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A Better Partnership
May 11, 2017

COA: Junior mortgagee has a right to surplus foreclosure funds after foreclosure by a senior mortgagee

Even though a junior mortgagee’s security interest in a property is extinguished by a foreclosure by a senior mortgagee, MCL 600.3252 specifically allows junior mortgagees and subsequent lienholders to retain a property interest in any surplus funds from the foreclosure up to the amount of its interest in the property; this interest has priority over the mortgagor, according to the Livingston Circuit Court in In re $55,336.17 Surplus Funds, No. 331880.
Typically, the foreclosure of a senior mortgage extinguishes a junior mortgage unless the junior mortgagee exercises its right to redeem within a specific time period.  However, due to MCL 600.3252, whether the junior’s security interest survives is beside the point: the statute explicitly grants junior mortgagees and other subsequent lienholders a property interest in surplus funds after a senior mortgage has been satisfied. 
The court rejected the appellant’s argument that the junior’s interest was only that of a general creditor who could subsequently make a claim against the mortgagor; the plain language of the statute creates a property interest when a junior mortgagee had an interest in the property at the time of foreclosure and complies with the statute.  The court likewise rejected the appellant mortgagor’s argument that the mortgagor had priority over the junior mortgagee.  MCL 600.3252 directs that priority be “in accordance with the rights of the claimant or claimant of persons interested;” therefore, there was “no question” for the court that the junior mortgagee had priority over the mortgagor for the surplus funds.

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