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Court of Appeals upholds ruling on surplus funds remaining after foreclosure

16.08.2017 by Law Firm of Seglund Gabe Pawlak & Groth in Elder Law

The Court of Appeals holds that, pursuant to MCL 600.3252, a junior mortgagee was entitled to the surplus funds remaining after the foreclosure sale of a first mortgage had satisfied the first mortgage in full.

In Parker v. PNC Bank, NA (In re $55,336.17 Surplus Funds), 2017 Mich App LEXIS 754 (May 9, 2017)(for publication), the Michigan Court of Appeals held, in a case of first impression, that a junior mortgagee was entitled to the surplus funds remaining after the foreclosure sale of a first mortgage had satisfied the first mortgage in full.

The pertinent facts were as follows: In March, 2003, decedent Kathryn Kroth and her husband, Thomas Kroth, gave to National City Mortgage Services Co. a mortgage on real property located in Brighton, Michigan (“the Property”). In February, 2008, the Kroths executed a second mortgage on the property in favor of National City Bank. After a series of mergers, PNC came to hold both mortgages. Thomas Kroth predeceased his wife, who died in December, 2014. Following default, PNC initiated a foreclosure of the first mortgage by advertisement. The Property was purchased at a September 2, 2015 sheriff’s sale by a third party for an amount sufficient to satisfy the first mortgage and create a surplus of $55,336.17.

A month after the sale, PNC filed a verified claim for the surplus proceeds in the circuit court as holder of the junior mortgage, still worth $119,538.40, and the surplus amounts were thereafter deposited with the court.  In December 2015, the personal representative of the estate of the decedent mortgagor filed a notice of claim to the proceeds in the circuit court. The trial court granted PNC’s motion to disburse the funs and awarded the surplus funds to PNC. The Estate appealed.

The Estate argued that it was entitled to the surplus funds because the junior PNC mortgage had been extinguished at the foreclosure sale. PNC argued that after the sale of property, there was a statutory period during which a junior mortgagee has a right to redeem the property and therefore, its security interest in the property was not extinguished until the expiration of the redemption period, which had not yet occurred.

The Court of Appeals sidestepped the issue of whether the junior mortgagee’s security interest in the property continued to exist until the expiration of the statutory redemption period, and held that the junior mortgagee retained a right to claim a priority interest in the surplus funds over the mortgagor as a subsequent mortgagee or lienholder at the time of the foreclosure sale pursuant to the explicit language of MCL 600.3252.

The Court stated:

“The plain language of MCL 600.3252 provides that the surplus should be paid to the mortgagor “unless at the time of the sale, or before the surplus shall be so paid over” a claim is filed by a subsequent mortgagee or lienholder. The Legislature therefore provided a time period during which a subsequent mortgagee or lienholder may file a claim to foreclosure sale surplus proceeds, without regard to continuing security interests in the property itself or the statutory redemption period.  PNC filed a verified claim for the surplus just over a month after the foreclosure sale, and the surplus was deposited with the circuit court on the same day. It follows that the surplus had not yet been paid to appellant, and appellant does not assert otherwise. Nor does appellant assert that PNC’s claim was otherwise untimely. PNC complied with MCL 600.3252‘s plain language and was therefore entitled to consideration as a claimant to foreclosure sale surplus proceeds under the statute.”

At Seglund Gabe Pawlak Groth & Kelley, PLC, our real estate attorneys are experienced in litigation involving real property, both at the trial and appellate levels. Contact us if you find yourself needing to consult with or retain an experienced real estate attorney.

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