EILEEN V GRAVES V AMERICAN ACCEPTANCE MORTGAGE
Annotate this Case
Download PDF
Michigan Supreme Court
Lansing, Michigan 48909
Opinion
Chief Justice
Maura D. Corrigan
Justices
Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
Stephen J. Markman
FILED APRIL 14, 2004
EILEEN V. GRAVES,
Plaintiff-Appellant,
v
No.
119977
AMERICAN ACCEPTANCE MORTGAGE CORPORATION,
Defendant-Appellee,
and
BOULDER ESCROW, INC., a Nevada Corporation,
Defendant/Counter and Cross-Plaintiff-Appellee.
and
STEVE DIAZ,
Defendant/Counter and Cross-Defendant.
____________________________________
BEFORE THE ENTIRE BENCH
MARKMAN, J.
ON REHEARING
The issue before the Court is whether a mortgage given
on a loan and secured by the mortgagor’s property, the
proceeds of which are used by the mortgagor to pay off a
land contract debt and thereby acquire legal title to that
property, is a purchase money mortgage and, if so, whether
it is therefore entitled to priority over a prior recorded
lien on that property.
affirmative.
The Court of Appeals held in the
We hold that the mortgage at issue is not a
purchase money mortgage and, thus, we reverse the judgment
of the Court of Appeals and reinstate the circuit court’s
grant
of
summary
disposition
in
favor
of
plaintiff.
Because we hold that the mortgage is not a purchase money
mortgage,
we
need
not
address
the
additional
question
regarding the priority of purchase money mortgages.1
I.
FACTS
AND
PROCEDURAL HISTORY
In 1987, a married couple, Eileen Graves and Steve
Diaz, purchased by land contract a residence at 72 West End
in Waterford (the property) from the Giordanos, the vendors
under the land contract.
Neither Graves nor Diaz recorded
the
1994,
land
contract.
In
the
couple
divorced
and,
pursuant to the judgment of divorce, Diaz was awarded their
interest in the property, but Graves was granted a lien on
the property to secure payment of child support and other
monies.
In August of 1994, Diaz, facing forfeiture of the
1
We do not deal with the priority of purchase money
mortgages because the issue is not implicated in this case.
Thus, the concurrence should not be understood as the
position of this Court.
2
property,
applied
for
a
loan
from
defendant
American
Acceptance Mortgage Corporation (American Acceptance) with
the intent of using the proceeds to pay off the remaining
debt on the property owed to the Giordanos and thereby
avoid forfeiture.
Before the mortgage closing, American
Acceptance conducted a title search of the property in the
Oakland
County
Register
of
Deeds
in
grantee index and the tract index.
both
the
grantor-
The search reflected
that the property was owned by the Giordanos, and, because
the land contract was never recorded, the records showed no
interest
by
September
either
7,
Diaz
1994,
or
Graves.
recorded
Graves
On
the
her
morning
judgment
of
lien
interest in the property with the Oakland County Register
of Deeds.
Later that same day, Diaz closed on his loan
with American Acceptance.
In connection therewith, Diaz
executed a mortgage note to American Acceptance secured by
the
property.
remaining
The
balance
Giordanos,
who
loan
under
delivered
proceeds
the
were
used
to
contract
warranty
a
land
deed
to
pay
with
Diaz
the
the
on
September 13, 1994, thereby conveying to Diaz legal title
to
the
property.
October 6, 1994.
on
October
however,
5,
Diaz
recorded
his
warranty
deed
on
American Acceptance recorded the mortgage
1994.
American
Before
Acceptance
recording
assigned
its
the
mortgage,
interest
to
Boulder Escrow, Inc. (Boulder), and Boulder recorded that
3
assignment on April 13, 1995.
Because Diaz failed to pay Graves the monies due her,
Graves filed a motion to enforce her judgment lien, which
the trial court granted in November of 1995.
On January
11, 1996, because Diaz had also defaulted on his mortgage
obligations, Boulder published a notice of a public auction
of the property.
On January 12, 1996, Graves, asserting a
failure to perform as required under the divorce judgment,
sued Diaz, American Acceptance, and Boulder to foreclose on
her judgment lien.
Boulder filed a cross-claim against
Diaz
on
for
defaulting
his
mortgage
obligation
and
a
counterclaim against Graves asserting the priority of its
mortgage interest over her judgment lien.
In April of
1997, a default judgment was entered against Diaz, who is
not a party to this appeal.
Plaintiff
Graves
and
defendants
American
Acceptance
and Boulder moved for summary disposition on the issue of
the priority of the mortgage.
The circuit court ruled for
Graves, holding that plaintiff’s first-recorded lien was
constructively, if not actually, known to defendants and,
thus, under MCL 565.29, the lien had priority over the
subsequent mortgage.
The
Court
of
Appeals
reversed
that
ruling,
holding
that under the authority of Fecteau v Fries, 253 Mich 51;
234
NW
113
(1931),
the
mortgage
4
was
a
purchase
money
mortgage and was therefore entitled to priority over all
other
liens
or
interests,
even
those
that
were
prior
recorded.2
Graves sought leave to appeal in this Court.
of
granting
leave,
we
initially
issued
an
In lieu
opinion
per
curiam in which we reversed the judgment of the Court of
Appeals,
holding
that
pursuant
to
Michigan’s
recording
statutes, a property lien that is recorded first in time is
entitled
to
priority
without
regard
to
competing purchase money mortgage interest.
652
NW2d
221
(2002).
However,
vacated
that
opinion
per
appeal.
subsequent
467 Mich 308;
reconsideration,
STANDARD
and
granted
leave
we
467 Mich 1231 (2003).
II.
curiam
on
a
to
OF REVIEW
This appeal involves consideration of a trial court’s
ruling
on
reviewed
a
de
motion
novo
for
on
summary
appeal.
disposition,
Spiek
v
which
Dep't
is
of
Transportation, 456 Mich 331, 337; 572 NW2d 201 (1998).
Further,
the
mortgage,
the
specific
proceeds
question
of
which
we
were
review—whether
used
to
pay
a
the
remaining debt on a land contract, constitutes a purchase
money mortgage entitled to priority over a prior recorded
2
246 Mich App 1; 630 NW2d 383 (2001).
5
lien—presents an issue of law that is also reviewed de
novo.
Cardinal Mooney High School v Michigan High School
Athletic Ass’n, 437 Mich 75, 80; 467 NW2d 21 (1991).
III.
ANALYSIS
Black’s Law Dictionary (6th ed) defines a “purchase
money mortgage” as “[a] mortgage or security device taken
back to secure the performance of an obligation incurred in
the purchase of the property.”
This definition comports
with the implicit definition that this Court has given to
purchase
money
mortgages
in
relevant
cases,
including
Fecteau.
In Fecteau at 55, we noted that a purchase money
mortgage takes effect immediately, as part of the “same
transaction by which seisin was acquired by the mortgagor.”3
Further, in Fecteau at 54, we regarded a purchase money
mortgage
as
property
and
one
arising
give[s]
a
when
a
mortgage
mortgagor
for
the
“purchase[s]
purchase-money
. . . .”4
3
Black’s defines “seisin” as “Possession of real
property under claim of freehold estate. . . . Possession
with an intent on the part of him who holds it to claim a
freehold estate.”
4
In Comstock v Comstock, 27 Mich 97, 99 (1873), we
addressed whether the mortgages at issue were purchase
money
mortgages,
questioning
whether
the
“mortgages
mentioned in the pleadings were given for the purchase
money of these premises . . . [whether they were] given, or
meant to be given, back for purchase money . . . .”
See
also Hammel v First Nat’l Bank of Hancock, 129 Mich 176,
177-178, 88 NW 397 (1901), quoting United States v New
Orleans R, 79 US (12 Wall) 362; 20 L Ed 434 (1870), in
6
Thus,
determining
whether
a
mortgage
is
a
purchase
money mortgage requires considering whether the obligations
incurred
under
the
mortgage
arose
as
part
of
the
same
transaction in which the mortgagor purchased the property
securing the mortgage.
The mortgage must have been given
at the time of purchase of the security so as to constitute
“one transaction,” and the proceeds must have been used by
the mortgagor to purchase the security, in whole or in
part.
American Acceptance argues that the mortgage received
from
Diaz
is
a
purchase
money
mortgage
because
it
was
created as part of the “same transaction” under which legal
title was conveyed from the Giordanos to Diaz, and because
the mortgage proceeds were used by Diaz to acquire that
legal title from the Giordanos.
We respectfully disagree
that these facts give rise to a purchase money mortgage.
This Court has consistently held that under a land
contract, although the vendor retains legal title until the
contractual obligations have been fulfilled, the vendee is
given
equitable
title,
and
that
equitable
title
is
a
present interest in realty that may be sold, devised, or
encumbered.
In Bowen v Lansing, 129 Mich 117, 119-122; 88
which we considered a “mortgage for purchase money” as one
that arises when a mortgagor “purchase[s] property and
give[s] a mortgage for the purchase money . . . as one
transaction.”
7
NW 384 (1901), this Court considered, at length, the rights
incident to legal ownership and equitable ownership of land
in a land contract situation.
We stated:
“At law a contract for the purchase of land
gives the vendee no interest in the land; but the
rule is otherwise in equity, which considers the
vendor, as to the land, a trustee for the
purchaser, and the vendee, as to the money, a
trustee for the seller. In equity the land
belongs to the vendee, and may be sold, devised,
or incumbered by him, and on his death will
descend to his heirs. Seton v. Slade, 7 Ves. 265,
274 [1802]; Paine v. Meller, 6 Ves. [349] 353
[1801]; Champion v. Brown, [2 NY Ch Ann 163] 6
Johns. Ch. 398 (10 Am. Dec. 343) [1822]. . . . ”
[Quoting Wing v McDowell, Walker’s Cham Rep
(Mich) 175, 181 (1843).]
This was emphasized by Fitzhugh v. Maxwell,
34 Mich. 138 [1876], where it was again said that
the legal title remained in the vendor as a
trust, and that his only equitable claim upon it
was by way of security for his debt in the nature
of a vendor's lien, which could only be made
effective to devest the vendee's equitable title
by a sale through proceedings to foreclose the
vendor's lien. In Walker v. Casgrain, 101 Mich.
[604] 608, (60 N. W. 292) [1894], it was said:
“While
complainant
holds
the
legal
title,
defendant . . . is the owner in equity. The claim
of the vendor is but an ordinary money debt,
secured by the contract.” See also, Corey v.
Smalley, 106 Mich 257, 260 (64 N. W. 13, 58 Am.
St. Rep. 474) [1895]; O’Brian v. Evans, 107 Mich.
623 (65 N. W. 571)[1895].
* * *
As the foregoing authorities indicate that
the vendor's title is only a trust coupled with
an interest by way of security for a debt, which
is personalty, so the [cases cited by counsel
are] in harmony in holding that the vendee is the
cestui que trust as to the legal title, and that
his interest [i.e., the vendee’s interest] is
8
real property, and descends to his heirs . . . .
It is clear that, upon the death of the
vendor, the chose in action, with the security
represented by the contract, became a part of the
personal assets of the estate . . . . [Bowen at
119-120 (emphasis added).]
We acknowledge that in Bowen we did not address the
specific question at issue in this case.
Nonetheless, we
believe the general rules of law stressed in
Bowen are
pertinent here and support a finding that a mortgage, the
proceeds of which are used to pay off a land contract, is
not a purchase money mortgage.
is
not
a
purchase
money
The reason such a mortgage
mortgage
is
because
in
a
land
contract situation the vendee “purchases” the property upon
signing
the
interest
land
contract
therein.5
At
and
that
acquiring
point,
the
an
equitable
vendee
acquires
“seisin” and a present interest in the property that may be
sold,
devised,
or
encumbered.
That
the
vendee
may
ultimately default on the contract does not negate the fact
that
the
vendee
relevant property.
until
full
5
has,
in
a
real
sense,
purchased
the
That legal title remains in the vendor
performance
of
all
contractual
obligations
Black’s defines “purchase” as “To own by paying or
promising to pay an agreed upon price which is enforceable
at law . . . . The term ‘purchase’ includes any contract
to purchase or otherwise acquire.”
This definition
supports our finding that, upon signing a contract to
purchase property and acquiring equitable title therein,
the vendee has purchased that property.
9
likewise
does
not
negate
the
fact
already purchased the property.
as
noted
in
Bowen,
“is
only
that
the
vendee
The vendor’s legal title,
a
trust
coupled
interest by way of security for a debt . . . .”6
120.
has
with
an
Bowen at
It represents “but an ordinary money debt, secured by
the contract.”
Casgrain at 260.
Because Diaz already owned the property at the time
American
Acceptance
loaned
mortgage
with
which
to
mortgage
here
is
not
pay
a
him
money
off
the
purchase
in
return
land
money
for
contract,
a
the
mortgage.
The
obligations incurred under the mortgage were not for the
purpose of purchasing the property.
On the contrary, they
were for the purpose of discharging a debt, and it was the
obligations under this original debt that arose as part of
the same transaction in which the property was purchased.
6
MCL 565.357(2) of the recently enacted land contract
mortgage act, MCL 565.356 et seq., provides that land
contracts can be mortgaged and that the interests of both
the vendor and the vendee subject to a land contract
mortgage are real property interests.
Thus, the vendor’s
interest when subject to a land contract mortgage is an
interest in realty. Therefore, the vendor’s interest under
the land contract itself is more appropriately considered
an interest in realty as opposed to personalty. However,
the vendee’s interest, when subject to a land contract
mortgage, is equally an interest in realty. Therefore, the
vendee’s interest under the land contract itself is
likewise appropriately considered an interest in realty (as
under Bowen). Thus, the land contract mortgage act further
supports a finding that the equitable title conveyed to a
vendee under a land contract evidences an interest in
realty that may be encumbered, sold, or devised.
10
Accordingly, American Acceptance’s mortgage is not a
purchase money mortgage and, therefore, we need not address
the additional question regarding the priority of purchase
money mortgages.7
7
We further note that a close analysis of cases in
which this Court has afforded priority to purchase money
mortgages supports our holding that the instant mortgage is
not a purchase money mortgage. For instance, in Heffron v
Flanigan, 37 Mich 274 (1877), we considered the nature of a
mortgage given at the same time that title was acquired as
opposed to a prior mortgage given on the same property
before the mortgagor had acquired title to it. We stated:
This case differs in no essential from that
of an ordinary conveyance of land with a mortgage
back at the same time to secure a part or the
whole of the purchase price or for other
purposes. The grantor and mortgagee in such a
case would not suppose, nor would he have any
right to suppose, that his grantee had before
acquiring the title encumbered it, and if he took
back a mortgage at the same time and had both
conveyances promptly placed upon record together,
he would be doing all that the law required him
to do for the protection of his rights and he
would not be affected by any previous conveyances
which his grantee, the mortgagor, might have
placed upon record, when he had no title to the
premises. [Id. at 278 (emphasis added).]
In this case, American Acceptance acquired its
mortgage long after Diaz had acquired equitable title to
the property and, therefore, American Acceptance had reason
to know that Diaz may have encumbered the property.
Further, Diaz held title to the property at the time that
Graves placed her mortgage on it. Thus, Heffron, which is
clearly distinguishable from the instant case, leads to the
conclusion that a mortgage granted on property after the
mortgagor already has acquired title to the property
entitling the mortgagor to encumber the property is not a
purchase money mortgage.
11
IV.
CONCLUSION
We hold that a mortgage, the proceeds of which are
used to pay off a land contract debt, is not a purchase
money mortgage.
Therefore, we reverse the judgment of the
Court of Appeals and reinstate the circuit court’s grant of
summary
disposition
in
favor
of
plaintiff.
Because
defendants’ mortgage is not a purchase money mortgage, we
need
not
address
the
additional
question
regarding
priority of such mortgages.
Stephen J. Markman
Maura D. Corrigan
Michael F. Cavanagh
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
12
the
S T A T E
O F
M I C H I G A N
SUPREME COURT
EILEEN V. GRAVES,
Plaintiff-Appellant,
v
No.
119977
AMERICAN ACCEPTANCE MORTGAGE CORPORATION,
Defendant-Appellee,
and
BOULDER ESCROW, INC., a Nevada Corporation,
Defendant/Counter and Cross-Plaintiff-Appellee.
and
STEVE DIAZ,
Defendant/Counter and Cross-Defendant.
____________________________________
WEAVER, J. (concurring).
I concur with the majority, but write separately to
make clear that, at this time, the purchase money mortgage
doctrine remains a part of Michigan jurisprudence.8
This
point must be emphasized to provide clarity and stability
in the law because the current state of the law has been
8
My concurrence is based on the unremarkable
proposition that a vacated opinion has no effect or
precedential value.
It is uncertain whether the majority
disagrees
with
that
principle,
disagrees
with
the
application of that principle to this case, or simply does
not want that principle and its application to be clearly
set out in this case.
questioned following this Court’s decision to vacate its
opinion per curiam in this matter.
In this case, this Court should not have overturned
the
purchase
money
mortgage
doctrine
in
an
opinion
per
curiam, without granting leave to appeal and having oral
argument.
argument,
Had we granted leave to appeal and heard oral
we
doubtless
would
have
discovered
that
the
purchase money mortgage doctrine was not at issue in this
case (as we discovered when we vacated our prior opinion
per
curiam,
argument).
granted
That
leave
would
to
appeal,
have
and
prevented
heard
the
oral
current
situation, where the Court’s actions have caused confusion
and instability in the law where there was none.
To date two cases have referenced the uncertainty in
the law after this Court’s earlier actions—an unpublished
opinion per curiam from the Court of Appeals, DeGregorio v
C & C Construction,
2003,
and
a
case
in
Docket No. 238429, decided May 20,
the
Eastern
District
of
Michigan,
Bednarowski v Wallace, 293 F Supp 2d 728 (ED Mich, 2003).
See also Michigan Land Title Association newsletter, Dick,
Abstractions, The Title Examiner, (Winter 2002) ("And, as
if we needed more confusion, the Michigan Supreme Court
reversed
the
Graves
decision
and,
in
the
process,
dismantled the priority of purchase money mortgages over
2
prior existing liens; (thank you, very much!) . . . .").
While it may be obvious to some, it is important to
clearly state that because this Court has vacated its prior
opinion per curiam, its overturning of the purchase money
mortgage doctrine in that vacated opinion has no effect or
precedential
value.
Consequently,
the
purchase
money
mortgage doctrine remains intact in Michigan jurisprudence.
By
issuing
this
concurrence,
I
am
indicating
no
inclination one way or another concerning the continuation
or
abandonment
of
the
purchase
money
mortgage
doctrine.
Should the issue be raised in an application for leave to
appeal in the future, I will decide then whether or not to
take the issue up for consideration and decision.
Elizabeth A. Weaver
3
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
