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If Mortgage Debt is Not Paid in Full, Funds Beyond Mortgagee’s Bid are Not Surplus Proceeds

Posted By USFN, Monday, June 17, 2019
Updated: Tuesday, June 18, 2019

by Matthew Levine, Esq.
Trott Law, PC
USFN Member (MI, MN)

The Michigan Court of Appeals, once again, addressed the rights of a foreclosing mortgagee to foreclosure sale proceeds.  In re Claim for Surplus Funds, BAERE Co. v Specialized Loan Servicing, LLC, Case No. 344016, the foreclosing party, Specialized Loan Servicing, LLC. (“SLS”) brought a mortgage loan to foreclosure and submitted a bid in the amount of $20,300.00, which represented only a portion of the $51,915.75 total debt.   On the date of sale, a third party successfully purchased the property for $51,915.75. The Kent County Sheriff turned $20,300.00 over to SLS, however, the Sheriff held onto the remaining funds.

Prior to the foreclosure sale, BAERE Co. purchased the subject property from the mortgagor. Following the foreclosure both BAERE and SLS filed claims for the funds held by the sheriff. SLS claimed the funds as the mortgage remained unsatisfied. BAERE claimed the funds as the successor to the mortgagee under MCL 600.3252.  Given the fact that two parties claimed the same funds, the issue was left for the court to “make an order in the premises directing the disposition of the surplus moneys or payment thereof in accordance with the rights of the claimant or claimants or persons interested,” MCL 600.3252.

BAERE made two arguments that ultimately became the subject of appeal. First, it argued that, because SLS received $20,300.00 as proceeds from the sale, and a foreclosure satisfies the underlying mortgage, SLS was not entitled to the remaining funds. Second, BAERE argued that because SLS provided a specified bid in an amount less than the total debt, it was acquiescing to satisfaction of the debt in an amount less than the total debt. The Kent County Circuit Court found in favor of SLS and BAERE appealed. While this issue has been with the Michigan Court of Appeals, this represents the first published opinion directly on the topic.

The primary questions were whether the mortgage was satisfied upon receipt of its bid amount and whether there was a surplus. MCL 600.3252 includes the phrase “after satisfying the mortgage on which the real estate was sold.” The Court of Appeals noted:

The terms “satisfy” and “surplus” are not defined in the statute. As a result, we will consult the dictionary to determine the common and ordinary meanings of the words. See Krohn v Home-Owners Ins Co, 490 Mich 145, 156; 802 NW2d 281 (2011). The word “satisfy” is defined, in relevant part, as “to carry out the terms of (as a contract); DISCHARGE,” and “to meet a financial obligation to.” Merriam-Webster’s Collegiate Dictionary (11th ed). Merriam-Webster’s collegiate Dictionary (11th ed) defines “surplus,” in pertinent part, as “the amount that remains when use or need is satisfied.”

The Court of Appeals held that satisfaction of the mortgage, as used in MCL 600.3252, necessarily means satisfaction of the debt, unless the total amount due under the mortgage is paid. In the matter before the Court, the total debt was not paid, therefore, the mortgage was not satisfied. Specifically, the Court held

 it is unambiguous that ‘satisfying the mortgage’ refers to paying off the entirety of the debt secured by the mortgage. In other words, satisfying a mortgage and extinguishing the mortgage are not synonymous. It is therefore beyond dispute that respondent’s mortgage was not ‘satisfied,’ and no surplus funds existed for petitioner to seek.

BAERE alternatively argued that submission of a bid amount less than the total debt is an express agreement to accept less than the debt amount as satisfaction, thus any additional amount would constitute a surplus. The Court of Appeals held that a bid sheet is not a contract or a binding admission establishing the debt (“We are aware of no law requiring mortgagees to bid the full amount owed during a foreclosure sale, and we decline to create any such law.”)

It is, of course, possible that one of the parties will appeal this decision, and that the Michigan Supreme Court will agree to hear the matter; however, this appears to be an unlikely outcome. Assuming the Michigan Court of Appeals decision remains in place, it is expected that counties across Michigan will modify their procedures in order to comply with BAERE.   Until such a time that procedures fully complying with BAERE are implemented, each case should be reviewed on an individual basis for a determination as to whether the foreclosing entity is entitled to additional funds from the sheriff’s sale proceeds.


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