Second Mortgage Lender's Redemption Rights After a Foreclosure Sale

[wmublows]

My question involves a mortgage in the state of: Michigan

Hello I live in Michigan and have recently purchased a house, which I intend to live in, at a sheriff's sale. The home I purchased had two mortgages on it with two different lenders, both of which were foreclosed. The Senior loan is from 1994 and the balance on it is 79k and the junior loan is from 2001 with a balance of 90k (This was a revolving line of credit). The sheriff sale was for the first mortgage and the lender put in their bid amount and I bid higher and received a sheriff's deed. I know there is a six month redemption period in Michigan, which I do not want to wait for the pass and I fear the house may be torn to shreds by that time. I contacted the current owner who is still living in the home and offered her 5k to sign a quitclaim deed and vacate the premises, to which they agreed. The sale went over the first lenders opening bid by 26k. I assume that the 26k will go to the second lender as there are no back taxes or any other liens on the property.

1. The second lender did not attend the sheriff sale nor bid on it. Can they still redeem the property during the 6 month redemption period and who exactly are they redeeming it from if the first lien is paid off and I own the deed?

Also, The second lender filed a law suit against the home owner and the first lender for rights to have position one and the right to foreclose. My lawyer tells me that it makes no sense for them to do this and they are wasting their time.

2. The second lender will be getting roughly 26k from the foreclose so why wouldn't they just take the money and sue for deficiecy or write the rest off? Why would they want to sink in 79k on top of the 90k they are already owed and have to try and sell the home?

[flyingron]

Actually the other lien holders do not have any redemption rights. Only the mortgagor (the foreclosed upon borrower) has that right.
I agree with your lawyer. They'd have to show some really major screw up to retroactively displace the primary lien holder from their position.

[wmublows]

Well I have talked to three different, highly respected re lawyers and all three state that the junior lien holder can redeem the property for the amount that was foreclosed on by first lender any time during the six month redemption period, which was 82k, just like the homeowner can. Blows my mind that they can do this and not have to bid on it like everyone else at the sheriff sale. I bought it for 106k yet they can come in and snag it for 82k. Yes, I get my money back but it's the principle of the whole thing.

All three also stated that the reason the junior lien holder is fighting for first priority is due to a major filing mixup with the reassignment of loans with the register of deeds. They filed suit on April 25 and the sheriff sale was may 3. This is going to get interesting cause proceedings aren't exa tly quick in this county. I'm curious to see what happens and how this will play out if the junior lien holder wastes six months fighting for first position and their redemption period expires.

I also talked to the law firm that handled the foreclosure for the senior lender and they stated that the redemption period is for the home owner not junior lien holders and that they can't do anything of the sort. Guess it's a waiting game now. Ties up my money but that part of the game.

My lawyer also talked to the junior lien holders lawyer, who actually use to work for my lawyer, and said his client may want to redeem.

Also blows my mind that the junior lien holder would rather sink in 82k on top of the 90k they are already owed than take 24k and get a deficiency or write off the rest. All three lawyers were shocked that they want to redeem but said we shouldn't be surprised due to how banks are run.

[Mr. Knowitall]

Per the Michigan Court of Appeals,

It is well accepted that the foreclosure of a senior mortgage extinguishes the lien of a junior mortgagee where the junior mortgagee did not redeem at the foreclosure sale. Advanta National Bank v. McClarty, 257 Mich.App. 113, 125, 667 N.W.2d 880 (2003), citing Swarthout v. Shields, 185 Mich. 427, 431, 152 N.W. 202 (1915).

Also,

It is well established that a purchaser at a foreclosure sale of a second mortgage takes the property subject to the first mortgage, but the contrary is not true. Bd. of Trustees of Gen. Retirement Sys. of City of Detroit v. Ren-Cen Indoor Tennis & Racquet Club, 145 Mich.App. 318, 322, 377 N.W.2d 432 (1985).

What do the three lawyers at issue argue is different about your case?

[wmublows]

Good question. They simply say that the junior lien holder has every right to redeem the property any time within the 6 month redemption period. I suppose I could ask why they believe this and have them actually show me where it is documented. I have searched and searched the net and have not found one single piece of information supporting their claim. Maybe I need to seek council outside of the county.?.?

[flyingron]

Based on what statute? The statutory right of redemption applies only to the (former) owner by paying off the primary lien fully. The lien holders (primary or otherwise) do not have any such rights. Now the junior lien holder might have some argument that they should have been ahead of the person who foreclosed in primary position (which seems to be what they say) but that has nothing to do with redemption but challenging the whole foreclosure process and the distribution of the money YOU paid at the sale. Normally tho happens on a something like a refinance where the senior lien is paid off and a new primary is taken out that now is junior to the second. However, a simple assignment will NOT change the lien ordering.

[wmublows]

I too would like to know what statute states junior lien holders have a redemption right. It isn't easy to tell a lawyer he is wrong lol. Also let me clarify one thing. The junior lenders lawyer stated that they are suing for rights for first position and if that fails then they plan on redeeming the property. I don't know if it matters but they filed the summonds and complaint on April 25 and the sheriff's auction was held may 3.

[flyingron]

Well I'm sure they want to be in first position and perhaps redo the foreclosure but he is definitely talking about something other than the statutory redemption.

[wmublows]

Well I'm sure they want to be in first position and perhaps redo the foreclosure but he is definitely talking about something other than the statutory redemption.

That is exactly what they are trying to do by filing suit but unless there is something very very messed up then I don't see it being ruled in their favor. First mortgage is dated 1994 by the original lender which was Citizens First Bank corp and then reassigned in march of 2011. The second lender, which was a revolving line of credit is dated 2001 by the second lender and reassigned march of 2012. All liber and page numbers of the first lien are well before the liber and page numbers of the second. Furthermore the second lien (revolving line of credit) was paid off two times and discharged between 2001 and 2007 except for this last amount of course.

[flyingron]

Well I'd wait to see how it plays out. The person who is going to be affected more than you is the (current) primary note holder who got the money from the foreclosure sale.