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In re Town

United States District Court, E.D. Michigan, Southern Division

April 11, 2017

IN RE TOWN, Debtor.
ECP COMMERCIAL II, LLC, Appellee. TOWN CENTER FLATS, LLC, Appellant, Bankr. No. 15-41307



         This matter is before the Court on appellant's appeal of the bankruptcy court's decision that Building 53 was properly redeemed [docket entry 1]. The matter has been fully briefed. For the reasons stated below, the Court affirms the bankruptcy court's decision.

         The following “relatively undisputed” facts were summarized by the bankruptcy court in its September 28, 2016, bench opinion and by the parties in their briefs:

         In 2009, the Fox Brothers Company (“Fox”) filed a construction lien claim against Town Center Development, Inc., Town Center Flats, LLC, and their shared principal, Mr. DiLorenzo, in Macomb County Court with respect to unpaid-for materials and labor. Appellee's Br. p. 5. The property against which Fox asserted the lien was a fifty-three-unit condominium housing development called “Building 53.” Id. at 5-6. Fox also named as a defendant, and properly served, Keybank National Association, the only other party with a secured interest in Building 53. However, Keybank never appeared at the proceedings and later assigned its mortgage interest to appellee in May 2014. Id. at 6; R. at 496, 1034.

         In July 2009, the Macomb Circuit Court entered a judgment of foreclosure against appellant giving Fox's claim priority. Appellee's Br. p. at 8; R. at 1032. On October 16, 2009, the Macomb County Sheriff executed a sheriff's deed on Building 53 in favor of Fox and reflecting a redemption amount of $32, 244.39. Appellee's Br. p. at 8; R. at 1033. That same day, the Macomb County Clerk issued a report of sale for Building 53 for the exact redemption amount, and on October 23, 2009, it recorded a deed for Building 53 that named Town Center Development. Appellee's Br. p. at 8. On November 2, 2009, the Macomb Circuit Court entered an order confirming the sale and setting December 2, 2009, as the redemption deadline. Id. at 9. “On December 4, 2009, DiLorenzo paid $32, 500” in cash and checks to Fox, the purpose “of which is now disputed.” R. at 1033. In mid-December 2009, Fox executed and recorded both a quit-claim deed from Fox to Town Center Development for Building 53 and a release of two claims of lien. Id. at 1034.

         In early 2015, appellant and Town Center Development filed Chapter 11 cases, and appellant moved for determination as to the property of its estate, arguing that it had not successfully redeemed Building 53. After extensive briefing and oral argument, the bankruptcy court held that

[t]he real property at issue that was subject to the construction lien foreclosure [i.e., Building 53] was redeemed from that foreclosure and was not validly transferred to Development; and therefore such is property of the Debtor's bankruptcy estate, subject to the mortgage interests of ECP Commercial 11, LLC, as assignee of [Keybank].

         September 28, 2016, Order Resolving Motion for Determination as to Property of the Estate p. 1.

         At the outset, the Court notes that it is satisfied by the parties' explanation of its jurisdiction. The Court will review the bankruptcy court's three pertinent findings: First, that Michigan law allows parties to agree to extend redemption deadlines in both judicial and advertisement foreclosures. Id. at 1038-39. Second, that the parties extended the redemption deadline to December 4, 2009. Id. at 1039. Third, that the $32, 500 DiLorenzo paid to Fox on December 4, 2009, was intended to redeem Building 53. Id. at 1043-44. A district court reviews a bankruptcy court's findings of law de novo and findings of fact for clear error. See In re Allen-Morris, 523 B.R. 532, 536 (E.D. Mich. 2014).

         The Court reviews the bankruptcy court's first finding de novo. The bankruptcy court held that case law from the Michigan Court of Appeals allows parties to privately extend redemption deadlines. The Court agrees. The Michigan Court of Appeals summarized Michigan law on this point in Keybank Nat'l. Ass'n v. Ameriquest Mortg. Co., No. 242925, 2004 WL 1057814, *4-5 (Mich. Ct. App. May 11, 2004):

Thus, in the instant case, when the statutory redemption period expired, Nationsbanc's sheriff's deed presumably should have become operative, and title to the property should have vested in Nationsbanc. See MCL 600.3240; Bankers Trust Co of Detroit v. Rose, 322 Mich. 256, 260; 33 N.W.2d 783 (1948), quoting McCreery v. Roff, 198 Mich. 558, 564; 155 N.W. 517 (1915) (“Legal title does not vest at once upon the auction sale on statutory foreclosure ... but only at the expiration of the period allowed for redemption”); Detroit Fidelity & Surety Co v. Donaldson, 255 Mich. 129; 237 N.W. 380 (1931) (mortgagor does not lose all interest in property until time for redemption under the foreclosure decree expires); Dunitz v. Woodford Apartments Co, 236 Mich. 45, 49; 209 N.W. 809 (1926).

         However, the execution creditor may validly contract to waive or extend the statutory period of redemption:

The time provided by statute for redemption from foreclosure sale may be extended by agreement of the parties. Thus, the time for redemption from a mortgage foreclosure sale may be extended by agreement of the purchaser, in which case the ownership of the property does not change until expiration of the extended period. So, also, if a mortgagee enters into a valid agreement with the mortgagor prior to the expiration of the statutory period of redemption, which in effect extends the right of payment of the mortgage debt beyond the redemption period, he abandons rights acquired as a purchaser of the mortgaged property on foreclosure of the mortgage, and in legal effect continues the relation of mortgagor and mortgagee between himself and his debtor. The extension may be by verbal agreement, provided it is made before the expiration of the redemption period; if it is made after that time it is frequently held to be within the statute of frauds. Apart from consideration of the statute of frauds, the agreement to permit redemption or to extend the time of redemption has been upheld upon the grounds of general equitable relief, the most frequent of which is found in the application of the principles of estoppel. . . .
See also 59A CJS, Mortgages, § 1038 (“The parties may by contract extend the period allowed by law for redemption, whether the agreement is made pending the time for redemption or after it has expired”). Cf. Macklem v. Warren Construction Co,343 Mich. 334, 339; 72 N.W.2d 60 (1955); Thomas v. Ledger, 274 Mich. 16; 263 N.W. 783 (1935); Pellston Planing Mill & Lumber Co v Van Wormer,198 Mich. 648, 653; 165 N.W. 724 (1917) (“The authorities are numerous, and we think substantially uniform, that the execution creditor and the execution debtor may bind ...

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