCL 600.3240(7).7
•Subject to the inspection requirements and prohibition against damage to the property as outlined in MCL 600.3238, six months for residential property with not more than four units if:8
•the amount due on the mortgage is more than 66-2/3 percent of the original debt,
•the property has not been abandoned, and
•the property is not used for agricultural purposes. MCL 600.3240(8).
•One month for residential property with not more than four units that was abandoned (as determined under MCL 600.3241) before the initiation of foreclosure proceedings. MCL 600.3240(9).
•30 days or until the expiration of the time period for providing notice in MCL 600.3241a(c), whichever is later, for residential property with not more than four units that was abandoned (as determined under MCL 600.3241a) after the initiation of foreclosure proceedings. MCL 600.3240(10).
•Subject to the inspection requirements and prohibition against damage to the property as outlined in MCL 600.3238, one year for property used for agricultural purposes. MCL 600.3240(11).
1.Right to Inspection During Redemption Period
The purchaser of the property at the foreclosure sale has the right to inspect the property periodically throughout the redemption period. MCL 600.3238.9 In addition to the notice required by MCL 600.3237, “the purchaser shall provide notice to the mortgagor by certified mail, physical posting on the property, or in any manner reasonably calculated to achieve actual notice of the purchaser’s intent to inspect the property at least 72 hours in advance[.]” MCL 600.3238(2).
The purchaser may immediately initiate summary proceedings according to the procedure in MCL 600.5701 et seq., or file an action for any other relief necessary to protect the property from damage, “[i]f an inspection [of the property] under [MCL 600.3238] is unreasonably refused or if damage to the property is imminent or has occurred[.]” MCL 600.3238(6). In any action for possession or relief, the purchaser may also name as a party any person who may redeem the property under MCL 600.3240. MCL 600.3238(6). Before commencing summary proceedings, “the purchaser shall provide notice to the mortgagor by certified mail, physical posting on the property, or in any other manner reasonably calculated to achieve actual notice, that the purchaser intends to commence summary proceedings if the damage or condition causing reasonable belief that damage is imminent is not repaired or corrected within 7 days after receipt of the notice.” MCL 600.3238(7). If “the damage or condition causing reasonable belief that damage is imminent is repaired or corrected within the 7-day period,” or if “[t]he mortgagor and the purchaser agree on procedures and a timeline to repair the damage or correct the condition causing reasonable belief that damage is imminent” and that timeline is adhered to or extended by agreement, the purchaser must not commence summary proceedings for possession. MCL 600.3238(8)(a)-(b).
The trial court must consider the totality of the circumstances surrounding the damage or condition that threatens imminent damage in determining whether to enter a judgment for possession. MCL 600.3238(9). Factors to consider include, but are not limited to:
“(a) The cause of the damage or condition.
(b) Whether the mortgagor has taken appropriate steps to repair the damage or correct the condition and to secure the property from further damage.
(c) Whether the mortgagor has promptly contacted the purchase and any property insurer regarding the damage or condition.
(d) Whether any delay in repairs or corrections is affirmatively caused by the purchaser or the property insurer.” MCL 600.3238(9).
If the court enters a possession judgment in the purchaser’s favor, the redemption period is terminated and full title vests in the purchaser. MCL 600.3238(10).
2.Liability for Damage During Redemption Period
The mortgagor and any other person liable on the mortgage is liable to the purchaser or any other holder of the title to the property “for any physical injury to the property beyond wear and tear resulting from the normal use of the property if the physical injury is caused by or at the direction of the mortgagor or other person liable on the mortgage.” MCL 600.3278(1). Moreover, if the purchaser provided notice pursuant to MCL 600.3237 (notice regarding interior inspection) and the mortgagor intends to move from the property, the mortgagor must inform10 the purchaser at least 10 days before vacating the property so that the property may be secured. MCL 600.3278(2).
If the purchaser provided notice under MCL 600.3237, two different rebuttable presumptions apply depending on the circumstances:
“(a) There is a rebuttable presumption that the mortgagor is liable to the purchaser at the foreclosure sale for all damage to the property that occurs before the expiration of the redemption period if the mortgagor does any of the following:
(i) Subject to [MCL 600.3238], fails to consent to an initial inspection, comply with a request for information on the condition of the property, or consent to an inspection of the property after the initial inspection, if requested.
(ii) Fails to provide timely notice to the purchaser under this subsection.
(iii) Fails to surrender control of the property in a manner that reasonably provides the purchaser with the opportunity to secure it.
(b) There is a rebuttable presumption that the mortgagor is not liable for damage to the property that occurs after the mortgager [sic] surrenders control of the property if the mortgagor does all of the following:
(i) Subject to [MCL 600.3238], consents to an initial inspection, complies with a request for information on the condition of the property, and consents to inspections of the property after the initial inspection, if requested.
(ii) Provides timely notice to the purchaser under this subsection.
(iii) Surrenders control of the property in a manner that reasonably provides the purchaser with the opportunity to secure it.” MCL 600.3278(2).
3.Removal of Fixtures During Redemption Period
The trial court properly dismissed a larceny charge against a defendant-mortgagor who removed fixtures during the redemption period where the mortgagor maintained exclusive possessory rights in the property until the expiration of the redemption period; accordingly, the defendant did not take the “property of another” for purposes of Michigan’s larceny statute because the foreclosure-sale purchaser had no possessory interest in the property during the redemption period.11 People v March, 499 Mich 389, 421-422 (2016). A foreclosure-sale purchaser holds equitable title to the property during the redemption period, and equitable title gives the purchaser no possessory rights. Id. at 422. Because Michigan’s larceny statute, MCL 750.360, adopted the common law of larceny, which protects possessory rights, the defendant-mortgagor could not have committed larceny by removing the fixtures during the redemption period. March, 499 Mich at 422. The Court noted that the “defendant’s actions might properly give rise to alternative criminal offenses[,]” though the Court did not opine on their applicability, and that the foreclosure-sale purchaser “has various civil remedies[]” against the mortgagor for removal of the fixtures. Id. at 393 n 1. See Section 7.3(E)(2) for a discussion of liability for damages during the redemption period.
4.Failure to Redeem
If a mortgagor fails to redeem the property within the time period allowed for redemption, full title to the property vests in the purchaser, MCL 600.3236, and all of the mortgagor’s rights in and to the property are extinguished, Bryan v JP Morgan Chase Bank, 304 Mich App 708, 713 (2014). Accordingly, a mortgagor lacks standing to bring a lawsuit challenging the foreclosure proceedings after the expiration of the redemption period. Id. at 715.
The mortgagor has the right to retain “‘the possession and benefits of the mortgaged premises’” during the redemption period, which includes the right to lease or sell the property. Kubczak v Chem Bank & Trust Co, 456 Mich 653, 660 (1998), quoting Mass Mut Life Ins Co v Sutton, 278 Mich 457, 461 (1936). However, “a mortgagee can obtain possession, but only for consideration, and pursuant to an explicit agreement.” Kubczak, 456 Mich at 661 (internal citations omitted).
G.Summary Proceedings Following Foreclosure
“When the period of redemption expires, continued possession by the mortgagor is unlawful, and no notice to quit is necessary.” Shelby Co v Dickinson, 259 Mich 197, 198 (1932). The purchaser of the property may initiate an action for possession under the Summary Proceedings Act, which provides that “[a] person entitled to premises may recover possession of the premises by summary proceedings . . . [w]hen a person continues in possession of premises sold by virtue of a mortgage or execution, after the time limited by law for redemption of the premises.” MCL 600.5714(1)(g). See Chapter 4 for a detailed discussion of summary proceedings.