The Michigan Supreme Court Addresses The Priority Of Receivership Expenses In The Context Of A Mortgage Foreclosure By Advertisement Proceeding

Like the common law of most other states, Michigan law generally grants to a court-appointed receiver a first priority claim in the receivership proceeding for payment of the receiver's fees and expenses incurred in that proceeding. See, e.g., In re Dissolution of Henry Smith Floral Co., 260 Mich. 299, 244 N.W. 480 (1932); Cohen v. Cohen, 125 Mich. App. 206, 335 N.W.2d 661 (1983). In receivership litigation commenced by the holder of first priority mortgage lien on real estate and rents, these fees and expenses will be charged against the mortgagee's collateral when the mortgagee has requested the receiver's appointment. See, e.g., Fisk v. Fisk, 333 Mich. 513, 53 N.W.2d 356 (1952); Bailey v. Bailey, 262 Mich. 215, 247 N.W. 160 (1933).

The Michigan Supreme Court, in its recent decision of In re Receivership of 11910 South Francis Road, 2012 WL 3028463, ___ N.W.2d ___ (Mich. Sup. Ct. July 30, 2012), addressed a factual situation where the receivership action was not commenced by the holder of the first mortgagee on real estate located in Ingham County, Mich., but by two judgment creditors of an individual who had inherited the realty a few months prior to the commencement of the action. At the time of the inheritance, there was approximately $180,000 in equity in the real estate beyond the mortgage balance due the first mortgagee, Dart Bank. The request for the appointment of a receiver was made by the judgment creditors under MCL 600.6104(4), which permits a court to appoint a receiver over a judgment debtor's property in order to sell it and pay the creditors from the proceeds. Important to this decision is MCR 2.622, which fleshes out the procedures used in judgment creditor receiverships under MCL 600.6104(4). Subsection (D) of MCR 2.622 permits a circuit court, when presented with the receiver's application, to fix the receivership's compensation and to impose liability for payment of these sums on the party requesting the appointment of a receiver.

Although Dart Bank was the first mortgagee of record concerning this realty, the bank received no notice of the judgment creditor's motion to appoint a receiver. In April, 2008, the Ingham County Circuit Court granted the relief requested in this motion and appointed Thomas Woods, an experienced receiver in the Lansing metropolitan area, as the receiver for this property. In Woods' order of appointment, he was granted the power to take possession of the realty and "to expend the property's...