Parties May Agree to Extend a Redemption Period

In In Re Town Center Flats, LLC (Town Center Flats, LLC v ECP Commercial II, LLC), an opinion out of the District Court for the Eastern District of Michigan on appeal from the bankruptcy court, the court found that a construction lien claimant and the owner of the property agreed to extend a redemption period on judicial foreclosure of the construction lien by two days past the deadline set by the trial court which ordered the foreclosure.  The opinion does a fairly good job of summarizing the Michigan case law on the issue.

A construction lien claimant filed suit to foreclose its construction liens, naming the owner and a mortgagee.  The trial court determined that the construction lien had priority over the construction lien and ordered a sale of the property.  Two days after the court-ordered redemption period, the lien claimant (and successful purchaser at the sheriff’s sale) accepted $32,500 from the purchaser (on a sale price of $32,244.39), executed two releases of lien, and executed a quit claim deed.  The owner of the property subsequently filed bankruptcy, and filed an adversary action against the assignee of the mortgage, claiming that the tender of funds and deed were a sale, not a redemption.

The bankruptcy court found, and the district court affirmed, that the parties had agreed to extend the redemption period, and that the debtor had redeemed the property.  Part of the reasoning was the absurdity that the lien claimant would have sold a building worth two million dollars for the sum of $32,500 only two days after the redemption period expired.

The effect of ruling otherwise would have been that the mortgage against the property was extinguished.  It was clearly in the debtor’s own self interest to claim that the transaction was a sale, not a redemption, because a redemption would have saved the mortgage.

© Steve Sowell 2017