Court Opinion

ID: 9684289
Source: CourtListenerOpinion
Date Created: 2023-08-24 13:52:35.974317+00
Date Added: 2024-06-11T18:17:54.721934
License: Public Domain

Cavanagh, J.
(dissenting). The issue in this case is whether an installment land contract vendor has any duty to cooperate with the vendee’s attempts to redeem the property from forfeiture. The majority holds that a vendor has no obligation beyond accepting unconditional tender. In the factual setting presented in the instant case, I would find a limited duty on the part of the vendor to cooperate with a vendee’s attempts to redeem when the vendee is ready, willing, and able to effectuate redemption but for commercially reasonable conditions imposed by a third-party lender, and the said conditions attached to the tender are a result of the vendor’s use of the property after executing the land contract. This duty *231would comport with the customary means of finalizing a transfer of real property, which is a closing where the funds are simultaneously exchanged for the necessary title documents.
I believe that there are two primary reasons for imposing on such a vendor a duty to cooperate with the vendee in a closing. First, when the sale of land is accomplished through the use of an installment land contract that provides for a balloon payment arrangement, it is not an unreasonable expectation that the vendee will not be able to make the balloon payment absent another loan arrangement. Accordingly, a vendor should be on notice that a commercial lender will not loan an amount of funds sufficient to cover a balloon payment without proof of clear title. Second, and more importantly, when the vendor seeking forfeiture, or his predecessor, has created a postexecution cloud on the title that prevents the vendee from obtaining an unconditional loan to cover the default judgment, it would be manifestly unfair to allow the vendor to sit back, refuse to cooperate with the vendee’s redemption attempts, and then reap the rewards of forfeiture by recovering the property in its improved condition as well as by keeping the payments already made.
i
The relevant statutory right of redemption provides:
When the judgment for possession is for nonpayment of money due under a tenancy or for nonpayment of moneys required to be paid under or any other material breach of an executory contract for purchase of the premises, the writ of restitution shall not issue if, within the time provided, the amount as stated in the judgment, together with the taxed costs, is paid to the plaintiff and other material *232breaches of an executory contract for purchase of the premises are cured. [MCL 600.5744(6); MSA 27A.5744(6) (emphasis added).]
In Birznieks v Cooper, 405 Mich 319, 334; 275 NW2d 221 (1979), this Court considered the modem means by which a debtor renders payments on a land contract: “sending personal checks through the mails.” The Court then concluded that “paid” would be satisfied if the vendee mailed to the vendor (or his lawyer) a personal check for the full amount “within the time provided.” Id. at 335. Likewise, in determining whether the statute requires the vendor to “do” anything beyond waiting for the check, we should not ignore that in-person closings are the customary modem means by which transfers are accomplished. We should also consider the financial dynamics of the particular sale method chosen.
First, we must keep in mind the financial reasons why land contracts are used. In general, a seller finds many advantages in selling real property by an installment land contract rather than by a mortgage.1 For instance, unlike a mortgagee, during the life of the installment land contract the vendor may often use the property as collateral for other loans, as was expressly provided for in the instant contract.2 Unlike a mortgagee, the vendor also has the additional rem*233edy of forfeiture3 by which the vendor can recover the property, retain all payments made under the contract, and avoid a court-ordered sale of the property in a foreclosure.4 If the property’s value is substantially greater than the forfeiture judgment, the vendor will receive a windfall. In contrast, a mortgagee must pay any excess to the mortgagor.5 Forfeiture is usually a quicker remedy to pursue than foreclosure,6 and is also accompanied by the statutory provision that abolishes any equitable right of redemption.7
For these reasons, a purchaser generally would prefer acquiring land by a mortgage.8 However, installment land contracts are a viable alternative method of acquiring property for purchasers who do not have the means to secure a substantial down payment required by mortgage lenders, or in times when interest rates for mortgages are higher than the statutorily limited rate for installment land contracts.9 In times *234of high interest rates, a frequently used payment plan involves monthly payments over a short period of years, with a large balloon payment at the end of the life of the contract.10 This financial arrangement is beneficial to sellers because it increases the pool of potential purchasers. In addition, vendors should know that purchasers may agree to the balloon payment arrangement with the expectation that financial conditions will have improved by the time that the balloon payment would be due, perhaps because their own personal financial situation will have improved to the extent that a mortgage lender would be more willing to loan the funds to cover the balloon payment, or because interest rates will fall, making mortgages a more affordable alternative. Whether these above expectations ever become reality does not change the fact that any installment land contract vendor who agrees to a balloon payment plan should reasonably expect that more often than not the vendee will only be able to secure the funds to cover the balloon payment through another financial loan arrangement.
n
After concluding that a vendor who agrees to a balloon payment plan should have a reasonable expectation that the vendee may seek funds from a commercial lender, the focus should be on whether a vendor can then frustrate the vendee’s attempts to do so. Unlike a mortgage, a land contract will often provide that the vendor has a limited ability to use the property as collateral for other loans during the life of the *235installment land contract. Therefore, when a vendor takes advantage of this contractual provision and mortgages the property, and those mortgages remain undischarged on the record (whether paid off or not), and those undischarged mortgages are the reason why a lender places a condition on the disbursement of the redemption funds, the vendor has in effect prevented unconditional tender. This is not unlike the situation presented in Karakas v Dost, 67 Mich App 161; 240 NW2d 743 (1976).
In Karakas, the vendees’ attorney repeatedly and unsuccessfully tried to locate the vendors’ attorney in order to redeem the property. A writ of restitution was entered. On appeal, the vendees’ attorney claimed that the vendors’ attorney later told him that the vendors had instructed him not to accept payment because they wanted to keep the property. The panel held that “actual transfer of the entire amount of money due is generally required for compliance with redemption statutes. A mere showing of ability and intent to pay is insufficient.” Id. at 167 (citations omitted). However, the panel further stated:
Nevertheless, case law involving other situations requiring tender of payment holds that valid tender is unnecessary where plaintiff is ready, willing and able to tender, but defendant, by his acts or words, shows that tender would not be accepted. Hanesworth v Hendrickson, 320 Mich 577; 31 NW2d 726 (1948), Ranck v Springer, 333 Mich 671; 53 NW2d 678 (1952), Frakes v Eghigian, 358 Mich 327; 100 NW2d 297 (1960). [Karakas, 67 Mich App 167.]
In that same vein, I would hold that the vendor is under a duty to provide the necessary documents to satisfy the vendee’s lender’s reasonable condition of providing recordable documents to clear title when *236(1) it is the vendor’s postexecution use of the property that led to the condition and, (2) the vendee has in fact secured the funds before the end of the final day of the redemption period. When that duty has been breached, tender should be excused. Accordingly, in the instant case I would hold that unconditional tender was unnecessary because the vendees were ready, willing, and able to tender before the redemption period had expired but for the conditions imposed by their lender as a result of the vendors’ postexecution actions and because the vendors refused to cooperate in satisfying those conditions.
I do not believe that Grossman Bldg Co v Elliott, 382 Mich 596; 171 NW2d 441 (1969), precludes this conclusion. First, Grossman involved redemption from a foreclosure sale — not a forfeiture. The Court emphasized this fact in stating its concern that to grant relief “would set a dangerous precedent which would deprive every title to real estate purchased at foreclosure sale of the finality and security clearly intended under the statute.” Id. at 606. In contrast, a forfeiture does not involve a title acquired at a public sale. Until the writ of restitution is entered, legal title has not been altered in any way. Second, it is unclear from the Grossman facts whether the mortgage at issue was recorded before or after the foreclosure sale, or even before or after the execution of the land contract. Further, there was no indication that the Grossman land contract required a balloon payment, which would be distinguishable from the instant case where the vendors should be reasonably expected to provide clear title in order for the vendees to obtain requisite financing to cover the balloon payment.
*237And perhaps most importantly, the Grossman Court emphasized that the vendee “did nothing to preserve her right of redemption until after it had expired.” Id. The statutory redemption period expired on March 30, 1967. And although the vendee’s attorneys sent a letter to the vendor two weeks before the end of the redemption period asking for a warranty deed in order to consummate the loan that would cover the redemption amount, after receiving the vendor’s letter refusing to do so, the vendee did nothing further until April 7, 1967. I do not believe that we should read Grossman as anything more than a “failure to preserve rights” case. In sharp contrast, the instant vendees placed the funds in escrow with a reputable title company before the redemption period had expired. This escrow, which occurred in addition to the vendors’ refusal to cooperate, distinguishes this case from Grossman.
The instant majority’s holding that a vendor need not cooperate will continue effectually to destroy any meaningful statutory right of redemption. Twenty-five years ago, Professor Campbell argued:
The purpose of the Michigan statute is to give the land contract vendee a statutory right of redemption not unlike that which has long been accorded the mortgagor. The statute’s enactment surely indicates that the legislature intended to give a land contract vendee meaningful redemption rights. Yet, in practice, his rights have been substantially emasculated. With a purchaser or mortgagee ready and willing to provide the necessary funds for redemption, the vendee, through no fault of his own, is powerless to obtain legal title which is vital to complete the funding transaction. To get legal title, he must first redeem. As noted above, the mortgagor, who retains legal title pending expiration of the redemption period, encounters no such obstacle. If the vendee can persuade the vendor to place a *238deed of legal title in escrow during the redemptive period, the vendee’s rights of redemption are substantially enhanced. If the vendor is unwilling to so cooperate, the vendee’s redemptive rights are diminished. It becomes apparent then, that in many instances, any meaningful rights of redemption for the vendee exist at the pleasure and in the discretion of the vendor, notwithstanding the redemption statute. [Campbell, Real Property, 1970 Annual Survey of Michigan Law, 17 Wayne L R 641, 643 (1971).]
m
Turning to the instant case, I would hold that equitable considerations should prompt us to excuse unconditional tender and to relieve the Flynns from an unreasonable forfeiture. Rothenberg v Follman, 19 Mich App 383, 388-389; 172 NW2d 845 (1969). I tend to agree with the majority that a vendee cannot unilaterally set up a closing without reasonable notice to the vendor of the time and place. However, I believe that in this case the original vendors’ postexecution mortgages on the property, and attorney Anthony Smereka’s failure to record the discharges or to offer them to the Flynns ahead of tender, should factor in favor of equitable relief by excusing tender.11
*239On remand, the district court found that the purchase price of the property was $672,500 and that the market value of the property exceeded the default judgment amount. Further, a title commitment ordered four days before the end of the redemption period revealed undischarged postexecution mortgages on the original vendors’ interest totaling $505,000. In contrast, the default judgment was $455,833. It would be commercially reasonable for a lender to question undischarged mortgages that exceed the amount of the requested loan.
Mr. Smereka testified that he expected all along that the Flynns would redeem and that he would have to deliver clear title. His testimony also revealed that he expected the Flynns to acquire the redemption money through a mortgage company. Knowing that undischarged mortgages would cloud title and that *240lenders do not loan money on collateral with clouded title, and further expecting that the vendees would be redeeming with money acquired through a mortgage company, Smereka’s argument that he did not need to attend a closing or even to cooperate with the vendees’ attempts to clear title seems inequitable.
On the morning of the last day of redemption, after being advised by Flynn that the discharges had not been recorded, Smereka stated that he was “surprised” that they were not recorded — even though it had been his obligation to do so. Smereka told Flynn that he would investigate the situation and call back in an hour. He did not call back. Smereka did in fact have possession of the discharges. Instead of offering to provide the discharges, Smereka told Flynn to pay over the money first, and then he would produce the requested documents.12
It is clear that the Komeffels bought into this land contract dispute for the express purpose of obtaining the property. They did not want the Flynns to redeem. It is also clear that the Flynns in fact did secure the funds for redemption no later than 2:30 P.M. on the last day of redemption and that those funds were escrowed with Lawyers Title Insurance Company.
In denying the Flynns’ motion for relief, the district court reasoned “that the land contract vendor was not required to submit the warranty deed and dis*241charges or participate in the closing.” Because I believe that the instant vendors did have an obligation to submit the discharges in this case, I would hold that unconditional tender was excused.
Therefore, I would reverse the lower courts.

 See 7 Powell, Real Property, ¶ 938.20[2], pp 84D-5 to 84D-6.

 The land contract provided:
The Seller and Purchaser mutually agree as follows:
(a) That the Seller may, at any time during the continuance of this contract encumber said land by mortgage or mortgages to secure not more than the unpaid balance of this contract at the time such mortgage or mortgages are executed. Such mortgage or mortgages . . . shall be a first lien upon the land superior to the rights of the Purchaser herein; provided notice of the execution of *233said mortgage or mortgages . . . shall be sent to the Purchaser by registered mail promptly after execution thereof.

 MCL 600.5744; MSA 27A.5744.

 The instant land contract provided that on default by the vendee
the Seller immediately after such default shall have the right to declare the same forfeited and void, and retain whatever may have been paid hereon, and all improvements that may have been made upon the premises, together with additions and accretions thereto, and consider and treat the Purchaser as his tenant holding over without permission and may take immediate possession of the premises ....

 MCL 600.3135; MSA 27A.3135.

 MCL 600.3115; MSA 27A.3115 (foreclosure sale).

 Section 5744(7).

 See 1 Deems & Tervo, Michigan Real Estate Practice & Forms (2d ed), § 6.6, p 6-6.

 The interest rate for land contracts is generally limited by statute to eleven percent. MCL 438.31c(6); MSA 19.15(lc)(6).

 Deems & Tervo, n 8 supra, § 6.6, pp 6-5 to 6-6; Powell, n 1 supra, ¶ 938.20[2], p 84D-8.

 The majority places a great deal of emphasis on the fact that there was a recorded warranty deed from the Piuntis to the Korneffels. Ante at 192, n 7. A warranty deed, in and of itself, would not necessarily prove clear title when there were undischarged mortgages remaining on the record — especially when those mortgages together total more than the default judgment. The issue is whether the undischarged mortgages placed a cloud on title. (It has long been held that an undischarged land contract on record will cloud title. Fletcher v Moore, 42 Mich 577, 579 [1880].) The definition of marketable title has been noted as:
The Michigan courts have defined the term marketable title in several cases. In Barnard v Brown, 112 Mich 452; 70 NW 1038 (1897), the Michigan Supreme Court said that marketable title is title that is free from encumbrance and is of such a character as to *239assure to the purchaser the quiet and peaceable enjoyment of the premises. ... In Madhaven v Sucher, 105 Mich App 284; 306 NW2d 481 (1981), the court of appeals reaffirmed this rule and said that (1) title may be regarded as unmarketable if a reasonably prudent person, familiar with the facts, would refuse to accept title as presented in the ordinary course of business, and (2) it is not necessary that title actually be bad to render it unmarketable. [1 Cameron, Michigan Real Property Law (2d ed), § 12.4, p 400.]
That being the rule, it is highly persuasive, on the basis of the testimony at the hearing on remand, that the instant property’s title was unmarketable without recordable discharges of the record mortgages in hand. Anthony Brinkman, an escrow officer at Lawyer’s Title Insurance Corporation (a reputable title company), testified that without valid discharges in hand it would not be safe to draw any conclusions about a subsequently recorded warranty deed. Mr. Smereka, the Komeffels’ attorney at the time of the relevant events, testified that undischarged mortgages will affect clear title. He also admitted that he understood that in the normal course of commercial transactions, lending institutions generally will not accept collateral that is subject to another mortgage.

 The district court also noted a conversation between Flynn and Smereka in which Smereka stated “he wouldn’t walk across the street to accept the money . . . .”