Avoid Foreclosure with Bankruptcy in Michigan

Preventing foreclosure with bankruptcy in Michigan

In Re: JOHN AGEE, Debtor. JOHN AGEE, Appellant, v. FENTON POURED WALLS, INC., Appellee.
CIVIL CASE NO. 04-40205

Case Law
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN, SOUTHERN DIVISION
330 B.R. 561; 2005 U.S. Dist. LEXIS 17256

August 12, 2005, Decided

Facts: X was involved in the construction of a house on property owned by A that was not his principal residence. When A did not pay for X's services, X filed a construction lien on the property, pursuant to Michigan's construction lien statute, M.C.L. § 570.1121(3), and commenced a foreclosure action. On January 14, 2003, the Livingston County Circuit Court entered a foreclosure judgment in favor of X which ordered the sale of the property and set the redemption period at four months. The sheriff's sale took place on January 14, 2004 at 10:00 a.m. and concluded no later than 11:00 a.m. that day.

Less than an hour later, at 11:41 a.m., A filed a petition for Chapter 13 bankruptcy. Agee's Chapter 13 plan proposed to cure the debt owed on the lien according 11 U.S.C. § 1322(b). Agee proposed to pay the debt through 36 monthly payments.

Issue: Is debtor allowed to cure by filing bankruptcy?

Ruling: No. Debtor's right to cure under § 1322(b) was cut off when the debtor's property was sold. The bankruptcy court did not abuse its discretion in lifting the automatic stay because the debtor failed to demonstrate that the foreclosure sale would not be confirmed by the state court or that the state court would extend the redemption period. The automatic stay provisions of 11 U.S.C.S. § 362(a) do not toll or extend the running of state statutory periods of redemption following foreclosure sales, and 11 U.S.C.S. § 105(a) does not empower the courts to issue separate orders tolling statutory redemption periods absent exceptional circumstances such as fraud, mistake, accident, or erroneous conduct.

Lesson Learned: For creditor to cure her defaulted obligation, it is important to do so before the property is sold at a foreclosure sale. There is no law authorizing extension of redemption period under ordinary circumstance.

Written by Kevin Levonas and Jerry L.