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February 21, 2013

COA Opinion: Guarantor of a mortgage may be liable for tax and insurance costs incurred by mortgagee prior to a foreclosure sale, but not after

Citizens Bank foreclosed on a property and made a successful bid sufficient to satisfy the mortgagor's outstanding principal and interest. In Citizens Bank v. Boggs, Citizens Bank then brought suit against guarantors of the mortgagor's loan obligations to collect unpaid taxes and insurance premiums. The circuit court granted summary disposition in favor of defendants, ruling that the bank's bid was a 'full credit bid' that completely extinguished the mortgagor's (and thus guarantor's) obligations.

The Court of Appeals confirmed that Citizen Bank's bid was a 'full credit bid' despite failing to include unpaid taxes or insurance premiums. The Court held a mortgagee can recover taxes, interest, insurance costs which it pays prior to a foreclosure sale in a deficiency action. Since Citizens Bank had not paid any of the unpaid taxes before the sale, the Court of Appeals affirmed the circuit court on that point. However, the Court ruled that the guarantors could be liable for insurance premiums paid by the bank prior to the foreclosure sale.

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