record holder of a mortgage," has statutory authority to foreclose. (Our
prior update regarding the appellate court's opinion in this matter, which
the Michigan Supreme Court now reversed, is below.) A copy of the
Michigan Supreme Court's ruling is attached.
A borrower obtained a mortgage loan that provided for rights of
foreclosure by the designated Mortgagee, MERS. MERS foreclosed on the
property by advertisement, and quitclaimed it to successor lender
("Plaintiff"). The borrower challenged the foreclosure, on the grounds
that MERS did not have statutory authority to foreclose under Michigan
law.
As you may recall, Michigan law allows a party to foreclose a mortgage by
advertisement if, among other things, that party owns an interest in the
indebtedness secured by the mortgage. See MCL 600.3204(d)(1).
The lower court rejected the borrower's argument, and borrower appealed.
A Michigan Court of Appeals overruled the lower court's decision, holding
that MERS "only held an interest in the property as security for the note,
not an interest in the note itself." Accordingly, the Court of Appeals
held that MERS did not have authority to foreclose.
The Michigan Supreme Court reversed the Court of Appeals, holding that
MERS held an interest in the indebtedness, and therefore had the authority
to foreclose.
In so doing, the Court noted that the interest in the indebtedness held by
MERS "does not equate to an ownership in the interest in the Note."
Instead, the Court found that "MERS owned a security lien on the
properties, the continued existence of which was contingent upon the
satisfaction of the indebtedness." Because MERS had an interest in the
indebtedness, the Court held that MERS was authorized to foreclose under
Michigan law.
The Court further explained that it found no indication that the Michigan
Legislature intended to "establish a new legal framework in which an
undisputed record holder of a Mortgage, such as MERS, no longer possesses
the statutory authority to foreclose." Instead, the Court held that the
Legislature's use of the phrase "interest in the indebtedness" includes
mortgagees of record, as well as owners and servicers of the debt.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
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Subject: FYI: Mich App Says MERS Not Allowed to Foreclose by
Advertisement Under Mich Law
Date: Mon, 25 Apr 2011 11:26:53 -0500
From: Ralph Wutscher <rwutscher@mtwllp.com>
To: rwutscher@mtwllp.com
CC: socaloffice@kw-llp.com, dcoffice@kw-llp.com,
chicagooffice@kw-llp.com
A Michigan Court of Appeals recently held that Mortgage Electronic
Registration Systems ("MERS"), the mortgagee under the security instrument
for a home mortgage loan, but not the holder of the note evidencing the
debt for that loan, could not exercise its contractual right to foreclose
by advertisement pursuant to the applicable Michigan law, MCL
600.3204(d)(1). A copy of the opinion is attached.
Defendant-borrower ("Borrower") obtained a home mortgage loan which
included a security instrument that provided for rights of foreclosure by
the designated mortgagee, MERS. However, MERS was not the owner of the
debt and did not hold or service the subject loan. After the Borrower
defaulted on his loan, MERS began non-judicial foreclosure by
advertisement, purchased the property and then quit-claimed the property
to successor lender ("Plaintiff"). When Plaintiff began an eviction
action, Borrower challenged the foreclosure, arguing that MERS did not
have authority to foreclose by advertisement because it did not qualify as
a mortgagee permitted to do so under MCL 600.3204(d)(1). The lower court
rejected Borrower's arguments and Borrower appealed.
As you may recall, Michigan law allows a party to foreclose a mortgage by
advertisement if, among other things, that party owns an interest in the
indebtedness secured by the mortgage. See MCL 600.3204(d)(1). The Court
first held that where, as here, the "indebtedness is solely based upon the
note," a party "must have a legal share, title, or right in the note" in
order for that "party to own an interest in the indebtedness" under MCL
600.3204(d)(1). Further, an "interest in the mortgage" is insufficient
because "the note and the mortgage are two different legal transactions
providing two different sets of rights, even though they are typically
employed together."
The Court next held that "MERS did not have the authority to foreclose by
advertisement on Borrower's property." The Court reasoned that "it was
the Plaintiff that lent the Borrower money pursuant to the terms of the
note," and not MERS as mortgagee, which "only held an interest in the
property as security for the note, not an interest in the note itself."
"Moreover, the mortgage specifically clarified that, although MERS was the
mortgagee, MERS held 'only legal title to the interest granted' by
Borrower in the mortgage." "Consequently, the interest in the mortgage
represented, at most, an interest in Borrower's property. MERS was not
referred to in any way in the note and only Plaintiff held the note."
The Court also rejected various arguments set forth by the plaintiff
mortgage loan investor. First, the Court denied that "MERS was a
contractual owner of an interest in the note based on the agreement
between MERS and the lenders" because "MERS had no right to possess the
debt, or the money paid on it." In addition, "the fact that the
originating lender gave MERS authority to take 'any action required of the
Lender' did not transform MERS into an owner of an interest in the note."
The "contract language expressly limits the interests MERS owns to those
granted in the mortgage instrument and limits MERS' right to take action
to those actions related to the mortgage instrument."
The Court also rejected the plaintiff mortgage loan investor's argument
"that MERS had the authority to foreclose by advertisement as the agent or
nominee for the originating lender, who held the note and an equitable
interest in the mortgage." The Court reasoned that the "statute
explicitly requires that, in order to foreclose by advertisement, the
foreclosing party must possess an interest in the indebtedness," and
"simply does not permit foreclosure in the name of an agent or a nominee."
The plaintiff mortgage loan investor also argued that the Michigan
legislature did not create three distinct categories of entity which could
foreclose by advertisement, but rather envisioned a continuum of entities:
those that actually own the loan, those that service the loan, and some
ill-defined category which might be called "everything in between."
However, the Court found no language in the statute providing for a
"continuum," no analysis from the plaintiff mortgage loan investor of what
the "continuum" constitutes, and therefore found no merit in that
position.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
RWutscher@kw-llp.com
http://www.kw-llp.com
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