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Opinion Date: 07/30/2012
e-Journal Date: 08/02/2012
Full Text Opinion

Practice Area(s):   Real Property

Issues: Claims involving the issue of the priority of competing liens between a court-appointed receiver and the holder of a first-recorded mortgage on real property; Whether the common law rule permitting the court to give priority to a receiver should be extended to the foreclosure-by-advertisement context even though application of that rule would contradict the priorities established by a 1846 statute (MCL 600.3236); Bailey v. Bailey; Fisk v. Fisk: Attica Hydraulic Exch. v. Seslar; In re Lamphere; In re Dissolution of Henry Smith Floral Co.; Detroit Trust Co. v. Detroit City Serv. Co.; In re Rite-Way Tool & Mfg. Co.; Gray v. Lincoln Hous. Trust; Consent; Waiver; Quality Prods. & Concepts v. Nagel Precision, Inc.
Court: Michigan Supreme Court
Case Name: In re Receivership of 11910 S. Francis Rd.
e-Journal Number: 52305
Judge(s): M.B. Kelly, Young, Jr., Markman, and Zahra; Dissent - Cavanagh, M. Kelly, and Hathaway

The court concluded that because MCL 600.3236 operates to preserve the order of priority after the expiration of the applicable redemption period, it necessarily follows that the order of priority for any liens preexisting the mortgage that is the subject of the foreclosure will remain as it did at the time of the mortgage's execution. Because this statutory provision cannot be reconciled with the common law rule (that receivership expenses are entitled to first priority) and because that rule has never been applied to a foreclosure by advertisement under § 3236, the court declined to extend the common law rule here. Thus, the statute controlled. The case involved the issue of the priority of competing liens between a court-ordered receiver and the holder of a first-recorded mortgage on real property. The receiver (appellee-Woods) sought to recover receivership expenses before the holder of the first-recorded mortgage (intervening-defendant/appellant-Dart Bank) satisfied its mortgage interest. The Court of Appeals relied on Bailey and Fisk and its decision in Attica to hold that because Dart did not object to and benefited from the receivership, it "may be held responsible for the receivership expenses." The case required the court to decide whether the general common law rule permitting the court to give priority to a receiver should be extended to the foreclosure-by-advertisement context even though the application of that rule would contradict the priorities established by the statute. The real property at issue was previously owned by S, and secured by a single mortgage held by Dart, which was recorded on 8/8/03. Upon S's death in 4/07, the property was bequeathed to K. At the time the property was valued at $350,000 and the mortgage balance was less than $170,000. In 9/07, plaintiffs sued K to collect a judgment in an unrelated case. When they learned K had inherited the property from S, they moved for the appointment of a receiver to seize and sell the property in order to satisfy all or part of the judgment against K. Dart was not given notice of the motion for a receivership. In 4/08, the trial court granted plaintiffs' request for a receivership and appointed Woods as receiver. Later, the trial court entered an amended stipulated order of appointment, authorizing Woods to take possession of the property, keep, manage, and preserve it. Since the property was uninhabitable, Woods borrowed $20,000 to finance repairs. About a month before the receiver's appointment, K defaulted on the mortgage and Dart initiated foreclosure proceedings by advertisement in 4/08. At the 6/08 sheriff's sale, Dart purchased the property for $169,312.50, which was the amount due on its mortgage and obtained a sheriff's deed subject to the one-year redemption period. The next month Woods moved to void the sale arguing that Dart violated the court's receivership order. Dart intervened in the case. Dart received title to the property on 8/26/09. Woods moved to hold Dart liable for payment of the costs incurred by the receivership ($41,874.57). He argued that Dart had acquiesced and benefited from the receivership and he was entitled to reimbursement of his costs and fees from Dart. The trial court agreed and entered an order granting Woods a lien on the net proceeds of the sale of the property, which was given priority over Dart's preexisting mortgage. The Court of Appeals affirmed. The court held that assuming a receiver's lien postdates the mortgage subject to foreclosure under MCL 600.3236, as the receiver's lien did here, "it is clear that the receiver's interest under the lien will be subordinated to the interests of the purchaser and any prior lien holders." A mortgagee may waive its right of first priority satisfaction of its lien, but the waiver must be "explicitly and unequivocally given." The court reversed the judgment of the Court of Appeals imposing on Dart the costs of the receivership and remanded for entry of an order in Dart's favor.

The dissenting justices would hold that "a mortgagee may also waive its superior priority rights if the mortgagee acquiesces to and benefits from the receivership." In the justices' view "Bailey and Fisk indicate that although consent by the mortgagee is one method by which a receiver may obtain superior priority, acquiescence by a mortgagee is also sufficient to grant a receiver's expenses priority over a preexisting mortgage." The justices opined that at a minimum, Dart acquiesced to the receivership. Further, while Dart initiated a foreclosure by advertisement before it was aware of the receivership, after receiving actual notice of the receivership only three days later, Dart expressed its willingness to work with the receiver. Also, Dart benefited from the receiver's efforts to repair, preserve, and protect the property because the repairs increased the property's value. The justices would affirm the judgment of the Court of Appeals, because Dart waived its statutory right to superior priority under § 3236 since it had knowledge of the receivership, acquiesced to it, and benefited from the receiver's efforts to repair, preserve, and protect the property.

Full Text Opinion

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