February 6, 2013
by Timothy Myers
Orlans Associates, P.C. – USFN Member (Michigan)
On December 12, 2012, the U.S. Court of Appeals for the Sixth Circuit issued an opinion in Mitan v. Federal Home Loan Mortgage Corporation, __ F.3d __, 2012 U.S. App. LEXIS 25979 (6th Cir. 2012).
In Mitan, the plaintiff challenged the validity of the sheriff’s deed, claiming that he had been denied a loan modification opportunity under Michigan’s foreclosure statute. The trial court dismissed the case, finding that the redemption period had expired, and the plaintiff therefore lacked standing to maintain the suit. While the court of appeals acknowledged that Michigan law generally restricts a borrower’s ability to maintain claims once redemption has expired, it found that the violation of the loan modification opportunity was a structural defect in the foreclosure that voided the sale. If the foreclosure was void, the court reasoned, the redemption period would not have run and the borrower would have standing to maintain his claims. This case effectively extends the post-redemption opportunity for a borrower to challenge the sale simply by alleging a defect associated with loan modification efforts, even though the statute contains an exclusive remedial provision for such a violation that limits the borrower’s rights to enjoining the sale and demanding the foreclosure be done judicially.
The significance of Mitan may be short-lived, however. In reaching its decision, the court relied on Davenport v. HSBC Bank USA, 275 Mich. App. 344 (2007), a case that held structural defects in foreclosure proceedings render the sale void. The Michigan Supreme Court, nine days after Mitan was decided, issued Kim v. JPMorgan Chase Bank, NA, Docket No. 144690, __ Mich. __, 2012 Mich. LEXIS 2220 (Mich. Dec. 21, 2012), in which it expressly rejected Davenport and held that defects in the foreclosure process render the sale voidable instead of void. Moreover, Kim suggests that where a defect in the foreclosure exists, borrowers must nevertheless demonstrate prejudice showing they would have been in a better position to preserve their interest in the property absent the noncompliance with the statute. The standard set forth by Kim places a more stringent burden on borrowers than that found in Mitan.
The holdings of the two cases are contradictory, and at least one court in the Eastern District of Michigan has declined to follow Mitan as a result of Kim. [Acheampong v. Bank of New York Mellon, Case No. 12-13223 (Jan. 16, 2013)]. The Sixth Circuit has been asked to reconsider its Mitan decision in light of Kim, although no decision has been made on that petition at this time.
© Copyright 2013 USFN. All rights reserved.