Defendants appeal as of right from a judgment holding defendants jointly and severally liable to plaintiff in the sum of $15,550.48 plus statutory interest and costs. We reverse.
This case was tried under the following statement of stipulated facts:
A Note and a Mortgage to the Plaintiff Bank of Three Oaks were executed by Defendant Lakefront Properties, an Illinois partnership and a Michigan co-partnership, on November 28, 1983. As part of that transaction, and on that same date, the individual partner Defendants also executed a form Guarantee prepared by the Bank. While those documents were not formally admitted as evidence at trial, they were annexed to the Complaint filed by the Bank, and their authenticity was admitted. All three documents were standard printed forms, prepared and/or provided by the Bank.
After default, the Bank foreclosed by advertisement. At the foreclosure sale held on August 6, 1985, the Bank bid $147,129.42, which was the amount of principal and interest owing to the Bank on the Note and Mortgage as of that date, plus the costs of foreclosure and statutory attorneys fees related to the foreclosure._
The redemption period expired, and the sheriffs deed became operative, on February 7, 1986, at which time the Bank became the titled owner of the property. Subsequent to the expiration of the redemption period, the Bank sold the property for $150,000.00, with the closing of that sale transaction taking place on June 2,1986.
On September 19, 1986, the Bank filed its Complaint against all these Defendants. On November 12, 1986, by consent, Plaintiff filed its First Amended Complaint, that being a two-count action: in Count i, the Bank sought to recover an alleged "deficiency” of $29,349.30, while in Count ii, the Bank sought to recover the same amount by virtue of an alleged breach of the Guarantee executed by the individual Defendants. That sum sought by the Bank included interest which had accrued on the mortgage debt after the date of the foreclosure sale, and after the expiration of the redemption period, as well as additional insurance costs, taxes, and actual attorneys’ fees. All Defendants thereafter filed their Answers and Affirmative Defenses to the First Amended Complaint, denying liability therefor.
The parties synthesize the trial court’s ruling as follows:
[F]irst, the Bank’s bid of the total amount due it as of the time of the foreclosure sale does not satisfy the underlying debt, so as to discharge the individual guarantors of the debt. Second, the Guarantee executed by the individual guarantor/ Defendants is not coterminous with the Note and Mortgage executed by the Partnership, and affords the Bank greater protection than the Note and Mortgage alone. Third, the Bank is entitled to recover only those expenses and costs which were incurred or accrued up through February 7, 1986, that being the date the sheriffs deed became operative, but not any of the expenses incurred in the subsequent resale of the property to a third party. Finally, the Court also determined that theBank was not entitled to actual attorneys’ fees in this matter.
Defendants Trochelman, Ettington, and Kim and Terry Cook executed a contract guaranteeing the payment of the liability of defendant Lakefront Properties to the plaintiff Bank of Three Oaks. Our first inquiry is what, if any, was the liability of Lakefront to the bank following foreclosure of the property, sale, and expiration of the redemption period without redemption?
When property is purchased at a foreclosure sale for an amount equal to the amount due on the mortgage, the debt is satisfied.
Guardian Depositors Corp v Hebb,
The bank argues that notwithstanding the fact that Lakefront’s note and mortgage were extinguished at the date of sale, Lakefront became liable for interest, taxes, and insurance premiums accruing between the date of the sale and the date the redemption period expired. We disagree. The Legislature has expressly réquired a mortgagor to pay for such items if the mortgagor exercises its right of redemption. MCL 600.3240(1) and (2); MSA 27A.3240(1) and (2). However, no such statutory requirement exists when, as here, the mortgagor opts not to redeem the premises.
The power to render a deficiency decree in foreclosure proceedings is entirely statutory.
Harrow v Metropolitan Life Ins Co,
When, in the foreclosure of a mortgage by advertisement, any sale of real property has been made after February 11, 1933, or shall be hereafter made by a mortgagee, trustee, or other person authorized to make the same pursuant to the power of sale contained therein, at which the mortgagee, payee or other holder of the obligation thereby secured has become or becomes the purchaser, or takes or has taken title thereto at such sale either directly or indirectly, and thereafter such mortgagee, payee or other holder of the secured obligation, as aforesaid, shall sue for and undertake to recover a deficiency judgment against the mortgagor, trustor or other maker of any such obligation, or any other person liable thereon, it shall be competent and lawful for the defendant against whom such deficiency judgment is sought to allege and show as matter of defense and set-off to the extent only of the amount of the plaintiff’s claim, that the property sold was fairly worth the amount of the debt secured by it at the time and place of sale or that the amount bid was substantially less than its true value, and such showing shall constitute a defense to such action and shall defeat the deficiency judgment against him, either in whole or in part to such extent. This section shall not affect nor apply to the rights of other purchasers or of innocent third parties, nor shall it be held to affect or defeat the negotiability of any note, bond or other obligation secured by such mortgage, deed of trust or other instrument. Such proceedings, as aforesaid, shall in no way affect the title of the purchaser to the lands acquired by such purchase. This section shall not apply to foreclosure sales made pursuant to an order or decree of court nor to any judgment sought or rendered in any foreclosure suit nor to any chancery sale heretofore or hereafter made and confirmed.
Following the decision in Erb, supra, the Legislature amended the predecessor to § 3280 but did not include any language such as now appears in § 3240(2) which would nullify the Erb Court’s suggestion that a mortgagee seeking a deficiency judgment is not entitled to interest and taxes accruing after the foreclosure sale. We believe the statutory scheme reveals the legislative intent that, upon foreclosure by advertisement and expiration of the redemption period without redemption by the mortgagor, the mortgagor cannot be held liable in a deficiency action for interest, taxes, or insurance costs accruing after the foreclosure sale.
We now turn to address the issue of the liability of the remaining defendants (the guarantors) to the bank. The trial court found that the language of the guarantee was unambiguous, broader and more comprehensive than that of the note and mortgage, and extended to liabilities incurred following the foreclosure sale.
The pertinent language follows:
The undersigned, jointly and severally hereafter called the "Guarantor”, in order to induce the Beneficiary to extend or continue to extend financial accommodations to the Borrower, hereby guarantees to the Beneficiary the full and prompt payment of all loans, drafts, overdrafts, notes, bills, and all other debts, obligations, and liabilities of every kind and description, whether now owing or hereafter arising out of credit previously, contemporaneously, or hereafter granted by the Beneficiary to the Borrower, whether arising from dealings between the Beneficiary and the Borrower, or from dealings by which the Beneficiary may become in any manner whatever a creditor of the Borrower.
This shall be a continuing Guarantee and shall not be affected by any payment made by the Borrower to the Beneficiary, or whether in the form of cash, property, renewal, or other consideration.
If this Guarantee should be signed by more than one person, all persons having executed the agreement acknowledge that their obligation hereunder shall be joint and several. Each of the parties executing this Guarantee expressly authorizes the Beneficiary to proceed, in its sole and absolute discretion against each or any of them, and further agrees that if the Beneficiary shall proceed against any one of them the other(s) hereby waives any defense of election of remedies and agrees to continue to be liable under the terms of this agreement for any amount remaining owing between the Borrower and the Beneficiary.
We agree with the trial court that the language of the guarantee contract is quite broad and extends to any debts, obligations, and liabilities of Lakefront “arising out of credit . . . granted by the [bank].” Logically, however, the guarantors cannot be liable for a liability which Lakefront never incurred. Because we have previously determined that Lakefront at no time became liable for
Moreover, we are not persuaded that postforeclosure sale interest and expenses represent "liabilities . . . arising out of credit . . . granted by the [bank]” which would fall within the scope of the guarantee. Anyone could have bought Lakefront’s property at the foreclosure sale and would have then incurred the same expenses of which the bank now complains. This makes it apparent that such expenses constitute liabilities arising out of the decision to purchase the property at the foreclosure sale. That decision, whether made by the bank or a third party, is wholly independent from the original credit transaction the guarantee covered.
Rose v Ramm,
A situation similar to the instant case arose in
Based on the law as herein stated, it is our opinion that the amended complaint of the plaintiffs did state a valid claim upon which they could recover from the defendant bank. As accommodation endorsers, the plaintiffs were sureties for the obligation. But as sureties, they were entitled to be afforded protection before having the pledged stock used to satisfy the debt. Since the bank chose not to attempt to bid in the property at the fair market value on the date of the sheriff’s sale and since the trial court found that the property was worth the entire amount of the indebtedness at the time of the sheriff’s sale, no deficiency existed. The absence of a deficiency removed defendant bank’s claim against the additional pledge collateral and, therefore, the money it received from theplaintiffs when they redeemed this collateral was wrongfully obtained and the judgment of the trial court was correct. [Id., p 455.]
Likewise, here, with the bank’s bid at the foreclosure sale of the entire amount of the indebtedness, no deficiency existed and the absence of a deficiency removed any potential claim of the bank under the guarantee.
Plaintiff justifiably points out that during the time between the foreclosure sale and the expiration of the redemption period the bank held only equitable, and not legal, title to the property and accordingly was precluded from selling the property pending expiration of the redemption.
Bankers Trust Co of Detroit v Rose,
Reversed and remanded for entry of judgment in favor of defendants.
Notes
While the precise issue of deficiency liability for postsale taxes and interest was not before the Court in
Erb,
in its opinion, the Court strongly implies that no such liability would lie against the mortgagor in citing
Walton v Bagley,
Because the guarantors were secondarily liable for Lakefront’s primary liability and because liability for postsale taxes and interest for expenses never arose on the part of Lakefront, and therefore a deficiency never existed, we do not need to consider whether defendant guarantors would be able to evoke the deficiency defense set forth in MCL 600.3280; MSA 27A.3280 in an action to recover a deficiency. While this Court has had occasion to consider this issue in the context of a suit to recover a deficiency from a guarantor under the Uniform Commercial Code,
Honor State Bank v Timber Wolf Construction Co,