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Michigan: Mergers and Foreclosures by Advertisement

Posted By USFN, Friday, August 29, 2014
Updated: Tuesday, October 13, 2015

August 29, 2014


by Amy Neumann
Trott & Trott, P.C. – USFN Member (Michigan)

In the opinion of Federal Home Loan Mortgage Assn (sic) v. Kelley, Docket Number 315082 (June 24, 2014), the court dispensed with a due process challenge to foreclosures by advertisement in Michigan. The Michigan Court of Appeals held that the Federal Housing Finance Agency’s conservatorship of Federal Home Loan Mortgage Corporation (Freddie Mac) did not transform Freddie Mac into a federal entity for constitutional purposes. As a result, constitutional protections were not implicated and the due process challenge failed as a matter of law. This ruling is consistent with previous federal opinions within Michigan and across the country. See Herron v. Fannie Mae, 857 F. Supp. 2d 87 (D.C. Cir. 2012); see also Mik v. Federal Home Loan Mortgage Corporation, 743 F.3d 149 (6th Cir. 2014).

Of equal significance is the court’s decision on the requirement for recorded mortgage assignments in the merger context. At issue was whether CitiMortgage, Inc. was required to record its interest in the defendants’ mortgage prior to foreclosure, under MCL § 600.3204(3), when the mortgage interest was obtained pursuant to a merger. Prior to foreclosure, the Kelleys’ mortgage was assigned to ABN-AMRO Mortgage Group, Inc., which later merged into CitiMortgage. No assignment of mortgage was recorded from ABN-AMRO to CitiMortgage, due to the transfer of the mortgage by way of corporate merger.

The Court of Appeals opined that the foreclosure was voidable for failure to record an assignment of mortgage from ABN-AMRO to CitiMortgage. The court stated that an assignment of mortgage was required in order to provide a chain of title under MCL § 600.3204(3), which states “[i]f the party foreclosing a mortgage by advertisement is not the original mortgagee, a record chain of title shall exist prior to the date of sale under section 3216 evidencing the assignment of the mortgage to the party foreclosing the mortgage.” The court held that while the mortgage may have transferred to CitiMortgage through the merger, a recorded assignment was still necessary for purposes of the Michigan foreclosure statute.

The court of appeals went on to state that “defects or irregularities in a foreclosure proceeding result in a foreclosure that is voidable, not void ab initio.” Because the Kelleys failed to demonstrate prejudice resulting from the lack of a recorded assignment, they ultimately were not entitled to relief and the foreclosure was deemed valid.

The initial Kelley ruling, being contrary to industry standard practices, caused significant turmoil in the processing of foreclosures in Michigan where there was a merger in the chain of title. Given the significant impact of this decision, a motion for reconsideration was submitted in late July. An amicus curiae brief was also submitted by the Michigan Bankers Association in support of the reconsideration motion.

On August 26, the court vacated its prior decision of June 24, 2014, and issued a new one. In the new Order, the court determined that it did not need to address the assignment issue at all because the mortgagors did not allege that they were prejudiced by the lack of an assignment into the foreclosing entity. The due process ruling remained unchanged.

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