Bankruptcy Cases in the News:

     On February 5, 2013 the 6th Circuit Court issued an interesting opinion concerning creditors’ rights after mortgage foreclosures in In re: Richard K. Miller, No.: 11-2357 (unpublished). The question before the court was whether the Bank’s credit bid at a Michigan Sheriff’s sale (after foreclosure by advertisement) extinguished the debtor’s debt to the bank. The bankruptcy court determined that it did and the 6th Circuit Court of Appeals affirmed/agreed with that decision.

     After the bank foreclosed against the the debtor’s home it bid the full amount of it’s mortgage at the sheriff’s sale and acquired the title, subject to debtor’s rights of redemption. When debtor did not redeem the  bank subsequently sold the home for less than the amount debtor owed and then claimed the difference against the debtor. The court would not allow this action based upon Michigan cases. Specifically holding:

     In Bank of Three Oaks v. Lakefront Properties, 444 N.W. 2d 217, 553 (Mich. Ct. App. 1989)(per curiam), the mortgagee bank bid $147,129.42, constituting the full amount of the debt plus the cost of foreclosure and statutory attorney’s fees, at the foreclosure sale following a Michigan foreclosure by advertisement. When the sheriff’s deed became operative at the conclusion of the redemption period, the bank became the titled owner of the property. Thereafter, the bank sold the property for $150,000.00. The bank filed suit against the mortgagors to collect an alleged deficiency for the interest, taxes, and insurance premiums accrued between the date of the foreclosure sale and the date the redemption period expired. Id. at 554-55. The Michigan Court of Appeals held that “[w]hen property is purchased at a foreclosure sale for an amount equal to the amount due on the mortgage, the debt is satisfied.” Id. at 555 (citing Guardian Depositors Corp. v. Hebb, 287 N.W. 796 (Mich. 1939), and Powers. v. Golden Lumber Co., 5 N.W. 656, 657 (Mich. 1880)). Because the debt was extinguished at the foreclosure sale, the court held that the bank could not pursue any deficiency where the mortgagor did not redeem the property. Id. at 556-557.

     The same legal principals have been applied in other Michigan cases. See Smith v. Gen. Mortg. Corp., 261 N.W. 2d 710, 712-13 (Mich. 1978)(per curiam); Kennedy v. Brown, 15 N.W. 498, 499-500 (Mich. 1883); New Freedom Mortg. Corp. v. Globe Mortg. Corp., 761 N.W. 2d 832, 836 (Mich. Ct. App. 2008); Emmons v. Lake States Ins. Co., 484 N.W. 2d 712, 714 (Mich. Ct. App. July 1, 2008) (unpublished per curiam). Similarly, the Second Circuit applied Michigan law in Chrysler Capital Reality, Inc. v. Grella, 942 F.2d 160 (2d Cir. 1991), to hold that a mortgagee who successfully bid the entire amount of the debt at a foreclosure sale could not thereafter maintain an action for damages against the mortgagor, despite the mortgagee’s allegations that the actual value of the property at the time of the foreclosure sale was far less than the debt and that the mortgagee had been fraudulently induced into making the transaction.

     If you or a loved one have questions concerning your rights or obligations with creditors you should immediately seek a qualified bankruptcy attorney.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]