7.5Judicial Foreclosure of Mortgages and Land Contracts
Judicial foreclosures are equitable actions governed by statute, MCL 600.3180, and there is no right to a jury trial. Superior Prod Co v Merucci Bros, Inc, 107 Mich App 153, 161 (1981). With few exceptions, judicial foreclosure of a mortgage is the same as judicial foreclosure of a land contract. Both mortgage and land contract foreclosures are discussed in this section.
In People’s Savings Bank v Geistert, 253 Mich 694, 705-706 (1931), the Court explained the differences between mortgages and land contracts:
“Though there may be analogies between the rights of a vendor and vendee, and a mortgagor and mortgagee, these relations are separate and distinct. The mortgagor holds the legal title of real estate mortgaged; the vendor holds the legal title of real estate sold. The one is subject to a mortgage given to the mortgagee. The other is subject to a contract given to the vendee. On the performance of the terms of a mortgage, the mortgagor’s legal title remains un[e]ncumbered. On the performance of the terms of a land contract by the vendee he [or she] is entitled to a conveyance. The right to a conveyance in one case arises from breach of contract; the right to conveyance in the other case arises from performance of the contract. The vendor holds the legal title and on foreclosure cuts off the right of vendee to acquire the legal title. In mortgage foreclosure the mortgagee may acquire legal title only by foreclosure and sale of property, payment of the purchase price, and expiration of the equity of redemption.”
Note: Although the circuit court has jurisdiction over real estate and land contract foreclosures,1 a brief summary of the information is included in this benchbook because a party may challenge the propriety of a foreclosure and sale during summary proceedings in district court. MCL 600.3101; Reid v Rylander, 270 Mich 263, 267 (1935).
A.Initiation of Suit to Foreclose
Mortgages and land contracts commonly contain acceleration clauses that allow a mortgagee or a vendor to declare that the entire balance on a mortgage or land contract is due after a mortgagor or vendee fails to make timely or sufficient payments. See generally, Sindlinger v Paul, 428 Mich 161, 164-165 (1987) (land contract). A vendor or mortgagee may exercise the right to accelerate payment of the entire unpaid balance of a contract or mortgage by filing an action for foreclosure; no additional or previous notice is required. Bedford v Tetzlaff, 338 Mich 102, 107 (1953) (land contract). A mortgagee or vendor may not invoke an acceleration clause if the mortgagor or vendee tenders payment before the initiation of a foreclosure. Sindlinger, 428 Mich at 164-165.
A vendor is precluded from obtaining a deficiency judgment against a vendee by foreclosure where the vendor has already obtained an order of eviction pursuant to a summary proceedings judgment. Gruskin v Fisher, 405 Mich 51, 58-59 (1979) (land contract).
If the mortgagor or vendee has not cured the default by paying the amount in arrears, and if a judgment for the amount in arrears has not already been had, the mortgagee or vendor may file a complaint to initiate foreclosure. “Except as prescribed in [MCR 3.410], the general rules of procedure apply to actions to foreclose mortgages and land contracts.” MCR 3.410(A). A complaint initiating judicial foreclosure is properly filed in the circuit court in a county where any part of the premises is located. MCL 600.1605(c).
Specifically, and in addition to complying with MCR 2.111(B), a complaint for foreclosure or satisfaction of a mortgage on real estate or a land contract must indicate “whether an action has ever been brought to recover all or part of the debt secured by the mortgage or land contract and whether part of the debt has been collected or paid.” MCR 3.410(B)(1). A mortgagee or vendor may not initiate foreclosure proceedings if judgment for the amount due or part of the amount due has been entered in another civil action, unless the judgment is unsatisfied and the mortgagor or vendee has “no property . . . out of which to satisfy the execution except the mortgaged premises.” MCL 600.3105(1).
The complaint must join all necessary and proper parties to the suit. MCR 2.205; Dederick v Barber, 44 Mich 19, 21-22 (1880) (mortgage). The complaint must be made by or on behalf of the real party in interest. MCR 2.201(B).
MCR 2.102, MCR 2.105, and MCR 2.106 govern the parties to be served and the manner in which service is to be accomplished. See MCL 600.3101.
B.Mortgagor’s or Vendee’s Right to Cure
A mortgagor or vendee may cure his or her default and the complaint must be dismissed if the mortgagor or vendee, at any time before the foreclosure sale, “bring[s] into court” the “principal and interest due, with costs.” MCL 600.3110. A mortgagor or vendee may “bring[ the amount due] into court” by paying the amount into the court or by tendering the amount in open court. Manzeta v Heidloff, 371 Mich 248, 250 (1963) (mortgage; as applied to former version of statute). This provision applies only when there is principal and interest due at the time of the complaint and when other payments will subsequently become due. MCL 600.3110; Dumas v Helm, 15 Mich App 148, 152 (1968) (land contract). Consequently, the provision does not apply when a mortgagee or vendor has elected to accelerate payment of the entire remaining balance on the mortgage or land contract. Sindlinger v Paul, 428 Mich at 165. Once a mortgagee or vendor has exercised his or her right to initiate foreclosure and to demand payment of the entire debt, a mortgagor or vendee may not cure the default by paying only the amount in arrears. Id.
A mortgagor or vendee is entitled to a stay of the proceedings if after the judgment of sale, “[he or she] brings into court the principal and interest due with costs[.]” MCL 600.3120. However, “the court shall enter a judgment of foreclosure and sale to be enforced by a further order of the court upon a subsequent default in the payment of any portion or installment of the principal, or of any interest thereafter to become due.” Id.
“When a plaintiff files a complaint to foreclose on a mortgage, the trial court may order foreclosure ‘sufficient to discharge the amount due on the mortgage on real estate . . . plus costs.’” Mercantile Bank Mtg Co, LLC v NGPCP/BRYS Centre, LLC, 305 Mich App 215, 226 (2014), quoting MCL 600.3115. A judgment of foreclosure must calculate and state the amount owed under the written instrument. Mercantile Bank Mtg Co, LLC, 305 Mich App at 226. “The mortgagor is entitled to credits on the indebtedness for partial payments made before the judgment of foreclosure.” Id., citing Dusseau v Roscommon State Bank, 80 Mich App 531, 549 (1978). In Mercantile Bank Mtg Co, LLC, the trial court erred when it failed to make a determination in regard to the parties’ dispute over the amount owed on the underlying debt. Mercantile Bank Mtg Co, LLC, 305 Mich App at 228. The Court of Appeals remanded the case to the trial court to determine what credits were due and to order judgment in the amount sufficient to discharge the debt, plus costs. Id.
The requirements of a sale under a judgment of foreclosure are:
•At least 42 days’ notice must be given of the sale. MCR 3.410(C).
•Publication of the sale may not begin until expiration of the time allowed for payment of the amount due. MCR 3.410(C).
•The sale may not occur until six months after the complaint for foreclosure of a mortgage was filed, or until three months after the complaint for foreclosure of a land contract was filed. MCL 600.3115; MCR 3.410(C)(1)-(2).
The notice requirements for a judicial foreclosure sale are the same as if the property was being sold on execution.2 MCL 600.3125; MCL 600.6091. Written or printed notice of the time and place of the sale and a description of the property to be sold must be posted for at least six weeks prior to the sale in three public places in the township or city where the property is to be sold. MCL 600.6052(1). If the place of the sale is different from the location of the property to be sold, notice must be posted in three public places in the city or township where the property is located. Id. In addition, a copy of the notice must be published once a week for six consecutive weeks prior to the sale in a newspaper printed in the county in which the premises are located. MCL 600.6052(2). If there is no newspaper in the county, the notice must be published in a newspaper printed in an adjoining county. Id.
If the sale is adjourned for more than a week, notice of the changed date must be published in the same newspaper as was the original notice; notice of the changed date must also be posted where the sale is to be held. MCL 600.6052(3). The posting and publication of the notice must continue throughout the adjournment until the date of the sale. Id.
The sale must be public and must be held between the hours of 9 a.m. and 4 p.m. at the circuit court in the county where the property is located, or at another place as directed by the court. MCL 600.3125. The county clerk, a deputy county clerk, or another person authorized by the court must conduct the sale. Id.
Before the sale takes place, the circuit court may determine a minimum price, or “upset” price, that a buyer must bid for the property. MCL 600.3155. This price should be based on the fair value of the property, rather than the unpaid outstanding balance on the property. James S Holden Co v Applebaum, 267 Mich 632, 635-636 (1934) (land contract). In fixing an upset price, the court also has discretion to fix the amount of the deficiency, if any, along with the upset bid, and to decree that if no bid larger than the upset price is submitted, then the property shall vest with the mortgagee or vendor, as if he or she had made such a bid. Kramer v Davis, 371 Mich 464, 471-472 (1963) (land contract).
Although inadequacy of the price bid alone does not justify setting aside a sale, a sale may be set aside where the price bid was grossly inadequate and there was fraud, mistake, or general unfairness in the proceedings. Greenberg v Kaplan, 277 Mich 1, 7-8 (1936) (land contract). A party may be given the opportunity to redeem a foreclosed property after the expiration of the redemption period when a “shockingly inadequate price” was bid and circumstances amounted to “unfairness bordering . . . on fraud[,]” even though the foreclosure sale technically complied with requirements. In re Spears Estate, 359 Mich 90, 96 (1963) (sheriff’s sale).
While there is no express statutory requirement that the court confirm the foreclosure sale, this was the common-law practice, and confirmation of the sale is referred to in MCL 600.3150 (court determines any deficiency judgment after confirmation of the report of sale). “Confirmation by the court is not a mere ministerial act but a judicial function involving consideration of the circumstances in each instance and the exercise of sound discretion.” Detroit Trust Co v Hart, 277 Mich 561, 563 (1936) (mortgage).
As a general rule, the trial court has broad discretion in confirming a sale. Provident Mut Life Ins Co of Philadelphia v Vinton Co, 282 Mich 84, 89 (1937) (mortgage); Detroit Trust Co, 277 Mich at 563. “Mere irregularities are not sufficient to prevent confirmation.” Provident Mut Life Ins, 282 Mich at 89. However, “the equity court in the exercise of a fair discretion upon proper showing being made may decline confirmation of a mortgage sale in an equitable foreclosure proceeding if the amount bid is inadequate to the extent that it shocks the conscience of the court.” Mich Trust Co v Cody, 264 Mich 258, 263 (1933) (mortgage).
After the sale, the person conducting the sale must complete a certificate containing a description of the premises sold, the price bid for each lot or parcel, the money paid for each lot or parcel, and the period of redemption.3 MCL 600.6055(1)(a)-(d). The certificate, once certified by the register of deeds, is prima facie evidence of the information contained in the certificate, the regularity of the sale, and the regularity of all proceedings before the sale. MCL 600.6055(3).
The original judgment of foreclosure must indicate “which defendants, if any, are personally liable . . . for the mortgage debt.” MCL 600.3150. After confirmation of the report of sale,4 the court must determine any deficiency amount for which a defendant is responsible. Id.; MCL 600.3160. The deficiency amount is any amount of principal, interest, or costs remaining unpaid after applying the amount paid for the premises to the total amount due on the mortgage or the land contract. MCL 600.3150. Any surplus moneys after applying the amount paid for the premises to the remaining debt must be “brought into court for the use of the defendant, or of the person entitled to it, subject to the order of the court.” MCL 600.3135(1). See also MCR 3.410(D).
The mortgagor, the mortgagor’s heirs or personal representative, or any person that has a recorded interest in the property lawfully claiming under the mortgagor or the mortgagor’s heirs or personal representative, or the vendee, the vendee’s heirs or personal representative or any person lawfully claiming under the vendee or the vendee’s heirs or personal representative, may redeem the premises sold as ordered under [MCL 600.3115] within six months after the foreclosure sale by paying to the purchaser or the purchaser’s personal representative or assigns, or the register of deeds the amount bid for the premises plus interest from the date of sale. MCL 600.3140(1)-(2). “Unless the premises or any parcel of them are redeemed within the time limited for redemption the deed [from the sale] 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.” MCL 600.3130(1).
“[U]nder MCL 600.3130(1), if a mortgagor fails to avail itself of the right of redemption, all the mortgagor’s rights in and to the property are extinguished.” Can IV Packard Square, LLC v Packard Square, LLC, 328 Mich App 656, 665 (2019).5
The statutory redemption period commences on the date of the sheriff’s sale and not the date the sheriff’s deed is recorded. Great Lakes Prop Mgt Consultants, Inc v HP Foreclosure Solutions, LLC, ___ Mich App ___, ___ (2023) (holding “the statutory redemption period elapsed six months from the date of the sheriff’s sale,” at which time “all right, title, and interest in the property vested in defendant” pursuant to MCL 600.3130(1)). While MCL 600.3232 provides that the deed must be recorded within 20 days of the sale, there is “no remedy for failure to submit the deed to the Register of Deeds within 20 days” because MCL 600.3232 does “not correlate the recording of the deed to the redemption period or state that the recording date becomes the period from which the redemption period runs.”6 Great Lakes Prop Mgt Consultants, Inc, ___ Mich App at ___ (quotation marks and citation omitted) (noting the “parties and the trial court appear to have [mistakenly] believed that the recording of the sheriff’s deed commenced the statutory redemption period”).
Committee Tip:
Just as a person claiming under the mortgagor may redeem the premises, a person claiming under the mortgagee may initiate foreclosure. When the parties to the action are not the same as the original parties to the mortgage, one should check carefully to see how they derived their rights. This is especially true where the plaintiff or the defendant is a trustee or executor for an estate whose authority is sharply defined (which may or may not include the authority to foreclose or redeem). A trust mortgage has additional clearly delineated procedures. See MCL 600.3170; MCR 3.403(E). A routine issue in a foreclosure proceeding is the standing of a party to seek the relief being sought.
The court is authorized to add to the redemption figure the amount of taxes or insurance premiums paid after the foreclosure and prior to the expiration of the redemption period if under the terms of the mortgage the mortgagor would have been liable for taxes or insurance had the mortgage not been foreclosed. MCL 600.3145. However, if the property is not redeemed, the taxes or insurance premiums paid after the confirmation of sale must not be added to or included in any deficiency judgment against the mortgagor. Id.
G.Setting Aside a Judicial Foreclosure Sale
Setting aside a sale after judicial foreclosure requires “a strong case” and “some peculiar exigency[.]” Detroit Trust Co v Agozzinio, 280 Mich 402, 405-406 (1937). “‘When property is exposed for sale under a judicial decree, and offered to the highest bidder, and the sale is without fraud, and is fairly conducted, after proper notice, and is struck off to a third person, it will require a strong case, and some peculiar exigency, to warrant a court in setting it aside.’” Id., quoting Page v Kress, 80 Mich 85, 89 (1890).