Happy Friday, all! I took this photo today – the sun is shining and it is starting to feel like spring.
In what was already a shocking day for a major lender, Wells Fargo, the Michigan Court of Appeals, in a case of binding precedent, invalidated an efficient tool lenders and investors routinely utilized to undo a foreclosure and revive a mortgage.
I just reviewed a published Court of Appeals decision that came out yesterday that will change the way investors, lenders, and mortgage holders set aside foreclosures.
The Case: Wilmington Savings Fund Society, et al. v Clare
The Facts are a bit complex, however they can be summarized as follows:
Defendant owned property in Hemlock, Michigan. The original lender held a mortgage on the Property; this mortgage was assigned numerous times. Id. page 2.
In 2010 lender’s assignee (“new lender”) foreclosed on the mortgage. After the redemption period expired, the new lender filed an action to evict the mortgagors/homeowners (“homeowners”).
After trial, the Court found in favor of the homeowners.
the court basically held that the new lender could not provide sufficient evidence that there was a proper chain of title passing on to new lender. Id.
In 2014 new lender’s servicer, Ocwen filed an “Affidavit of Expungement” – which stated that, among other things, the new lender:
“agrees to set aside the above Sheriff’s Deed, making it void and of no force or effect, thus reinstating and reviving the above mortgage and Note” Id.
Expungement Affidavit
The Expungement Affidavit has been a common tool used by lenders/mortgage holders who have foreclosed on mortgages to record an affidavit that would, in theory, and relying on MCL 565.41a, set aside the foreclosure sale, sheriff’s deed, and reinstate the underlying mortgage. See Id, page 6.
The Sixth Circuit Court of Appeals indicated that this is a “admittedly curious practice” other states with similar statutes have not interpreted the statute to allow the affidavit to be used in this way. Id. Citing Wuori v Wilmington Savings Fund Society, 666 Fed Appx 506, 510 (CA 2016).
The Court of Appeals agreed and held, as an issue of first impression:
“a Party cannot set aside a foreclosure sale simply through the unilateral filing of an expungement affidavit.” Wilmington, Page 5.
The Court analyzed the statute and held “the plain language of the statute does not include any indication that an affidavit may be used to create a condition. It necessarily follows that a party cannot unilaterally revoke a foreclosure sale by recording an affidavit that is itself the claimed condition.” Id. pg 6. (emphasis in the original).
Lesson
So, investors and lenders have one less tool at their disposal for what was an efficient method to clear up title if there was a problem with foreclosure. Since this case is binding precedent, lenders showed take note of this.
e-mail: Jeshua@dwlawpc.com
Twitter: @JeshuaTLauka
Purpose Driven General Counsel 