In Moon Lake Condominium Association v RBS Citizens, Case No. 323476 (Michigan Court of Appeals, November 12, 2015, unpublished), the Michigan Court of Appeals held that junior lienholders, such as condominium associations, are not entitled to notice that surplus funds were collected from a foreclosure sale after the first mortgage of record was foreclosed on. At issue in this case was the interpretation of MCL 600.3252, which provides in pertinent part:
If after any sale of real estate, made as herein prescribed, there shall remain in the hands of the officer or other person making the sale, any surplus money after satisfying the mortgage on which the real estate was sold, and payment of the costs and expenses of the foreclosure and sale, the surplus shall be paid over by the officer or other person on demand, to the mortgagor, his legal representatives or assigns, unless at the time of the sale, or before the surplus shall be so paid over, some claimant or claimants, shall file with the person so making the sale, a claim or claims, in writing, duly verified by the oath of the claimant, his agent, or attorney, that the claimant has a subsequent mortgage or lien encumbering the real estate, or some part thereof, and stating the amount thereof unpaid, setting forth the facts and nature of the same, in which case the person so making the sale, shall forthwith upon receiving the claim, pay the surplus to, and file the written claim with the clerk of the circuit court of the county in which the sale is so made; and thereupon any person or persons interested in the surplus, may apply to the court for an order to take proofs of the facts and circumstances contained in the claim or claims so filed. Thereafter, the court shall summon the claimant or claimants, party, or parties interested in the surplus, to appear before him at a time and place to be by him named, and attend the taking of the proof, and the claimant or claimants or party interested who shall appear may examine witnesses and produce such proof as they or either of them may see fit, and the court shall thereupon 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.
Pursuant to MCL 600.3252, any surplus proceeds from a foreclosure sale must be paid on demand to the mortgagor, unless another lienholder makes a claim. However, the Court of Appeals ruled the statute only requires that a mortgagor provide notice to the sheriff and apply to the court to obtain the surplus proceeds. The Court of Appeals held that notice to other lienholders, such as condominium associations, is not required.
The Court of Appeals also held that the Condominium Association failed to protect its lien as its application for surplus funds was untimely. Specifically, the foreclosure sale took place on September 10, 2013. The co-owner filed an application for disbursement of the surplus funds on October 8, 2013. The Condominium Association filed an application for disbursement of the surplus funds on November 22, 2013, which was six (6) weeks after the co-owner’s application and three (3) weeks after the trial court had already ordered that the surplus funds be distributed to the co-owner. While MCL 600.3252 does not provide a specific timeframe to submit an application for surplus funds, the Court of Appeals determined that the law presumes a reasonable timeframe to submit an application. Given that the Court of Appeals held that it was unreasonable for the Condominium Association to wait ten (10) weeks after the foreclosure sale to submit an application for payment of surplus funds, Condominium Associations should submit such applications for surplus funds immediately after the foreclosure sale to protect their interests.
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Kevin Hirzel is a Partner at Cummings, McClorey, Davis & Acho, P.L.C. and runs the community association practice group. He frequently represents Builders, Community Associations, Condominium Associations, Cooperatives, Co-Owners, Developers, Homeowner Associations, Investors, Property Owners and Property Managers throughout the State of Michigan. Cummings, McClorey, Davis & Acho, P.L.C. has Michigan offices in Clinton Township, Grand Rapids, Livonia and Traverse City. Mr. Hirzel can be contacted at (248) 480-8758 or firstname.lastname@example.org. Please view The Michigan Community Association Law Blog at https://micondolaw.com for additional resources on Michigan Community Association Law.