DEUTSCHE BANK TRUST CO V SPOT REALTY INCAnnotate this Case
STATE OF MICHIGAN
COURT OF APPEALS
DEUTSCHE BANK TRUST COMPANY
AMERICAS, f/k/a BANKERS TRUST
December 15, 2005
February 2, 2006
Wayne Circuit Court
LC No. 03-311263-CH
SPOT REALTY, INC., d/b/a ADVANCE
Official Reported Version
Before: Cooper, P.J., and Fort Hood and Borrello, JJ.
In this action to quiet title, plaintiff Deutsche Bank Trust Company Americas (Deutsche
Bank) appeals as of right from the trial court's order denying its motion for summary disposition
under MCR 2.116(C)(10) and granting defendant Spot Realty, Inc.'s cross-motion for summary
disposition. We affirm.
I. Factual Background
On November 6, 1997, James and Terrye Robinson borrowed $284,000 from NF
Investments, secured by the senior mortgage (Mortgage A) on their home.1 On April 1, 1998,
the Robinsons also opened a one-year-term small business line of credit for $40,000 with NBD
Bank, secured in part by a subordinate future advance mortgage2 (Mortgage B) on their home.3
The property was also encumbered by a mortgage executed in 1996. However, that mortgage is
not at issue in this appeal.
MCL 565.901(1) defines the terms "future advance" and "future advance mortgage" as follows:
(a) "Future advance" means an indebtedness or other obligation that is
secured by a mortgage and arises or is incurred after the mortgage has been
Mortgage B secured a revolving line of credit, which permitted the Robinsons to draw amounts
up to the credit limit throughout the term of the loan. The Credit Line Agreement contained the
following cancellation provision:
You may cancel your Line at any time by giving NBD written notice of
cancellation. . . . This agreement will remain in full force and effect if the Line is
cancelled, except NBD will have no obligation to extend credit, and you agree to
pay NBD the Obligations when due. . . . [Emphasis added.]
The agreement also provided that NBD Bank could extend or renew the term of the loan to allow
for advances beyond the stated expiration date.
In March of 2001, the Robinsons refinanced their property for $424,000 with Decision
One Mortgage (Decision One), and executed a mortgage in its favor (Mortgage C).4 The
proceeds from this loan were intended to pay off and discharge the mortgages with both NF
Investments and Bank One, which had since acquired NBD Bank, making Mortgage C the senior
security interest. NF Investments did, in fact, discharge Mortgage A following this transaction.
However, the transaction with Bank One did not go as planned.
Decision One requested the payoff amount on the line of credit from Bank One. In its
response, Bank One notified Decision One that it required the Robinsons' written authorization
to close the account. Decision One subsequently paid the balance remaining on the line of credit,
$42,230.26. However, Decision One never provided Bank One with the requested authorization
to close the credit line. Rather, Decision One notified Bank One that it was required to discharge
Mortgage B within 90 days, pursuant to MCL 565.41, and instructed Bank One to forward the
discharge document for Decision One to record. Bank One never discharged Mortgage B and,
therefore, never forwarded the requested document. Thereafter, Bank One allowed Mr.
Robinson to obtain further advances from the line of credit. Mr. Robinson subsequently
defaulted on the Bank One loan with an outstanding balance of $39,050.
On July 30, 2002, Deutsche Bank acquired Decision One's interest in the Robinsons'
property.5 One month later, Bank One foreclosed on the property. Bank One notified Decision
recorded, whether or not the future advance was obligatory or optional on the part
of the mortgagee.
(b) "Future advance mortgage" means a mortgage that secures a future
advance and is recorded either prior to or after the effective date of this act. . . .
The line of credit was also secured by the assets of Mr. Robinson's business, JS Airport, Inc.
It appears from the record that the refinancing transaction was performed by a mortgage broker,
Creative Capital, Inc. For ease of reference, we will refer only to Decision One.
It is unclear from the record whether Decision One assigned its interest to Deutsche Bank, or
whether Deutsche Bank claimed title through a sheriff 's deed following a foreclosure. For
purposes of the current action, however, Spot Realty conceded that Deutsche Bank acquired any
interest in the Robinsons' property that Decision One formerly possessed.
One directly of the impending foreclosure sale and also followed the procedures for foreclosure
by advertisement.6 Spot Realty prevailed at the foreclosure sale with a high bid of $50,000, and
acquired a sheriff 's deed to the property on August 29, 2002. Ten days after the expiration of the
six-month redemption period,7 Deutsche Bank filed the instant action to quiet title.
At the close of discovery, both parties moved for summary disposition pursuant to MCR
2.116(C)(10). The trial court granted the motion in Spot Realty's favor, finding that it succeeded
to Bank One's senior interest in the valid and undischarged Mortgage B. The court determined
that MCL 565.41 was inapplicable to future advance mortgages and, therefore, Bank One had no
duty to discharge its security interest. The court also rejected Deutsche Bank's claim that it was
entitled to ascend to the senior priority of Mortgage A under the doctrine of equitable
subrogation, and, sua sponte, found that Deutsche Bank was not entitled to an equitable
extension of the statutory redemption period.
II. Standard of Review
We review equitable actions to quiet title de novo.8 We also review a trial court's
determination regarding a motion for summary disposition de novo.9 A motion under MCR
2.116(C)(10) tests the factual support of a plaintiff 's claim.10 "In reviewing a motion for
summary disposition brought under MCR 2.116(C)(10), we consider the affidavits, pleadings,
depositions, admissions, or any other documentary evidence submitted in [the] light most
favorable to the nonmoving party to decide whether a genuine issue of material fact exists."11
Summary disposition is appropriate only if there are no genuine issues of material fact, and the
moving party is entitled to judgment as a matter of law.12 Finally, we review any underlying
issues of statutory construction de novo.13
MCL 600.3201 et seq.
MCL 600.3140. We recognize that the statutory redemption periods in a foreclosure by
advertisement are delineated in MCL 600.3240. However, these parties, two sophisticated
financial institutions, proceeded under MCL 600.3140. The trial court made its ruling under that
subsection and neither party has ever challenged the propriety of proceeding under MCL
600.3140. The parties agreed to proceed under MCL 600.3140, and we have reviewed the issues
under that statute.
Burkhardt v Bailey, 260 Mich App 636, 646; 680 NW2d 453 (2004).
MacDonald v PKT, Inc, 464 Mich 322, 332; 628 NW2d 33 (2001).
Auto-Owners Ins Co v Allied Adjusters & Appraisers, Inc, 238 Mich App 394, 397; 605 NW2d
Singer v American States Ins, 245 Mich App 370, 374; 631 NW2d 34 (2001).
MacDonald, supra at 332.
Eggleston v Bio-Medical Applications of Detroit, Inc, 468 Mich 29, 32; 658 NW2d 139
III. Priority of Mortgages
Deutsche Bank contends that the trial court should have quieted title in its favor on both
legal and equitable grounds. Deutsche Bank contends that Mortgage B was defective and,
therefore, voidable. It also argues that Bank One improperly failed to discharge that mortgage
upon full payment. In the alternative, Deutsche Bank contends that it was entitled to be
equitably subrogated to the senior position of Mortgage A, as the proceeds from Mortgage C
were used to pay off and discharge that interest. We disagree.
Pursuant to MCL 565.902, the priority of all advances made in connection with a future
advance mortgage relates back to the date the mortgage was recorded. Accordingly, even the
future advances made to the Robinsons after they executed and recorded Mortgage C are senior
to that interest. As assignee of Decision One's junior Mortgage C, Deutsche Bank's interest in
the Robinsons' property was extinguished at the end of the statutory six-month redemption
period.14 Deutsche Bank raised several challenges to the validity of Mortgage B in an attempt to
nullify that senior interest. We agree with the trial court that those challenges lack merit.
Deutsche Bank first contends that the future advance mortgage and credit agreement incorrectly
identified Mr. Robinson's corporation as the debtor. However, it is clear from the loan
documents that the corporation only guaranteed the loan. Deutsche Bank also contends that any
advances made following the stated expiration or maturity date of the line of credit did not relate
back to the date of recording. Yet, the loan documents clearly indicate that the term of the line
of credit could be extended and renewed. Furthermore, Decision One was on notice that the
Robinsons could potentially take subsequent advances, as it did not secure their authorization to
close the line of credit.
While we disagree with the trial court's determination that MCL 565.41 is inapplicable to
future advance mortgages, we reject Deutsche Bank's contention that Bank One was required to
discharge Mortgage B upon receiving full payment. The statute provided that "[a] mortgagee . . .
within 90 days after a mortgage has been paid or otherwise satisfied and discharged, shall
prepare and file a discharge thereof . . . ."15 A future advance mortgage is not "paid or otherwise
satisfied" unless the debt is paid off and future advances are terminated. Bank One notified
Decision One that the line of credit would be closed and Mortgage B discharged only upon the
Robsinsons' written authorization. Deutsche Bank conceded that its predecessor erred in failing
to secure that authorization. Moreover, Decision One knew that the line of credit had not been
closed, as Bank One never forwarded the requested discharge documents. As Decision One
failed to "otherwise satisfy" Mortgage B, Bank One was under no statutory duty to discharge its
MCL 600.3236. See also Burkhardt, supra at 652-653 ("An assignee stands in the position of
the assignor, possessing the same rights and being subject to the same defenses.").
MCL 565.41 (emphasis added). The statute was subsequently amended in 2004; however, the
emphasized language remained unchanged.
In the alternative, Deutsche Bank contends that its interest should take priority under the
doctrine of equitable subrogation, as Bank One's failure to discharge Mortgage B prevented
Decision One from taking its intended senior security interest. However, the doctrine of
equitable subrogation was never intended for the protection of sophisticated financial institutions
that can choose the terms of their credit agreements. Such lenders are "mere volunteers" and
may not benefit from this equitable remedy under Michigan law.
This Court described the doctrine of equitable subrogation in its recent decision in
Washington Mut Bank, FA v ShoreBank Corp:
Subrogation comes in two forms described by the Supreme Court in
French v Grand Beach Co [239 Mich 575, 580-581; 215 NW 13 (1927)] as
"The doctrine of subrogation rests upon the equitable principle that one
who, in order to protect a security held by him, is compelled to pay a debt for
which another is primarily liable, is entitled to be substituted in the place of and to
be vested with the rights of the person to whom such payment is made, without
agreement to that effect. This doctrine is sometimes spoken of as 'legal
subrogation,' and has long been applied by courts of equity. Stroh v. O'Hearn,
176 Mich. 164, 177 [142 NW 865 (1913)]. There is also what is known as
'conventional subrogation.' It arises from an agreement between the debtor and a
third person whereby the latter, in consideration that the security of the creditor
and all his rights thereunder be vested in him, agrees to make payment of the debt
in order to relieve the debtor from a sacrifice of his property due to an enforced
sale thereof. It is wholly independent of any interest in the property which the
lender may have to protect. It does not, however, inure to a mere volunteer who
has no equities which appeal to the conscience of the court."
In Stroh v O'Hearn [supra at 177], the Court noted that the equitable principle of
subrogation is not available to volunteers:
"Subrogation is an equitable doctrine depending upon no contract or
privity, and proper to apply whenever persons other than mere volunteers pay a
debt or demand which in equity and good conscience should have been satisfied
by another. It is proper in all cases to allow it where injustice would follow its
denial, and in allowing it all injustice should be guarded against so far as
The principle that subrogation is not available to a mere volunteer was again
applied in Lentz v Stoflet [280 Mich 446, 451; 273 NW 763 (1937)]. Indeed, even
in Walker v Bates [244 Mich 582, 587; 222 NW 209 (1928)], a case that cannot be
reconciled with Lentz, the Court acknowledged that subrogation is not available to
a mere volunteer. See also Hartford Accident & Indemnity Co v Used Car
Factory, Inc [461 Mich 210, 215-216; 600 NW2d 630 (1999)] and Beaty v
Hertzberg & Golden, PC [456 Mich 247, 255; 571 NW2d 716 (1997) (for a third
party to avoid being classified a mere volunteer, the damage must have been
incurred as the result of the third party's fulfillment of a legal or equitable duty
owed to the client)].
Pursuant to long-standing precedent, Decision One was clearly a "mere volunteer."
"[T]he doctrine of equitable subrogation does not allow a new mortgagee to take the priority of
the older mortgagee merely because the proceeds of the new mortgage were used to pay off the
indebtedness secured by the old mortgage."17 The mere fact that a borrower promises to repay
the new mortgagee does not remove the volunteer status.18 The proceeds from Mortgage C were
used to pay off the indebtedness secured by Mortgage A and Mortgage B. However, Decision
One was under no "legal or equitable duty" to the Robinsons to undertake the refinancing.
Decision One voluntarily entered into this transaction, and Deutsche Bank could only succeed to
the position of a "mere volunteer."
Furthermore, it is well established that "equity cannot be used to avoid the dictates of a
statute, absent fraud, accident, or mistake."19 However, Deutsche Bank has not alleged any
wrongdoing on the part of Bank One to support subrogation on these grounds. As previously
noted, Bank One was entitled under the credit agreement to extend the term of the line of credit
and Deutsche Bank failed to take the required actions to close and terminate the account.
Accordingly, Deutsche Bank failed to establish that its security interest was entitled to priority
under either legal or equitable principles.
IV. Equitable Extension of Redemption Period
Deutsche Bank also asserts that it was entitled, as a matter of equity, to an extension of
the statutory redemption period. Deutsche Bank contends that it was prevented from redeeming
the property, as it did not have actual notice of Bank One's foreclosure sale—or that Bank One
had failed to discharge Mortgage B. We again disagree.
As the successor-in-interest to Decision One's junior mortgage, Deutsche Bank had the
right to redeem the property within the statutory period.20 Contrary to Deutsche Bank's
allegation, however, Bank One's failure to directly notify it of the foreclosure sale does not
warrant equitable relief. Deutsche Bank acquired Decision One's interest only 30 days before the
scheduled foreclosure sale and presented no evidence that this transfer had been recorded to
place Bank One on notice. Bank One did directly notify Decision One of the foreclosure sale
and published notices in the Detroit Legal News for four consecutive weeks in compliance with
Washington Mut Bank, FA v ShoreBank Corp, 267 Mich App 111, 113-114; 703 NW2d 486
Id. at 119-120.
Id. at 124-125, citing Smith v Sprague, 244 Mich 577; 222 NW 207 (1928).
Burkhardt, supra at 659, citing Stokes v Millen Roofing Co, 466 Mich 660, 671-672; 649
NW2d 371 (2002), and Freeman v Wozniak, 241 Mich App 633, 637-638; 617 NW2d 46 (2000).
MCL 600.3208. When a statute "specifies the requirements for redemption, [there is] no room
for equitable considerations absent fraud, accident, or mistake."21 Bank One strictly complied
with the notice requirements for foreclosure by advertisement, and Deutsche Bank cannot show
that its failure to receive direct notice was caused by any fault of Bank One.22 Furthermore,
Deutsche Bank was on notice that the property was still encumbered by Mortgage B, as neither
its predecessor-in-interest nor Bank One had recorded a discharge. Accordingly, the trial court
properly determined that Deutsche Bank was not entitled to an extended period in which to
redeem the property.
/s/ Jessica R. Cooper
/s/ Karen M. Fort Hood
/s/ Stephen L. Borrello
Senters v Ottawa Savings Bank, FSB, 443 Mich 45, 55; 503 NW2d 639 (1993).
Freeman, supra at 637-638.