Vendees may rely on equity to extend land contract redemption period

On January 7, 2021, in Vasiliadis v Rubaii, unpublished per curiam opinion of the Court of Appeals, issued January 7, 2021  (Docket No. 349982) the Michigan Court of Appeals ruled that the principles of equity can be used to extend the redemption period for a defaulting land contract vendee (Defendant), when the land contract vendor (Plaintiff) acts in bad faith to prevent the vendee from redeeming the property. Land Contract vendees and vendors should be aware that courts are empowered to extend the statutory redemption period in some cases, using principles of equity.

Background

Defendant purchased a home from Plaintiff via a land contract for $265,000.00; the contract provided that Plaintiff would remain in the home until Defendant fulfilled his obligations under the contract. After Defendant failed to timely make the contractually required balloon payment, Plaintiff filed a forfeiture action in district court.

The district court action was resolved via consent judgment of forfeiture, which granted Defendant 90 days to redeem the property for the remaining amount due on the contract. During this redemption period, Plaintiff began to stymie Defendant’s attempts to secure a mortgage loan to pay the redemption amount. Specifically, Plaintiff refused to let the home be appraised. Defendant filed a motion to enforce the consent judgment, specifically seeking an order to permit an appraiser to enter the home. The motion was granted and the order was issued. Plaintiff did not comply, and Defendant filed another enforcement motion, and requested that Plaintiff be held in contempt. The appraisal took place two days after Defendant filed his second motion.

Unfortunately, Plaintiff continued to stymie Defendant’s attempts to seek a mortgage loan, which would allow him to redeem the property. Plaintiff failed to turn over the payoff amount for her mortgage, and a certified, original copy of her husband’s death certificate, to prove he had no interest in the property. Due Plaintiff’s inaction, two financing deals Defendant set up were terminated. Eventually, Plaintiff turned over enough information to allow Defendant to secure the loan, but because of her delay, the closing could not be scheduled until one day before the end of the redemption period. Further, Plaintiff thwarted the closing, failing to provide a signed warranty deed and the original death certificate that was required to close the financing and facilitate Defendant’s purchase of the property.

The District Court’s Decision

After the expiration of the redemption period, Defendant filed an emergency motion to amend or void the consent judgment in order to extend the redemption period. The district court held an evidentiary hearing, where Defendant presented witnesses to support his claim that Plaintiff had interfered with his ability to finance the purchase. Plaintiff too, presented a witness—a mortgage expert to explain how a purchase money mortgage and a refinancing transaction work—but that witness actually supported Defendant’s evidence that he was proceeding as expected for the transaction, and that Plaintiff’s actions (or, more accurately, inactions) caused unnecessary delay.

The district court noted that the right to redeem is statutory and therefore, typically cannot be altered by the courts. The district court noted, however, that in certain circumstances, including when fraud was involved, a court is empowered to use its equitable powers to deviate from the statutory redemption period. The district court concluded that the evidence presented at the hearing “clearly establishe[d]” that Plaintiff “acted in bad faith which prohibited the timely closing of the premises.” The district court further explained that Plaintiff’s actions “clearly were done in bad faith which this court feels meets the threshold for fraud.” Therefore, the district court, exercising “its equitable powers,” ordered an extension of the redemption period for thirty days, and ordered Plaintiff to turn over an updated mortgage payoff, her husband’s death certificate, and a signed warranty deed within ten days.

The Circuit Court’s Decision

Plaintiff appealed to the circuit court, which reversed the district court’s order. The circuit court found that clear and convincing evidence of fraud or “lack of cooperation” was lacking. The circuit court noted in its ruling that “[t]he fact of the matter is that the redemption payment was not made timely, so for that reason I’m going to reverse.”

Court of Appeals Decision

The Court of Appeals reversed the circuit court and remanded the case for reinstatement of the district court order extending the redemption period. The Court of Appeals explained that the right to redeem property following a forfeiture judgment is statutory but noted that in other Michigan Supreme Court cases, equity has warranted deviation from the statutory redemption period. The Court of Appeals further explained that other unusual circumstances may trigger the need for equitable relief, and that in this case, the redemption period was included in a consent judgment—a contract—between the parties. The Court of Appeals explained that all contracts carry an implied covenant of good faith and fair dealing.

The Court of Appeals explained that there was clear evidence of fraud on Plaintiff’s part, and of violations of the covenant of good faith and fair dealing in performing her obligations under the consent judgment. After detailing Plaintiff’s actions that stymied Defendant’s ability to redeem the property, the Court of Appeals concluded that “[t]he district court could infer from the record evidence that [Defendant] had paid $71,000 for a home he never possessed and that [Plaintiff] and her attorney took evasive actions to keep both the property and the money.”

The Court of Appeals noted that the district court’s findings were entitled to deference, especially because it alone had the opportunity to observe the witnesses testifying at the hearing. As such, the circuit court’s failure to afford any deference to the district court was an error.

Lessons to Learn

This case, while unpublished and therefore merely persuasive, highlights the power of equity, which a court can use, in some limited circumstances, to override statutory redemption periods. Both land contract vendors and vendees should remember that the land contract itself—as a contract—carries with it an implied covenant of good faith and fair dealing and be aware that if either party violates that covenant—or engages in fraud—a court may use its equity power to make the other party whole.

Katherine R. Hopkins is an attorney with Hirzel Law, PLC and focuses her practice in the areas of appellate law, community association law, and civil litigation. Ms. Hopkins received her Bachelor of Arts degree in English (with a minor in Psychology), and a Teaching Certificate from Michigan State University. Prior to attending law school, Ms. Hopkins was a high school English teacher in Metro-Detroit. Ms. Hopkins obtained her Juris Doctor degree from The University of Michigan Law School, where she was a note editor for the Journal of Law Reform. Prior to joining Hirzel Law, PLC, Ms. Hopkins clerked for Chief Justice Pro Tem David Viviano on the Michigan Supreme Court for two terms, and was an Attorney in the Research Division of the Michigan Court of Appeals. She can be reached at (248) 720-5762 or khopkins@hirzellaw.com.

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