By Daniel E. Best, Partner
In a published decision on February 20, 2013, the Michigan Court of Appeals clarified what can be included in a deficiency after foreclosure of a mortgage. In the case of Citizens v. Boggs, the Michigan Court of Appeals reviewed a mortgage deficiency action that sought recovery of strictly insurance premiums and taxes on the property. In the case, the mortgagee bid the full amount of principle, interest and costs of the sale. The Court of Appeals defined the bid as a Full Debt bid, but that did not end its analysis.
Prior to the foreclosure sale, the mortgagee had paid for insurance premiums in accordance with the terms of the mortgage. In addition, taxes had become due but were not paid until after the sheriff’s sale was complete. It also paid additional insurance premiums after the sheriff’s sale. The mortgagee sought recovery of the amount it ultimately paid in taxes, as well as the insurance premiums paid both prior to and subsequent to the sheriff’s sale. The trial court denied any recovery, and the mortgagee appealed.
On appeal, the mortgagee argued that as it paid the insurance premiums and taxes in accordance with the terms of the note and mortgage, it is entitled to recover all of these monies. The debtor argued that as the mortgagee did a full debt bid, no further monies could be owed.
The appellate court reviewing the matter acknowledged that a full debt bid was done, but indicated that it was not the end of the analysis. That court identified the key date as being the day of the sheriff’s sale. Basically, that court allowed recovery of any monies actually expended as of the date of the sheriff’s sale. In the case at hand, that meant the monies the mortgagee had actually paid at the time of the sheriff’s sale could be recovered. However, the amount subsequently paid for taxes and additional insurance, even if those obligations accrued prior to the sheriff’s sale, could not be recovered.
For a mortgagee seeking to recover a deficiency balance, the rule is simple. If you want to recover taxes, insurance or other expenditures made pursuant to the mortgage, then actually pay those prior to the foreclosure sale. Under this decision, the deficiency is calculated as of the day of the sheriff’s sale. It is simply the total balance owed under the terms of the mortgage and mortgage note (including principle, interest, paid taxes, paid insurance and paid other allowable expenses) plus the allowable costs of the foreclosure less the bid amount.
If you have any questions on this matter, please contact Mr. Daniel E. Best, Esq. Dan is the managing partner of the Detroit office of Weltman, Weinberg & Reis Co., LPA, and can be reached at 248.362.6139 and dbest@weltman.com.
That Credit Union Blog 
I found this article to be extremely informative as it simplified the results of a critical foreclosure case for those not so well-versed in the foreclosure process. I found it interesting that the court ruled that all monies could be recovered that were paid prior to the actual foreclosure date. So, as long as you stay on top of things and take care of your business before the actual foreclosure sale, you are fully protected?