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Legal Update for Real Estate Investors Bidding at Foreclosure Sales.

Happy Friday, all.

Here’s a photo I took from this morning. Although the weather looks to be clearing up a little downtown this afternoon…

7.20

 

Real Estate Investors Bidding at Foreclosure Sale.

Real estate investors and lenders are under pressure to “get it right” when bidding at sheriff sales, especially in a real estate market like Grand Rapids – where good deals are getting harder to come by.

Some lenders/investors have tried some creative methods of recovery and made some interesting legal arguments in order to  maximize their profit at or after a foreclosure sale.

 

Complex legal issues can arise in a competitive market when there is money to be made.

 

What to Do with Surplus Funds?

One issue that comes up after the foreclosure sale – who is entitled to keep surplus funds?  How do you define “surplus funds”?

This issue has come up for clients of mine in the last few years. In the past, it seemed to me that there was general confusion on the part of everyone involved – Court Officers, Courts, and parties to a foreclosure.

 

The Michigan Court of Appeals decided these issues in a 2016 opinion – see the case Trademark Properties of Michigan, LLC v County of Macomb

 

 

What Will Court Officers Do with those funds?

I think this case is worth discussing since this particular case is posted on the Michigan Court Officers, Sheriffs, and Process Servers Association website

So if you want to know how a Court Officer is going to handle surplus funds – this case is probably good guidance.

 

Summary of Facts:

  • The mortgagor defaulted on her mortgage – property went to foreclosure sale.
  • The balance on the mortgage, including fees, interest, and costs, was $55,030.58.
  • The mortgagee, CitiMortgage, Inc. made a bid of $20,572.80 as an initial partial credit bid.
  • Trademark Properties, LLC (“TM Properties”) was the highest bidder with a bid of $31,572.80.
  • After the foreclosure sale, the mortgagor assigned her rights to any surplus proceeds to TM Properties.
  • TM Properties then filed a petition in  court for the return of surplus proceeds in the amount of $11,000, which was the difference between the initial credit bid and the final bid.

 

Law:

There are a couple of particular laws that come into play here:

I. Full Credit Bid

One general one to be aware of – the Full Credit Bid Rule – it basically stands for the proposition that: “An overbid at a Sheriff’s sale extinguishes the entire debt.” Pulleyblank v. Cape, 179 Mich.App. 690, 446 N.W.2d 345 (1989) (per curiam).

practically speaking, if the bank bid the entire amount that was owed, regardless of whether or not the fair market value of the property is worth less than what is owed, the bank cannot come after the borrower for a deficiency.

 

II. MCL 600.3252 – Surplus Funds After Foreclosure. 

That statute states in relevant part

If after any sale of real estate…there shall remain in the hands of the officer…making the sale, any surplus money after satisfying the mortgage on which the real estate was sold, and payment of the costs and expenses of the foreclosure and sale, the surplus shall be paid over by the officer…to the mortgagor…or assigns, unless at the time of the sale, or before the surplus shall be so paid over, some claimant or claimants, shall file with the person so making the sale, a claim…in which case the person so making the sale, shall forthwith upon receiving the claim, pay the surplus to, and file the written claim with the clerk of the circuit court of the county in which the sale is so made…

 

Essentially, TM Properties recognized that the Bank/mortgagee made a credit bid. The investor out bid the bank and claimed that the difference between the bank’s bid and the excess of what TM Properties bid was a “surplus“.

TM Properties acquired the mortgagor’s “interest” in the Property, which presumably included her rights to redeem the property AND any rights to any surplus funds.

TM Properties demanded payment of the “surplus” – the County claimed – there is no surplus!

The Trial Court agreed with the County.  TM Properties appealed.

The Court of Appeals was tasked to decide:

Whether the $11,000 difference between CitiMortgage’s initial credit bid and TM Properties’ successful bid constituted “surplus money after satisfying the mortgage on which the real estate was sold,” under MCL 600.3252. Opinion at page 2.

The Court went on to define “Surplus” and “satisfy” – since those terms are undefined in the statute. The Court held:

“MCL 6003242 provides that a surplus constitutes the differ
ence between the amount due on the mortgage note, plus costs and expenses, and the purchase price of the property at foreclosure sale. If the purchase price of the property is less than the amount due on the mortgage note and costs and expenses, then there is no surplus.”

 

In summary – the Bank did not make a full credit bid.  The Third Party purchaser, TM Properties did not purchase the property for more than what was owed on the Mortgage, plus foreclosure costs.  As such, there was no surplus.

 

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

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Cautionary Tale for Real Estate Investors: Yesterday California Investor Sentenced to Prison for Bid Rigging at Foreclosure Sales.

There are many pitfalls for real estate investors who purchase distressed property.

In today’s market, good deals for real estate investors are getting harder to come by. With distressed property becoming a scarce resource and competition ever increasing, some real estate investors have resorted to less than legal  acts to boost their profit.

IMG_1684

Rosa Parks Circle in Downtown Grand Rapids

Investors should know that the Department of Justice as well as State Agencies are cracking down on unfair real estate practices.

 

As a follow up to a story that I have been keeping tabs on, just yesterday, the Department of Justice announced that a judge sentenced a real estate investor for his roles in a conspiracy to rig bids at public real estate foreclosure auctions held in Northern California.

This after a 3-week trial.

 

 

You can see the press release here

 

According to the press release: Alvin Florida Jr. was “sentenced to serve 21 months in prison and to serve three years of supervised release. In addition to his term of imprisonment, Florida was ordered to pay a criminal fine of $325,803.

Based upon the DOJ’s investigation – this was a large conspiracy “to rig bids to obtain hundreds of properties sold at foreclosure auctions. The conspirators designated the winning bidders to obtain selected properties at the public auctions, and negotiated payoffs among themselves in return for not competing. They then held second, private auctions at or near the courthouse steps where the public auctions were held, awarding the properties to conspirators who submitted the highest bids.”

 

What is particularly striking to me is that including today’s sentencing the DOJ report that:

68 individuals have pleaded guilty or been convicted after trial as a result of the department’s ongoing antitrust investigations into bid rigging at public foreclosure auctions in Northern California.

 

Question for Real Estate Investors:

What type of unfair practices do you believe is going on in your state? What are you seeing take place at foreclosure sales?

In Michigan the record numbers of foreclosed properties since 2008 has provided a market (albeit one that is slowing down) for flipping residential real estate. With this opportunity to profit has also created an opportunity for abuse and fraud.  The real estate legal landscape is complex enough, do yourselves a favor – follow the rules.

 

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Warning for Real Estate Investors: Three Northern California Real Estate Investors Convicted of Rigging Bids at Public Foreclosure Auctions

 

There are many pitfalls for real estate investors who purchase dIMG_1513istressed property.

In today’s market, good deals are getting harder to come by. With distressed property becoming a scarce resource and competition ever increasing, some real estate investors have resorted to illegal acts to boost their profit.

Investors should know that the Department of Justice as well as State Agencies are cracking down on fraudulent real estate practices.

Today, the Department of Justice announced that a federal jury convicted three real estate investors for their roles in a conspiracy to rig bids at public real estate foreclosure auctions held in Northern California.

This after a 3-week trial.

You can see the press release here.

Based upon the DOJ’s investigation – this was a large conspiracy “to rig bids to obtain hundreds of properties sold at foreclosure auctions. The conspirators designated the winning bidders to obtain selected properties at the public auctions, and negotiated payoffs among themselves in return for not competing. They then held second, private auctions at or near the courthouse steps where the public auctions were held, awarding the properties to conspirators who submitted the highest bids.”

 

What is particularly striking to me is that including today’s convictions the DOJ report that:

68 individuals have pleaded guilty or been convicted after trial as a result of the department’s ongoing antitrust investigations into bid rigging at public foreclosure auctions in Northern California.

 

Question for Real Estate Investors:

What type of unfair practices, including bid rigging, do you believe is going on in your state? What are you seeing foreclosure sales?

In Michigan the record numbers of foreclosed properties since 2008 has provided a market (albeit one that is slowing down) for flipping and rehabbing residential real estate.

This has also created opportunities for abuse and fraud.  The real estate legal landscape is complex enough, do yourselves a favor – follow the rules.

You don’t want to expose yourself to undue liability.

 

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

 

Real Estate Investors: Recent Case Law Highlights Certain Pitfalls of Purchasing at Sheriff Sales

October 2, 2014 2 comments
Those who pick up properties at sheriff sales know there are pitfalls to watch out for.
A recent Michigan Court of Appeals unpublished case highlights one of those pitfalls
The case is WW Michigan Properties v Repokis, No. 316555, 2014 WL 4723822 (Mich Ct App September 23, 2014).
Facts:
  • Daryl and his ex-wife, Karen Repokis, owned the property and defaulted on the terms of a loan, which ultimately resulted in foreclosure and a sheriff’s sale on December 15, 2011.
  • Two sheriff’s deeds were issued to Michigan Properties on December 15, 2011.
  • Michigan Properties did not record the two sheriff’s deeds until January 5, 2012,  (21 days after the date of their issuance.)
  •  Daryl redeemed the property on January 4, 2013, and then quitclaimed his interest in six of the seven parcels to Harsens Properties the same day.
  • Michigan Properties claimed the redemption was late, and filed a lawsuit to stop Daryl’s redemption.

Question:

When does the redemption period end?  Does the clock start ticking at the day of the foreclosure sale, or does it start when the deeds were actually recorded (since they were not recorded within 20 days of the sale)

Law: 

You Must Record a Sheriff’s Deed Within 20 Days of the Sale

MCL 600.3232 provides the procedure when property is sold at sheriff’s sale in pertinent part:
The officer or person making the sale shall forthwith execute, acknowledge, and deliver, to each purchaser a deed of the premises bid off by him…And he shall endorse upon each deed the time when the same will become operative in case the premises are not redeemed according to law. Such deed or deeds shall, as soon as practicable, and within 20 days after such sale, be deposited with the register of deeds of the county in which the land therein described is situated, and the register shall endorse thereon the time the same was received …. [Emphasis added.]
As the Court held: “The plain language of MCL 600.3232 provides that a sheriff’s deed must be filed as soon as practicable, and within 20 days after the foreclosure sale. “Shall” designates a mandatory provision, Smitter, 494 Mich. at 136, and by not filing the sheriff’s deeds with the register of deeds within 20 days of the foreclosure sale, Michigan Properties failed to comply with MCL 600.3232.
“However, MCL 600.3232 does not provide the consequences for its violation. And, in Mills v. Jirasek, 267 Mich. 609, 614–615; 255 NW 402 (1934), our Supreme Court held that the recording provision in MCL 600.3232 is “directory,” as distinct from “mandatory,” and that an untimely recorded sheriff’s deed generally remains valid absent a showing of material harm or prejudice.” WW Michigan Properties v Repokis, No. 316555, 2014 WL 4723822 (Mich Ct App September 23, 2014)”
Conclusion: The Court of Appeals held that the trial court properly concluded that the redemption period ended one year from the date of the recording of the deeds.
Therefore, WW Michigan Properties’ failure to record its deed caused unfair surprise – the general public, particularly the borrower, Daryl, should have relied on when the deed was recorded, if it was recorded much later, otherwise, they do not know who owns the Property, and when they can redeem.
Lesson: There are consequences for failing to record a deed timely. WW Michigan Properties went an entire year with a sheriff’s deed and ultimately had to return the property, think of the costs they incurred, not to mention the legal fees.