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Receiver's Sale of Real Estate Free and Clear of Mortgages Upheld

The Michigan Court of Appeals recently upheld a trial court's ruling that the sale of real estate by a receiver free and clear of all liens, claims, and encumbrances, including mortgages in favor of a subcontractor, was a proper exercise of the trial court's authority under MCL 570.1123(2). At issue in Stock Building Supply, LLC v. Crosswinds Communities, Inc., 2016 Mich. App. LEXIS 1685 (2016) was whether the sale by a receiver of four condominium units "free and clear of all claims, liens, and encumbrances" extinguished mortgages placed on those units by Church & Church, Inc. Church was a subcontractor on the Eton Street Station II condominium project in Birmingham, Michigan, which was funded by a $13,201,800 loan from Citizens Bank and secured by a mortgage. After the developer defaulted, Citizens sought and was granted a receiver over the condominiums. The receiver sold four units, with court approval, "free and clear of all liens, claims, and encumbrances." Church objected to the sales three years after the close of the receivership, arguing that it still maintained mortgages on the units because the trial court did not have the authority to approve the sale of them free and clear of Church's interests. The Michigan Court of Appeals disagreed, holding that MCL 570.1123(2), which permits a receiver to "petition the court for authority to sell the real property interest under foreclosure for cash or on other terms as may be ordered by the court," permitted the trial court to sell the properties free and clear of Church's mortgage. Specifically, the court held that the phrase "on other terms" gave the trial court the authority to approve the sale of the units free and clear of all liens, including Church's mortgage.

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