When a mortgagor of real property has found itself defaulted, foreclosed on, and nearing the end of the redemption period (typically 6 months to 1 year) what rights do they have to bring claims in court related to that real property?
Not many, it appears, absent a signficant showing of fraud or irregularity in the foreclosure process.
In Awad v Gen Motors Acceptance Corp, No. 302692, 2012 WL 1415166 (Mich Ct App April 24, 2012), an April 24, 2012 decision, the the Michigan Court of Appeals affirmed the lower court’s granting of summary disposition to Defendant, mortgagee, holding that the mortgagor, Awad, lacked standing since during the pendency of the action, the redemption period expired.
in Awad, after default of the mortgage loan , GMAC commenced foreclosure by advertisement on March 31, 2010. A sheriff’s sale occurred on May 26, 2010. The Government sponosored entity Fannie Mae was the successful bidder at the sheriff’s sale. Pursuant to the sheriff’s deed, Awad’s statutory right to redeem the property was six months, which expired on November 26, 2010. Id.
“The law in Michigan does not allow an equitable extension of the period to redeem from a statutory foreclosure sale in connection with a mortgage foreclosed by advertisement and posting of notice in the absence of a clear showing of fraud, or irregularity.” (Emphasis added.) Id.
Accordingly, the Awad Court held that : “[a]lthough Awad filed suit before expiration of the redemption period, Awad made no attempt to stay or otherwise challenge the foreclosure and redemption sale. Upon the expiration of the redemption period, all of Awad’s rights in and title to the property were extinguished, and she no longer had a legal cause of action to establish standing.” Id.
Despite the Awad court’s ruling on a debtor’s standing to sue when redemption has expired, see the ruling in a Federal District Court for the Eastern District of Michigan, Haigh v Orlans Assoc, PC, No. 12-10867, 2012 WL 1365081 (ED Mich April 19, 2012). There, under facts similar to Awad the Judge found Plaintiff had standing since the Court may set aside the foreclosure sale based upon a strong showing of fraud or irregularity. Regardless, that court did infact find no fraud or irregularity existed in the foreclosure process and dismissed the debtor’s case for failing to state a valid claim.
Lessons from Awad:
- A debtor waiting until the last minute to act faces a serious uphill battle. Courts are looking unfavorably at mortgagees who get foreclosed on and make no attempts to redeem their property and wait until the last minute to bring suit against the mortgagor in connection with the foreclosure process.
- A debtor has a heavy burden in proving fraud or irregularity. In cases where a mortgagor brings forth claims similar to Awad’s, Courts will closely scrutinize the foreclosure process and absent some clear proof of fraud or irregularity the foreclosure sale will not be set aside. A mere allegation of failure to post a Notice of Foreclosure is not likely to set the sale aside.
- No equitable tolling of Redemption. The Courts will not equitably toll the redemption period, absent some serious proof of fraud or irregularity. Once redemption expires, the debtor loses all rights in the property and lacks standing.
Purpose Driven General Counsel 