in Re $55,336.17 Surplus Funds
331880
| Mich. Ct. App. | May 9, 2017Background
- Kathryn Kroth (decedent) owned Brighton, MI property subject to a senior mortgage and a junior mortgage; both ultimately held by PNC after mergers.
- PNC foreclosed the senior mortgage by advertisement; a sheriff’s sale on September 2, 2015 produced a $55,336.17 surplus after satisfying the senior mortgage.
- PNC, as holder of the junior mortgage (with an outstanding balance), filed a verified claim for the surplus under MCL 600.3252 and the surplus was deposited with the circuit court.
- Robert E. Parker, personal representative of Kroth’s estate, filed a competing notice of claim as mortgagor’s representative and objected to disbursement to PNC.
- The circuit court ruled for PNC, concluding MCL 600.3252 permits subsequent mortgagees/lienholders to claim surplus proceeds ahead of the mortgagor; the estate appealed.
- The Court of Appeals affirmed, holding MCL 600.3252 entitles subsequent mortgagees/lienholders to priority in surplus distribution according to recording priority (race-notice principles).
Issues
| Issue | Plaintiff's Argument (Parker) | Defendant's Argument (PNC) | Held |
|---|---|---|---|
| Whether a junior mortgagee’s security interest is extinguished at the foreclosure sale such that it cannot claim surplus under MCL 600.3252 | Junior lien extinguished at sale; PNC no longer a subsequent mortgagee and thus not entitled to priority | Even if lien extinguishment occurs, MNC may claim surplus under MCL 600.3252 if it files a timely verified claim; junior interest for surplus-claim purposes survives | Court: Whether or not lien survives until redemption period, MCL 600.3252 permits a subsequent mortgagee who files a verified claim to assert priority to surplus funds |
| Whether MCL 600.3252 is nugatory if junior liens are treated as extinguished at sale | Statute would be inapplicable; surplus should go to mortgagor/estate and PNC can pursue as creditor under EPIC | Statute was intended to protect subsequent mortgagees/lienholders by giving them a limited priority in surplus proceeds | Court: Statute plainly protects subsequent mortgagees/lienholders; treating them as unable to claim would render the statute nugatory |
| How priority among claimants to surplus is determined | Estate: surplus distribution not governed by clear statutory priority; should be handled through probate claims under EPIC | PNC: priority determined by existing property-priority rules (recording/race-notice) and MCL 600.3252 directs court to distribute according to claimants’ rights | Court: Apply ordinary property-priority rules (race-notice recording principles under MCL 565.29) to allocate surplus under MCL 600.3252 |
| Whether trial court’s lack of factual findings required reversal | Appellant contends absence of findings undermines decision | PNC and court note facts undisputed and parties limited the hearing to legal arguments, waiving fact disputes | Court: No reversible error—no disputed facts, appellant waived challenge to findings; legal conclusion affirmed |
Key Cases Cited
- Rock v. Crocker, 499 Mich 247 (discusses de novo review of statutory interpretation)
- Whitman v. City of Burton, 493 Mich 303 (clear statutory language must be enforced as written)
- Krohn v. Home-Owners Ins. Co., 490 Mich 145 (statutory intent governs interpretation)
- Bank of America, N.A. v. First American Title Ins. Co., 499 Mich 74 (recognizes junior mortgagee entitlement to surplus)
- Advanta Nat’l Bank v. McClarty, 257 Mich App 113 (foreclosure extinguishes junior lien absent redemption)
- Trademark Props. of Mich., LLC v. Fed. Nat’l Mtg. Ass’n, 308 Mich App 132 (title vests in purchaser after redemption period expires)
- Schwartz v. Irons, 4 Mich App 628 (surplus statute intended to protect subsequent mortgage claimants)