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Mortgage Transfers by Operation of Law

Posted By USFN, Wednesday, February 06, 2013
Updated: Monday, November 30, 2015

February 6, 2013


by Matthew Theunick
Trott & Trott, P.C.
USFN Member (Michigan)

On December 21, 2012, the Michigan Supreme Court issued its opinion distinguishing mortgage transfers by voluntary act with those by operation of law or involuntary transfers. Kim v. JP Morgan Chase Bank, NA, Docket No. 144690, __ Mich. __, 2012 Mich. LEXIS 2220. In doing so, the court looked to the seminal case Miller v. Clark, 56 Mich. 337 (1885) and noted, “The assignments which are required to be recorded are those which are executed by the voluntary act of the party, and this does not apply to cases where the title is transferred by operation of law….” (emphasis added).

By way of background, the court of appeals’ opinion, Kim v. JP Morgan Chase Bank, 295 Mich. App. 200, 2012 Mich. App. LEXIS 20 (Mich. Ct. App. Jan. 12, 2012), dealt with a mortgage transfer from Washington Mutual Bank (the Bank), to the FDIC, and then a subsequent transfer from the FDIC to JP Morgan. In reviewing the validity of these transfers vis-a-vis JP Morgan’s foreclosure-by-advertisement, the court of appeals used the statutory framework provided in MCL § 600.3204(3), which requires a “record chain of title” to exist prior to the date of sale for the party foreclosing a mortgage, and concluded that under Davenport v. HSBC Bank USA, 275 Mich. App. 344, 347-348; 793 N.W.2d 383 (2007), the foreclosure proceedings were void ab initio as there was no assignment to JP Morgan.

With respect to the transfer of assets from the Bank to the FDIC, the Michigan Supreme Court noted that the initial transfer pursuant to 12 U.S.C. 1821(d)(2)(A) was by operation of law. However, the court noted that, with respect to the subsequent transfer, “The dispositive question in this case is whether the second transfer of WaMu’s assets — the transfer from the FDIC to defendant — took place by operation of law.”

In reviewing this transfer, the court held that this did not take place by operation of law as JP Morgan acquired the assets in a voluntary transaction, through a direct sale. Interestingly, the court noted that had a merger occurred under the FDIC’s statutory authority, JP Morgan would have a strong argument it had stepped into the shoes of the Bank, as the transaction would have occurred without any voluntary action and likely would not have implicated MCL § 600.3204(3).

However, the court noted, “Because we have held that defendant acquired plaintiffs’ mortgage through a voluntary transfer, we need not decide whether MCL § 600.3204(3) applies to the acquisition of a mortgage by operation of law.” [See Footnote 26 of the majority opinion]. Thus, while Kim seemingly safeguards involuntary transfers from MCL § 600.3204(3), the actual holding doesn’t quite reach that far.

Nonetheless, in what will likely be interpreted as the key holding of Kim, the Michigan Supreme Court held that the court of appeals’ interpretation of the foreclosure by advertisement sale of JP Morgan as being void ab initio, under Davenport, was contrary to the established precedent of this court. The court further noted, “We have long held that defective mortgage foreclosures are voidable” and in order to determine whether a foreclosure sale should be set aside, due to defects or irregularities, the key test is whether the foreclosed borrowers are able to “show that they were prejudiced” and that “To demonstrate such prejudice, they must show that they would have been in a better position to preserve their interest in the property absent [the] defendant’s noncompliance….”

© Copyright 2013 USFN. All rights reserved
Winter 2013 USFN Report

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