Michigan Court of Appeals Holds Foreclosure Judgment Requires Partial Payment Credits

On May 13th, 2014, the Michigan Court of Appeals held in a real estate breach of contract case that defendants are entitled to credits for partial payments regarding a judgment of foreclosure.

In Mercantile Bank Mortgage Company, LLC V NGPCP/BRYS Centre, LLP, Docket No. 311326, the Michigan Court of Appeals addressed an appeal from a trial court's grant of plaintiff's motion for summary disposition in a case involving defendants' breach of contract.

The Court first recited the facts of the case.

On July 23, 2007, Mercantile Bank agreed to loan the Centre $744,000 as a business loan. Ford A. Grifo, Daniel J. Nemes, and Mark S. Provenzano (collectively, the personal guarantors) provided personal guaranties of up to 100% of the indebtedness, and Capital Partners provided an “unlimited” corporate guaranty. The Centre also provided an assignment of rents and a mortgage on property at 21139 Mack Ave, Grosse Point Woods as security for the loan. 

On December 09, 2009, Mercantile Bank filed a complaint against the individual guarantors, Capital Partners, and the Centre. Mercantile Bank alleged that the Centre breached the parties’ contract by defaulting on the promissory note and business loan agreement. Mercantile Bank alleged breach of guaranty against the individual guarantors and Capital Partners, asserting that they had failed to pay the Centre’s past due amounts. Mercantile Bank sought damages and a judgment of foreclosure on the basis of the Centre’s default. 

The Centre, Capital Partners, and the personal guarantors filed a counter-complaint, alleging promissory estoppel, breach of contract, interference with business opportunities, fraudulent misrepresentation, and negligent misrepresentation. Contentious discovery proceedings followed . . .

The Court's analysis of the judgment of foreclosure issue followed.

When a plaintiff files a complaint to foreclose on a mortgage, the trial court may order foreclosure [']sufficient to discharge the amount due on the mortgage on real estate . . . plus costs.['] ['][T]he amount to be calculated in the judgment of foreclosure is that which is owed under the written instrument.['] The mortgagor is entitled to credits on the indebtedness for partial payments made before the judgment of foreclosure.

The Centre and Capital Partners contend that the trial court erred when it stated in its order that the amount due was [']$979,777.05 as of the date of this Order . . .['] because its judgment failed to reflect payments that they made on the note. We agree. 

In Dusseau v Roscommon State Bank, the plaintiff sought to prevent the defendant from foreclosing on a mortgage until it credited the plaintiff for [']the value of a portion of the mortgaged property released by the mortgagee[.]['] The parties disputed the value of the amount for which the defendant should have credited the plaintiff. This Court ordered the trial court to correct the judgment of foreclosure to reflect the fair market value of the property that the trial court should have credited against the mortgage.

Here, Mercantile Bank asserts that the trial court’s order accurately reflected its oral ruling on May 24, 2011. Mercantile Bank confuses the trial court’s ruling on its motion for summary disposition with the trial court’s judgment of foreclosure. On May 24, 2011, the trial court granted its motion for summary disposition under MCR 2.116(C)(10). Because the Centre and Capital Partners failed to prove an issue of fact regarding damages, the trial court’s September 23, 2011 order correctly reflects that summary disposition was granted for $979,777.05 in damages. 

However, the trial court’s September 23, 2011 order does not only contain a ruling on the motion for summary disposition. It also contains a judgment of foreclosure. As in Dusseau, here, the Centre and Capital Partners disputed the amount that it owed Mercantile Bank on the underlying debt in their motion to determine an application of payments. However, unlike in Dusseau, the trial court did not award the Center and Capital Partners a lower amount than the amount to which they were entitled to. Instead, the trial court failed to make any determination. 

We conclude that the trial court erred when it failed to rule on, or denied, the Centre and Capital Partners’ motion for application of payments. On the judgment of foreclosure, the Centre and Capital Partners were entitled to credits for their partial payments on the debt. As a result of its failure to determine whether and in what amount partial payments were made on the debt, the trial court’s order did not accurately state the amount owed under the written instrument in the judgment of foreclosure. 

However, unlike in Dusseau, we cannot simply remand for a correction of the judgment. Though it is clear from the record that the Centre and Capital Partners are entitled to some credit, it is unclear whether that credit should include an amount under the assignment of rents and the alleged December 2009 payment. We thus remand for the trial court to (1) determine what credits are due the Centre and Capital Partners, and (2) order judgment in the amount sufficient to discharge the debt, plus costs.