Opinion ID: 824284
Heading Depth: 2
Heading Rank: 2

Heading: statutory right of priority

Text: Notwithstanding the receiver’s contrary assertion, the plain language of MCL 600.3236 creates a statutory right of priority.29 When interpreting a statute, our primary goal is to ascertain and give effect to the Legislature’s intent.30 The best indicator of that intent is the language used.31 When construing statutory language, we must read the statute as a whole and in its grammatical context, giving each and every word its plain and ordinary meaning unless otherwise defined.32 If statutory language is clear and 28 The issue whether the rule from these cases continues to apply outside of the context presented in this case is not before us, and we leave resolution of that question for another day. Further, we do not speculate whether, absent the statute, the receiver in this case would have been entitled to superior priority over Dart as the mortgagee because, assuming that the general common-law rule would have applied in those circumstances, it is not ascertainable from what source the receiver’s compensation would have been payable given the function of MCR 2.622(D). See note 8 of this opinion. 29 The first version of this statute was enacted in 1844 and subsequently included in the 1846 revision and consolidation of the statutes, nearly 10 years after Michigan became a state. See 1846 RS, ch 130, § 10 and 1844 PA 40, § 6 (establishing that the purchaser of a sheriff’s deed acquires the interest held by the mortgagor at the time the mortgage was executed). The provision underwent several minor amendments and was included in subsequent compilations before it was reenacted in 1961 as MCL 600.3236 (effective January 1, 1963), in the Revised Judicature Act (RJA), MCL 600.101 et seq. In all material respects, however, the statute has remained unchanged since 1846. 30 Wickens v Oakwood Healthcare Sys, 465 Mich 53, 60; 631 NW2d 686 (2001). 31 Id. 32 MCL 8.3a; Veenstra v Washtenaw Country Club, 466 Mich 155, 160; 645 NW2d 643 (2002). 12 unambiguous, then judicial construction is neither required nor permitted, and the statute must be applied as written.33 MCL 600.3236 describes the legal effect of a sheriff’s deed obtained at a foreclosure sale upon the expiration of the applicable redemption period.34 The statute provides in full: Unless the premises described in such deed shall be redeemed within the time limited for such redemption as hereinafter provided, such deed shall thereupon become operative, and shall vest in the grantee therein named, his heirs or assigns, all the right, title, and interest which the mortgagor had at the time of the execution of the mortgage, or at any time thereafter, except as to any parcel or parcels which may have been redeemed and canceled, as hereinafter provided; and the record thereof shall thereafter, for all purposes be deemed a valid record of said deed without being re-recorded, but no person having any valid subsisting lien upon the mortgaged premises, or any part thereof, created before the lien of such mortgage took effect, shall be prejudiced by any such sale, nor shall his rights or interests be in any way affected thereby.[35] The first clause under this provision describes the legal effect and operation of a deed upon the mortgagor’s failure to exercise its statutory right of redemption following foreclosure. The first clause of MCL 600.3236 makes plain that if property is not redeemed within the applicable statutory window, then the deed becomes “operative,” 33 Sun Valley Foods Co v Ward, 460 Mich 230, 236; 596 NW2d 119 (1999). 34 If a mortgagor defaults on a mortgage containing a power of sale, like Dart’s mortgage here, the property may be foreclosed on and sold at a sheriff’s sale. See MCL 600.3201 through 600.3224. Upon that sale, the purchaser acquires a sheriff’s deed, which only becomes effective if the mortgagor does not exercise his or her right of redemption within the applicable statutory window. See MCL 600.3228; MCL 600.3232; MCL 600.3240(1). 35 Emphasis added. 13 vesting in the grantee “all the right, title, and interest which the mortgagor had at the time of the execution of the mortgage . . . .” This clause refers to those rights that existed at the time that the mortgage subject to foreclosure was executed. The grantee thus succeeds to the same rights—no greater and no fewer—as those held by the mortgagor when the mortgage was executed. By logical implication, this first clause renders absolute the mortgagee’s title to the property it purchased in a foreclosure proceeding, extinguishing any “right, title, and interest” created subsequent to the creation of the mortgage being foreclosed upon, which includes liens created after the execution of the mortgage.36 The last clause of MCL 600.3236, which is central to the legal question in this case, makes plain, however, that any interests preexisting the execution of the subject mortgage will not be prejudiced by a foreclosure sale. Specifically, the pertinent language of this clause provides that “no person having any valid subsisting lien upon the 36 At oral argument, the receiver argued that the pertinent statutory language in this first clause is the phrase “or at any time thereafter,” which, according to the receiver, allows a court to subordinate a senior mortgage to a junior lien. Specifically, the receiver asserts that because Sterrett “has incurred a liability by virtue of the appointment of a receiver, and that affected his immediate title and therefore that’s the same title that the bank has inherited.” That interpretation cannot be reconciled with the plain text of MCL 600.3236. The phrase “or at any time thereafter” clearly refers to the mortgagor’s positive title in the property. Thus, the phrase “or at any time thereafter” cannot be interpreted to mean that a subsequently imposed lien takes priority over the mortgagee’s interest because that would nullify MCL 600.3236. Indeed, if the receiver’s interpretation were accurate, then the last phrase of MCL 600.3236, which establishes the principle that only liens imposed before execution of the mortgage at issue are not prejudiced by foreclosure, would be contradictory. Further, the receiver’s interpretation poses a practical dilemma to the extent that Sterrett’s interest could never have been subject to the receivership lien given that he died 2½ years before its imposition. 14 mortgaged premises . . . created before the lien of such mortgage took effect, shall be prejudiced by any such sale, nor shall his rights or interests be in any way affected thereby.” Although the statute does not define “valid subsisting lien,” the next phrase qualifies that term to mean a lien “created before . . . such mortgage took effect . . . .”37 The provision then mandates that such liens “shall” not be “prejudiced” or “in any way affected” by the foreclosure sale. The clear import of this language is that those lienholders whose interests preexisted the mortgage’s execution will have the exact same rights following foreclosure as those previously held at the time the mortgage was executed. It follows that the order of priority at the time of the mortgage’s execution must be maintained after a foreclosure sale.38 37 According to its plain language, MCL 600.3236 necessarily limits a “valid subsisting lien” to one that was created before the mortgage took effect because “subsist” means “to have existence[.]” Webster’s Third New International Dictionary, Unabridged Edition (1965). To allow a lien that did not exist at the time the mortgage was executed to prejudice the purchaser’s title would result in judicial subrogation, wherein the party with the statutory right of priority is displaced by the party favored by the court. When the Legislature has prescribed the order of priority, our courts may not vary it by resort to equity. Cf. Stokes v Millen Roofing Co, 466 Mich 660, 673; 649 NW2d 371 (2002) (holding that an unlicensed builder could not “have equitable relief because any such relief would allow equity to be used to defeat the statutory ban on an unlicensed contractor seeking compensation for residential construction”). This is particularly so here, given that this Court has provided a means to ensure that a receiver’s expenses are paid by the party seeking to establish a receivership. See MCR 2.622(D). 38 Michigan is a recording-priority jurisdiction and, thus, a recorded mortgage lien is held superior to any lien subsequently recorded. This rule, generally referred to as “first in time, first in right,” is subject to several statutory exceptions that grant certain liens first priority no matter their time of creation. See MCL 324.20138(2) (environmental remediation costs), MCL 211.40 (real estate taxes), and MCL 570.1119(3) (construction liens). However, there is no statutory exception for receivership expenses. 15 When read as a whole, then, MCL 600.3236 requires that any interests in property created after the mortgage subject to foreclosure was executed will be extinguished upon expiration of the redemption period after a sheriff’s sale; however, any interests preexisting the mortgage’s execution will not be affected by “any such sale,” and the grantee under a sheriff’s deed will take the property subject to those preexisting interests. Accordingly, we hold that MCL 600.3236, by its plain language, requires that after a sheriff’s sale and expiration of the redemption period, any lien preexisting the mortgage that was the subject of the foreclosure sale remains in the same order of priority as at the time of that mortgage’s execution. Because Dart foreclosed on the property by advertisement, MCL 600.3236 applies, and its application makes clear that Dart’s first-recorded mortgage has first priority, given that no other liens existed when the mortgage was executed. By operation of MCL 600.3236, any liens created after the execution of Dart’s mortgage in 2003, which includes the receiver’s lien created by order of the circuit court in 2009, could not prejudice Dart’s priority interest.39 The receiver argues, however, that the common-law 39 This statutory priority rule is actually in accord with Michigan common-law priority rules established in related areas of law involving judicially created receiverships. Cf. Gray v Lincoln Housing Trust, 229 Mich 441; 201 NW 489 (1924), in which a receiver was appointed to manage the affairs of the failing trust, which held as an asset the plaintiff’s mortgage. When the trust breached a related agreement with the plaintiff, the plaintiff filed suit against the trust to cancel the mortgage, and the receiver, who had been appointed after the plaintiff initiated suit, intervened to recover his compensation. The Court ruled in favor of the plaintiff, reasoning that “‘the relative rank of claims and the standing of liens remain unaffected by the receivership.’” Id. at 447, quoting 23 Ruling Case Law, § 118, p 108. The Court further stated: We think it must be taken as the settled law in this jurisdiction that the receiver does not take title as a bona fide purchaser but takes the assets 16 rule controls and grants his lien first priority over Dart’s preexisting mortgage. We disagree with the receiver’s argument because, while the general common-law rule pertaining to receivership priority has certainly been recognized throughout our jurisprudence, the caselaw on which the receiver relies demonstrates that this rule has not been applied in the foreclosure-by-advertisement context. Indeed, we are aware of no Michigan case that imposed the common-law rule as adopted from England so as to divest the purchaser of a sheriff’s deed of his or her statutory right of priority pursuant to MCL 600.3236. To apply the common-law rule despite the imperative of the plain statutory language, providing the holder of a prior recorded mortgage with a right of priority over all subsequently created interests in the property, would impermissibly shift a receivership lien that is created subsequent to the time at which the mortgage subject to subject to the equities existing between the parties. His title and right can be no greater than the one for whose assets he is receiver and in whose shoes he stands. [Gray, 229 Mich at 446.] The rule articulated in Gray has been relied on in other cases. See Uhl v Wexford Co, 275 Mich 712, 715; 267 NW 775 (1936) (holding that a validly appointed receiver takes the assets of the property subject to those interests that existed between the parties at the time of his or her appointment); Franklin Co v Buhl Land Co, 264 Mich 531, 535; 250 NW 299 (1933) (holding that because the plaintiff’s receiver was appointed after the commencement of the suit, the defendant’s setoff of its judgment against the plaintiff did not lead to a preference over other creditors because a receiver takes the assets subject to equities existing between the parties at the time of his or her appointment); and Stram v Jackson, 248 Mich 171, 176; 226 NW 888 (1929) (holding that the purchaser of mortgaged property stands in the shoes of the mortgagor and can urge no defense to the mortgage not open to mortgagor); see also Rickman v Rickman, 180 Mich 224, 248, 250; 146 NW 609 (1914) (holding that a plaintiff who brings suit before the filing of a bill of dissolution of a firm acquired priority over other creditors, including the receiver, who takes only the rights of the firm and is affected by all claims, liens, and equities which would prevail against the firm). 17 foreclosure took effect to the first-priority position. Because application of the commonlaw rule would irreconcilably conflict with application of MCL 600.3236, we decline to extend the common-law rule to circumstances like those presented here, in which MCL 600.3236 specifically controls the order of priority of preexisting competing liens, including receivership liens, after a foreclosure by advertisement.40