Home > Uncategorized > The Recent 6th Circuit Court of Appeals Decision of In Re Miller and Why Banks Should Bid Thoughtfully at Sheriff Sales.

The Recent 6th Circuit Court of Appeals Decision of In Re Miller and Why Banks Should Bid Thoughtfully at Sheriff Sales.

The pressure to “get it right” when bidding at sheriff Sales.
Simply put, it can be a costly decision.
I have a case right now where we will be holding an evidentiary hearing to determine whether or not the Judge will set a minimum sale price that can be bid at foreclosure
I was reminded of this case and the pressure that a lender faces when bidding its credit bid at a foreclosure sale.  An example of what can go wrong is evidenced in  the recent case of In re Miller, 513 F. App’x 566 (6th Cir. 2013).   In Re Miller is an unpublished 6th Circuit Court of Appeals Case that was decided February 5th, 2013.
I. Basic Facts
Miller owned a home in Wisconsin, known as the “Spread Eagle property.”
Miller signed a promissory note to the Bank in the principal amount of $221,444.29, secured by a mortgage on the Spread Eagle property (“the Wisconsin mortgage”). The Wisconsin mortgage included a clause providing that it secured the October 16 promissory note as well as all of Miller’s obligations, debts, and liabilities then existing or arising later.
On January 20, 2007, Miller signed a second promissory note to borrow $400,000 from the Bank, pledging as collateral his Moon Lake residence and three 40–acre parcels of land located in Michigan.
Miller defaulted on his payments.
The Bank published a notice of foreclosure by advertisement in Michigan scheduling a sheriff’s sale of the three 40–acre parcels.
To decide what amount to bid at the sheriff’s sale, Michigan counsel conferred with the Lender, who informed counsel that Miller owed the Bank a total of $413,560.27 on the Wisconsin and Michigan promissory notes.
 After this conversation, Michigan counsel attended the sheriff’s sale on behalf of the Bank and credit bid the entire amount of Miller’s debt to the Bank in the amount of $413,560.27.
Although the record does not disclose the value of the three 40–acre parcels of land at the time of the sheriff’s sale, it appears that the Bank’s credit bid created a surplus between $172,500 and $187,500.
The Bank bid too high!
The sheriff’s deed, drafted by the Bank’s Michigan attorney, was recorded in Michigan. The sheriff’s deed specified that the three 40–acre parcels were sold to the Bank as highest bidder for $413,560.27, and that the deed would become operative upon expiration of the one-year redemption period
Miller filed Bankruptcy, and the Lender asked the Bankruptcy Court to allow it to foreclose on the Wisconsin Property so that it could satisfy the amount owed on the Wisconsin Promissory Note (confusing, I know.)
Instead, of granting the bank’s request, the bankruptcy court determined that Miller did not owe the Bank any amount of money because, applying either Michigan or Wisconsin law, the Bank’s credit bid for the total amount of Miller’s debt at the Michigan sheriff’s sale satisfied the entire debt.
An overbid at a Sheriff’s sale extinguishes the entire debt.
The Court cited the Michigan Appeals Court decision of In Pulleyblank v. Cape, 179 Mich.App. 690, 446 N.W.2d 345 (1989) (per curiam),  where the mortgagees bid the full amount of the debt owed to them at a foreclosure sale conducted under the Michigan foreclosure by advertisement statutes. When the mortgagees realized that the foreclosed property was worth less than the debt, they tried to foreclose on a second parcel of property and credit the mortgagor with only the fair market value of the original foreclosed property. The Michigan Court of Appeals prohibited the second foreclosure proceeding, holding that:
the mortgagees, as the purchasers at the foreclosure sale, stood in the same position as any other purchaser, and because they bid the full amount of the debt, they were required to apply the entire amount of their bid to the debt. Id. at 347.
The court noted “[i]t would defy logic to allow [the mortgagees] to bid an inflated price on a piece of property to ensure that they would not be overbid and to defeat the equity of redemption and to then claim that the ‘true value’ was less than half of the value of the bid.” Id. at 348. The court decided that the mortgagees, by their own actions, extinguished the debt by bidding the full amount of the debt, so that no debt remained to support a second foreclosure on another property. Id. at 348. In re Miller, 513 F. App’x 566 (6th Cir. 2013).
Although the lender made a mistake, this didn’t affect the Court’s opinion:
“The rule is clear in both jurisdictions that a purchaser who overbids at a sheriff’s sale based on a unilateral mistake must accept the consequences of that decision, unless the purchaser can show fraud or other improper inducement in the making the bid.”  In re Miller, 513 F. App’x 566 (6th Cir. 2013)
III. Lesson:
As a result of the bank’s overbid, Miller walked away with his Wisconsin Property free and clear, to the detriment of the Bank. The lesson is simple – the direct cost to the Bank was a few hundred thousand dollars.
Banks should take care in how they bid at a foreclosure sale.
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