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Redemption After Foreclosure

Foreclosure Three BHRedemption following a statutory foreclosure is a pretty clear process: a party may pay the amount bid at foreclosure sale, plus allowable interest, costs, and recorded expenses, and save their property. Once the redemption period expires, however, all interest previously held by a mortgagor vests in the holder of the sheriff’s deed. Specifically, unless redemption is made within the statutory period, the sheriff’s “deed shall thereupon become operative, and shall vest in the grantee therein named, his heirs or assigns, all the right, title, and interest which the mortgagor had at the time of the execution of the mortgage…” MCL §600.3236. Once the redemption period expires, a former mortgagor loses the ability, or at least the realistic ability, to challenge the foreclosure and the underlying mortgage. See also Bryan v JPMorgan Chase Bank, 848 NW2d 482 (“The law in Michigan does not allow an equitable extension of the period to redeem from a statutory foreclosure sale in connection with a mortgage foreclosed by advertisement and posting of notice in the absence of a clear showing of fraud, or irregularity. Once the redemption period expired, all of plaintiff’s rights in and title to the property were extinguished,” citing Overton v Mortgage Electronic Systems, unpublished, issued May 28, 2009, Docket No. 284950). It is not an understatement to state that when possible, redemption is the best post-foreclosure avenue for retaining property ownership.

In Johnston v Sterling Mortgage & Investment, Michigan Court of Appeals Case No. 324855, Unpublished March 15, 2016, Approved for Publication June 14, 2016, the Michigan Court of Appeals addressed the question of whether or not alleged actions attempting to tender redemption were good enough. Sterling was the successful purchaser after a foreclosure sale. As the owner, it executed an affidavit of purchaser, as required by statute. The Johnstons, in defending against eviction in a summary proceedings action, argued that Sterling violated, or frustrated, the redemption statutes, by failing to allow redemption of the property. Sterling argued that the Johnstons never actually attempted to pay funds for redemption. In addition, so said Sterling, the Johnstons could have redeemed the property with the Register of Deeds, if they believed Sterling to be uncooperative.

The Johnstons relied, in part, upon Lam v Jeffrey, 47 Mich 28 (1881) in which “the issue was whether there had been a tender and a subsequent refusal to receive the tender. The Michigan Supreme Court held that even if there was no direct refusal to receive funds, the mortgagee ‘managed to avoid it for the purpose of obtaining the land on foreclosure,’” Johnston, pg. 6. The Johnstons argued that Sterling could not refuse to accept tender of redemption, and then claimed that the expiration of the redemption period terminated any and all interests held by the Johnstons. The Johnstons additionally relied upon Karakas v Dost, 67 Mich App 161 (1976), a land contract case in which the Michigan Court of Appeals found that “valid tender is unnecessary where plaintiff is ready, willing, and able to tender, but defendant, but his acts or words, shows that tender would not be accepted,” Opinion, pg. 6. The Sterling argued that, in the event a party was unable to redeem with the purchaser, the statute allowed for redemption with the register of deeds. The Johnstons, also relying on Karakas, argued that the availability of an alternate location for redemption does not diminish Sterling’s obligation to allow redemption.

The Michigan Court of Appeals first looked at the relevant statute, MCL 600.3240, which states, in relevant part:

(1) A purchaser’s deed under section 3232 is void if 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 redeems the entire premises sold by paying the amount required under subsection (2) and any amount required under subsection (4), within the applicable time limit prescribed in subsections (7) to (12), to the purchaser or the purchaser’s personal representative or assigns, or to the register of deeds in whose office the deed is deposited for the benefit of the purchaser.

(14) the register of deeds of a county with a population of more than 750,00 and less than 1,500,000, at the request of a person entitled to redeem the property under this section, shall determine if the amount necessary for redemption. In determining the amount, the register of deeds shall consider only the affidavits recorded under subsections (2) and (4). A county, register of deeds, or employee of a county or register of deeds in not liable for any damages proximately caused by an incorrect determination of an amount necessary for redemption under subsection (2).

The Parties did not dispute the fact that the statute requires paying of the redemption amount, however, the Johnstons contended that “payment is not actually required when a proper ‘tender’ has been made. Black’s law Dictionary (9th Ed) defines ‘tender’ as:

  1. A valid and sufficient offer of performance; specif., an unconditional offer of money or performance to satisfy a debt or obligation. The tender may save the tendering party from a penalty for nonpayment or nonperformance or may, if the other party unjustifiably refuses the tender, place the other party in default”

Opinion, Pg. 12.

The use of the word tender is found in MCL 600.3248, which states “[i]f any person entitled to receive such redemption moneys, shall, upon payment or tender thereof to him, refuse to make and acknowledge such certificate of payment, he shall be liable to the person aggrieved thereby, in the sum of $100.00 damages, over and above all the actual damages sustained, to be recovered in a civil action.” The Court of Appeals points out that MCL 600.3248 allows for civil liability against a party that refuses tender or payment, however, it is not the relevant statute in determining how redemption is made. MCL 600.3240, as stated above, deals with redemption. MCL 600.3240 does not mention the word tender.

The Court of Appeals went on to simplify the entire matter. Lamb is distinguishable because it pre-dates MCL 600.3240, and, therefore, does not involve requisite statutory interpretation. Karakas is distinguishable “because it involved a land contract and did not involve the Statutory right to redeem in §3240. Additionally, and importantly, the Karakas Court used the terms “pay” and “tender” interchangeably.” Opinion, Pg. 14. The Sterling Court also noted that the statute addressed in Karakas specifically stated that payment of redemption was to be made to the plaintiff, and did not mandate the availability of redemption elsewhere. MCL 600.3240 allows for redemption to be made either the purchasing party, or the Register of Deeds.

In summary, the Michigan Court of Appeals found that to complete redemption, under the statute, payment must be made either to the purchasing party, or to the register of deeds. While this appears obvious under the statute, the Court of Appeals put to rest arguments concerning frustration of redemption, disputes involving tender versus payment, and the availability of the register of deeds as a repository of redemption funds to avoid argument concerning frustration.

About Author: Matthew D. Levine

Matthew D. Levine is a litigation attorney with Trott Law, a Farmington Hills, Michigan-based real estate finance law firm. He can be reached at [email protected]

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