Monday, July 23, 2012

Michigan Trial Court: No Right Of Redemption When Realty Sold By Court-Appointed Receiver; Rights Typically Associated With F'closures Not Applicable

From a news alert from the law firm Warner Norcross & Judd, LLP:

  • In a victory for banks and other mortgagees, a Michigan circuit court recently held that a sale by a court-appointed receiver does not trigger a right of redemption.

    In First Financial Bank, N.A. v. Scott T. Bosgraaf, a court-appointed receiver sought court approval to sell mortgaged real estate and other property. The mortgagor objected, arguing that the proposed sale would “deprive” the mortgagor of its statutory right to redeem the property.

    The Ottawa County Circuit Court disagreed, concluding that a receiver sale is not a statutory foreclosure, and that the rights that accompany foreclosure, in particular the right of redemption, is "a creature of statute" that is not available following a sale by a receiver.

    The Circuit Court observed that this conclusion should not be surprising since the Michigan Supreme Court has held that a receiver succeeds to all property rights and interest of a debtor, including the debtor's right of redemption.

    It bears noting that the Bosgraaf ruling is an order of a Circuit Court and has no binding effect. It remains to be seen if other courts will follow suit.

    However, if the principle takes hold that a mortgagor has no right to redeem property sold by a court-appointed receiver, banks and mortgage lenders can be expected to turn to receivership sales as a strategy to avoid statutory redemption rights.
  • In a substantial number of these cases, mortgagors will object to a receiver's motion to sell real estate free and clear of their redemption rights, arguing that such a sale is a disguised mortgage foreclosure sale for the sole benefit of the first mortgagee or that it is a "judicial sale" that is subject to the mortgagor's redemption rights.

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