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Michigan: Court of Appeals Reviewing Whether a Foreclosing Mortgagee is Entitled to Receive Third-Party Overbid Proceeds from Sheriff’s Sale

Posted By USFN, Tuesday, May 10, 2016
Updated: Monday, May 2, 2016

May 10, 2016

by Christene M. Richter
Orlans Associates, P.C. – USFN Member (Michigan)

A case currently pending before the Michigan Court of Appeals seeks to determine whether the foreclosing mortgagee is entitled to receive third-party overbid proceeds from a sheriff’s sale where the mortgagee submitted a specified bid for less than the total debt owed on its mortgage. [In Re Surplus Proceeds from Sheriff’s Sale]. While the term “overbid” is not defined by statute in Michigan, the term is commonly used by those conducting foreclosure sales to describe the amount by which a third-party purchaser outbid the foreclosing mortgagee to purchase the premises at a sheriff’s sale.

The dispute at hand concerns interpretation of the section of the nonjudicial foreclosure statute pertaining to disposition of surplus funds. The court has been asked to make a determination under MCL 600.3252 of whether submission of a specified bid operates to satisfy the mortgage, thereby precluding the foreclosing mortgagee from receiving overbid proceeds from a third-party sale. MCL 600.3252 provides that a surplus arises if there are excess funds derived from the sheriff’s sale “after satisfying the mortgage on which the real estate was sold….” When a surplus arises under these circumstances (i.e., after satisfaction of the mortgage on which the real estate was sold), the mortgagor, his legal representative or assigns, or any subsequent lienholders are potentially entitled to the surplus funds according to their respective interests in the property.

In the matter before the appellate court, the foreclosing mortgagee submitted a specified bid for substantially less than the mortgage debt. A third-party purchaser submitted an overbid of $11,000 to purchase the foreclosed property, which was still substantially less than the total mortgage debt. The sheriff’s office disbursed the full amount of sheriff’s sale proceeds to the foreclosing mortgagee, determining that the final sale price was less than the total mortgage debt.

The third-party purchaser obtained an assignment of the borrower’s right to any surplus proceeds, and filed a petition with the court to claim the $11,000 overbid. The third-party purchaser asserted that the mortgage was satisfied upon receipt of the sale proceeds in the amount of the foreclosing mortgagee’s specified bid, and the remaining $11,000 overbid was therefore a “surplus” as defined by MCL 600.3252.

On competing motions for summary disposition, the trial court ruled in favor of the sheriff’s office and the foreclosing mortgagee, determining that submission of a specified bid for less than the mortgage debt does not operate to satisfy the mortgage as contemplated by MCL 600.3252. The third-party purchaser appealed the trial court’s ruling. As of the date of this publication, the Michigan Court of Appeals has not scheduled a date for oral argument.

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