In Feldman, the Michigan court held that where the statute in question provided for no order of priority in redemption, and absent any overriding equitable considerations, "the fairest approach is to grant priority to the first party to exercise its right of redemption."Summary of this case from HSBC Bank USA v. Fenton
Docket No. 52302.
Decided July 13, 1982.
Donald A. Turner, for M.J. Associates. William L. Elson, P.C., for Indian Hills Land Associates.
Plaintiffs instituted this action on August 14, 1977, in Oakland County Circuit Court, seeking foreclosure of the defendants' land contract vendee's interests. The trial court granted summary judgment on the foreclosure claim and scheduled a judicial sale, stating that any defendant could redeem the property during the redemption period, which would end six months after the sale. Accordingly, after the sale, defendant M.J. Associates (M.J.) redeemed the property and received a warranty deed. Shortly thereafter, defendant Indian Hills Land Associates (Indian Hills) filed a motion for removal of the deed from record, issuance by the plaintiffs of a warranty deed to Indian Hills, and to order payment by M.J. as a reduction in the land contract balance. The trial court refused to grant this motion, ruling that M.J.'s redemption of the property had cut off Indian Hills's right to redeem. However, the court declared the existence of an equitable mortgage on the property in favor of Indian Hills. M.J. appeals and Indian Hills cross-appeals those rulings.
This case began with the sale by land contract of a parcel of real estate by the plaintiffs to David J. Wood on January 22, 1971. Wood assigned his land contract vendee's interest to Indian Hills some six months later. Indian Hills subsequently assigned its interest to Freeland Investment Company, Inc., which in turn assigned its interest to Fentown Associates, who subsequently assigned their interest to M.J.
When the dust had cleared, M.J. held the land contract vendee's interest subject to five vendor's liens held by the previous sellers.
The trouble began when M.J. stopped making payments to Indian Hills, which in turn stopped making payments to the plaintiffs, who thereupon sought foreclosure of their vendor's lien. Plaintiffs bought the property at the judicial sale for $55,300.28. The sale took place on June 30, 1978. On December 20, 1978, M.J. redeemed the property. Nine days later, Indian Hills attempted to redeem the property.
The trial court found that at the time of foreclosure, Indian Hills owed the plaintiffs $54,401 and M.J. owed Indian Hills $205,000. The court ruled that M.J.'s indebtedness to Indian Hills should be reduced by the amount M.J. had paid for the redemption. The court then declared an equitable mortgage in favor of Indian Hills as security for the remaining indebtedness.
On cross-appeal, Indian Hills contends that the trial court erred in ruling that Indian Hills had lost its right to redeem by virtue of M.J.'s redemption.
Redemption after land contract foreclosure is governed by MCL 600.3140; MSA 27A.3140, which provides in part:
"The vendee of a land contract, his heirs, executors, administrators, or any person lawfully claiming from or under him or them may redeem the entire premises sold within 6 months from the time of the sale by paying to the purchaser, his executors, administrators, or assigns or to the register of deeds in whose office the deed of sale is deposited as provided in the court rules, for the benefit of the purchaser, the sum which was bid with interest from the time of the sale at the rate percent borne by the land contract. * * * After these sums have been paid the deed of sale is void and of no effect, * * *."
The statute on redemption is silent on the problem of priority between parties entitled to redeem. Absent overriding equitable considerations, we believe that the fairest approach is to grant priority to the first party to exercise its right of redemption. Indian Hills had 5 months and 20 days to redeem before M.J., and did not attempt to redeem until 2 days before the expiration of the redemption period.
We hold that a valid redemption of property generally operates to cut off the redemption rights of other parties entitled to redeem.
On appeal, M.J. contends that the trial court erred in declaring an equitable mortgage in favor of Indian Hills. The court issued its ruling in the following manner:
"Equitable considerations also dictate that there exists on the property, an equitable mortgage in favor of Indian Hills. As the court clearly held in the July 3rd opinion, the redemption by M.J. Associates did not operate to extinguish their debt on the land contract to Indian Hills, rather the debt was reduced by the count [sic] paid by M.J. Associates for the redemption.
"`The power of a court of equity to decree an equitable mortgage under proper circumstances * * * is well established.' Id., 587.
"The court finds the `proper circumstances' to be present in the case at bar. Inasmuch as an equitable mortgage vests the grantee-mortgagee with the right to bring an action for foreclosure, in the event that the obligation of the grantor as mortgagor is not performed, In re Van Duzer, 390 Mich. 571 [ 213 N.W.2d 167] (1973), Indian Hills's interests are protected."
We agree with the trial court's determination that equitable considerations dictated the imposition of an equitable mortgage. Prior to M.J.'s default on its obligation to Indian Hills, Indian Hills held a vendor's lien on the property. We do not believe that, under the circumstances of this case, M.J. should be permitted to utilize its redemption of the property to defeat Indian Hills's security interest. A vendor's lien was provided for in the original contract between M.J. and Indian Hills; as between those two parties, the contract remains in force.
According to McAlpine v Meehan, 312 Mich. 107; 19 N.W.2d 765 (1945), a purchaser at a tax sale merely restores the chain of title and equity will enforce all contracts that existed prior to the tax sale where the sale is necessitated by a breach of a covenant to pay taxes. The McAlpine rationale is persuasive in the present context where the judicial sale occurred as a result of M.J.'s failure to make payments on its land contract.
We recognize that the McAlpine holding was based on a particular statutory provision governing tax sales, 1948 CL 211.353, and that no analogous provision exists with respect to redemptions. For that reason we must concede that McAlpine is distinguishable from the present situation. Nevertheless, we believe that the statute on tax sales or property was shaped by equitable considerations and that the same considerations justify application of a similar approach to the case at bar.
We find the equities approximately equal in this case and believe that justice would be best served by restoration of the parties to their original positions. Because that is precisely what the trial court did, its judgment is affirmed.
Affirmed. No costs, neither party having prevailed in full.