Michigan 90-Day Foreclosure Moratorium – Set to Sunset June 30th? – Senate Says “Not so Fast”

 

I had indicated in a previous post that the 90 day moratorium on all foreclosures by advertisements in Michigan was set to expire on June 30th, 2013 – with no indication it would be extended.

 

Well, the Michigan Senate HAS indicated it will be extended – to January, 2014 – in Senate Bill 380.

 

The Bill was tie barred with 3 other bills and all are on a fast track, sent to the Finance Committee on May 22nd, and as of May 28th, the Senate Finance Committee has proposed that the Bill be given “immediate effect”

See the Senate Fiscal Analysis here: http://www.legislature.mi.gov/documents/2013-2014/billanalysis/Senate/pdf/2013-SFA-0380-F.pdf

 

Some of these various other bills would actually seek to reduce the redemption period in certain circumstances. See an article yesterday in the Detroit Free Press for a further discussion of these bills. http://www.freep.com/article/20130602/NEWS06/130602001/Michigan-bill-could-cut-foreclosure-redemption-period

 

For Lenders, this potentially looks like a compromise; the legislature undoubtedly sees the value in homeowners being offered loss mitigation opportunities as opposed to foreclosure. After all,  loss mitigation efforts are intended to help those who can actually be helped- people experiencing temporary hardships, as opposed to those who likely could not have realistically afforded the loan they entered into.

it makes sense that once foreclosure has taken place, to get the property into the hands of the lender, and off their books, as soon as possible.  These bills seem to address both values – home ownership and reducing the amount of  vacant/foreclosed real estate in Michigan.

 

 

 

 

 

Lesson From Real Estate Litigation: Disclose, Disclose, Disclose!

Currently I have a handful of real estate disputes that involve these common facts:

1. parties enter into a real estate transaction;

2. After the contract is executed;

3. the Buyer finds some condition in the Property that:

a. was not, in buyer’s opinion, properly made known to them, and

                    b. if it would have been disclosed they would not have purchased the property.

 

I think the important take away from these basic facts are this:

any party to a real estate transaction, whether its a developer, private investor, prospective homeowner, real estate broker, sales agent, etc… could find themselves on one side or the other of a dispute!

Here are a few quick take-away points:

 Buyers:

Do your due diligence! don’t simply rely on the representation of the seller or agent. Get a professional opinion in the form of inspections, surveys, environmental assessments, title searches, whatever is appropriate for the specific transaction.

Sellers (and Agents):

Disclose, Disclose, Disclose!  Even if you think an issue can be “glossed over” or isn’t that material to your transaction, you may have a buyer who feels quite the contrary after the fact. The benefit of avoiding the possibility of a lawsuit certainly outweighs the possibility of losing a prospective buyer.

I can tell you for certain that my current clients embroiled in litigation over these scenarios would certainly agree .

Questions? Comments?

Contact me! Email: Jeshua@dwlawpc.com  Ph: (616) 454-3883

 

Lessons from Court: Potential Pitfalls in Managing Your Own Investment Real Estate

I was in Court this morning representing a Property Management Company in an eviction proceeding. It is always unfortunate when a landlord/tenant relationship breaks down and results in legal action. unfortunate, but necessary at times.

Some private investors in the real estate business think it is more cost-effective to evict tenants themselves – this is one reason why they fail to hold their property in a limited liability company – so they don’t need an attorney to represent them in Court – (an LLC, like a corporation is a distinct legal entity – just because you are the owner of the company, does not entitle you to file a lawsuit on behalf of the company – since it is technically practicing law on behalf of someone else = illegal.)
However, while waiting for my case to be called by the Judge, I got to witness just this morning several cases where the landlord was representing him/herself – to their detriment.  Some of the most obvious pitfalls:

1. When multiple parties are being sued and one party is contesting, failing to obtain a default judgment against the non-appearing party.

2. Failing to attempt to resolve the issue with the tenant prior to the judge calling the case.

3. Failing to Request a Money Judgment, as opposed to simply a possession judgment.

4. Failing to request all damages they are legally entitled to. 

There are others, but that most stuck out to me. The result of the owners that I watched just this morning evicting their own tenant likely resulted in extra unnecessary time and money expended.

I would always advise that anyone who is going into a legal proceeding should have legal counsel. The old saying is: “anyone who has himself as a lawyer, has a fool as a client.”

However, in the alternative, for those investment property owners who don’t want an attorney to appear on their behalf, they should develop a relationship with an attorney to review pleadings, advise about the law, and if the case becomes contested, to step in and assist when needed.

 

 

 

 

Payments to homeowners wrongfully foreclosed on approach $2.2 Billion

 

$2.2 Billion in Payments to Homeowners

According to the Office of Comptroller on Currency, More than 2.4 million checks related to the Independent Foreclosure Review have been cashed or deposited by homeowners who were wrongfully foreclosed on for nearly $2.2 billion through May 16, 2013.

For more information, check out the OCC’s website at: http://www.occ.gov/news-issuances/news-releases/2013/nr-occ-2013-85.html

 

As far as payment amounts go, recent news articles have claimed the payments have been much less than promised. Here’s a humorous article from the American Banker discussing Jon Stewart of the Daily Show’s take on the settlement : http://www.americanbanker.com/people/jon-stewart-rips-foreclosure-settlement-1059018-1.html

 

What Michigan is doing with its share of  the National Mortgage Settlement

The State of Michigan has taken its share of $25 billion in monetary sanctions and relief from a major settlement with the National Lenders.  According to the State of Michigan’s website: “Michigan residents are expected to receive approximately $780 million in benefits, including a $97 million payment directly to the State of Michigan.” http://www.michigan.gov/ag/0,1607,7-164-34391-282192–,00.html

The $97 Million payment has been distributed into a “Homeowner Protection Fund” as follows:

  • Foreclosure Rescue Scam Victim Restitution – $7.5 million. Many Michigan residents have fallen prey to foreclosure rescue scam artists who offered to help citizens save their homes.  This fund will provide restitution payments of up to $3,000 per person for victims of foreclosure scams.  Eligibility criteria to determine qualifying cases will be established at a later date. 
  • Assistance for Veterans – $5 million.  The men and women who served our country also have been affected by poor mortgage servicing and foreclosure practices.  These funds will provide targeted relief for military servicemembers unable to qualify for existing programs.
  • Michigan Attorney General Home Protection Unit – $6 million.  These funds will allow Schuette’s office to ramp up investigation and prosecution of foreclosure-related crimes.  This unit has brought charges in 28 cases since 2009 and there are approximately 69 cases currently under investigation.  These funds will allow for additional investigators and prosecutors to combat foreclosure related crimes.  
  • Blight Elimination – $25 million.  These funds will be dedicated to blight elimination efforts throughout Michigan.  $10 million will be allocated for blight elimination in the city of Detroit and $15 million will be allocated for use throughout the rest of the state.  Given that blighted property contributes to an environment conducive to crime, targeting blight elimination in these areas will further efforts to reduce crime. 
  • Foreclosure Counseling for Homeowners – $20 million.  The Michigan State Housing and Development Authority (MSHDA) and Michigan State University Extension Offices will use these funds to expand their much-needed, free homeowner counseling services for citizens seeking to avoid foreclosure.
  • Housing and Community Development Programs – $3.7 million.  These funds will be allocated to the Michigan Housing and Community Development Fund which develops and coordinates public and private resources to meet the affordable housing needs of low income households and revitalizing downtown areas and neighborhoods in Michigan.
  • Grants to Help Homeowners Refinance – $5 million.  These funds will allow The Michigan State Housing Development Authority (MSHDA) to provide Grants to help pay the closing costs of citizens who utilize the Home Affordable Refinance Program (HARP).  Eligible citizens will receive assistance paying closing costs associated with refinancing their home.
  • Assistance to Homebuyers – $15 million.  These funds will assist both service members and non-service members by providing grants to offset the purchase price of a home.  Service members may be eligible for grants up to $5,000 and non-service members up to $3,000.  Eligibility criteria to determine qualifying cases will be established at a later date.
  • Education Achievement Authority – $10 million.  These funds will be used by the Education Achievement Authority (EAA) to help improve performance of Michigan’s lowest performing schools.

Taken from the State of Michigan website: http://www.michigan.gov/ag/0,4534,7-164-46849_47203-282801–,00.html

 

An Apparent End to Michigan’s 90-Day Moratorium on Foreclosures

On a final note –  the state of Michigan’s 90-Day Moratorium on Foreclosures, for lenders who desire to foreclose by advertisement, is set to sunset next month, June 30, 2013.  As of today, I found no new legislation that has been proposed that would  extend that sunset date – much to the relief of lenders and loan servicers.   The sunset date has been extended several times – lenders, servicers, and other real estate professionals, as well as struggling homeowners, should be aware of this looming date.

 

 

Forged Mortgage Documents: Hard to Prove?

A reality of the real estate crisis that hit in 2008 –  we discovered (and are still discoverying) that there were those individuals and companies who benefitted greatly from falsifying loan documents. Case in point, the owner of Prime Title Insurance Company in Grand Rapids, MI was just sentenced to prison for his role in a mortgage loan fraud scheme. See the article at: http://www.mlive.com/news/grand-rapids/index.ssf/2013/05/owner_of_grand_rapids_title_ag_1.html

 

In the context of a civil lawsuit, proving that a loan document has been forged can be a challenge.  This is true for several reasons:

1. The initial burden rests on the party claiming the document has been forged.

So long as a real estate documents has been executed with the proper formalities, it is presumed valid.

 

2. The value of evidence, including credibility of witnesses, is decided by a Judge (or Jury). 

Whether a document is the product of fraud or forgery,  is a factual determination, and the evidence is to be weighed by the trier of fact – (a Judge or a Jury).

 
 
The Recent Case of Berry v. Myslinski:
 
A December 2012 Michigan Court of Appeals decision illustrates this: Berry v. Myslinski, 305564, 2012 WL 6178157 (Mich. Ct. App. Dec. 11, 2012).
 
At issue in Berry was whether the signatures on certain real estate loan documents were that of Nassab Berry or whether they were forgeries.
 
 
The relevant facts are as follows:
 
Nassab Berry “Mother” had five children: Robert Berry, the oldest, Fred Berry, Lawrence Berry, Don Berry, and Mona Amen (the “Kids”). The oldest son, Robert, and Mother were frequent business partners.
 
Mother purchased commercial property in Dearborn Heights, Michigan, which oldest son, Robert managed.
 
In 1997, Robert had a heart attack. After the heart attack, from all accounts, he was depressed. He began to drink and gamble more. According to his brother Fred, starting in 2003, Robert became secretive about his business interactions with Mother.
 
Around this time, the family discovered that Robert had convinced Mother to sign for and purchase property in Taylor, Michigan. Robert then took  out a slew of other mortgage loans, two of them with the Defendant, Myslinksi, a private investor.
 
Eventually the Kids decided to give brother, Lawrence, power of attorney over Mother’s financial affairs due to Robert’s apparent instability, and Mother”s problems with the early stages of dementia.
 
 
Robert died. The Kids thereafter stopped making payments on the mortgage, owned by private investor, Defendant.  So Defendant foreclosed by advertisement, and the Kids sued, on behalf of Mother – claiming that the mortgage loans had been forged, and Defendant had perpetrated a fraud against Mother. Therefore the mortgages were void – ab initio (a fancy legal term meaning – “from the beginning”)
 
At trial, the Court considered the evidence, which included:
 
1. a forensic document analysis expert, who stated his expert opinion that the signatures were forged;
 
2. Mother, who testified she never authorized the loans or mortgages;
 
3. Sons Lawrence and Fred who both testified that the mortgages were not Mother’s.
 
The Court found this convincing and held documents to be forged, right?
 
Wrong.
 
The Trial Court did not find the expert’s testimony “reliable”. Further, the Court did not find the mother’s testimony reliable, since it had been admitted that she suffered from memory loss and dementia. Further,  the Court did not find the sons’ testimonies reliable, since there was no evidence they ever attended the signings.  In contrast, the Court found the Defendant’s testimony, and that of the notary present at the signing, to be credible. The mortgages were therefore deemed valid.
 
The Court of Appeals affirmed, holding that the “trial court did not clearly err in its findings of fact.”
 
Application:
 
In the context of a lawsuit, nothing can be taken for granted, even if it seems like a sure fire win. I can picture the Berry Kids in this case, once they enlisted an expert who said he would testify the documents were forged, probably thought the case was a “slam dunk” victory. Clearly, it wasn’t. Fraud and forgery is a high burden to prove, which rests on the party trying to prove it. The more evidence to support your burden the better off you are.  Regardless, at the end of the day, the credibility of your witnesses and the value of your evidence will be left in the hands of a judge or jury.
 
 
Feel free to contact me with questions or comments at: Jeshua@dwlawpc.com. or call me at (616) 454-3883.
 
 
 

The Problem with Universal Legal Form Documents, Unaccompanied By Your Lawyer’s Review

I recently had a real estate client come in the office; she had purchased “universal” legal form documents (for quite a considerable amount of money, I might add) that she intended to use in her real estate investment practice. She was prudent, and wanted to make sure that the documents were legally sound, so she asked me to review them.

Faced with such situation, my first inclination is to tell clients that in many instances, it is simply cost-effective for me to draft a legal document from the ground up, as opposed to scrutinizing a document and revising where need be.

Regardless of the initial cost,  there are several problems with universal form documents:

1. Chances are, the legal document does not comply with all the laws in all the jurisdiction in the U.S. where a consumer might use it.

 

In the instance with my client, I noticed many areas where not only did the contract mistakenly reference the law of another state, it also failed to incorporate necessary provisions under Michigan law. It would have been

simpler and more cost-effective to have me draft a document than to review and revise.

2. Further, it is always advisable to get legal advice before using a form document, because each transaction is unique.

If given the opportunity to review legal documents you intend to execute, your lawyer can issue spot the problem areas and account for them.  Ultimately, the purpose of drafting a document correctly is to concisely memorialize the parties’ intentions and avoid litigation in the case of a dispute.

Case in point:

Behrends v Stupyra

In an unpublished case in October 9, 2012, Plaintiff, Behrends, sued attempting to enforce a legal right to exercise an option to purchase real estate an a piece of property.
Briefly the facts are as follows: in May 2010, Defendants executed a deed that quitclaimed their interest in the Property to Dyami, with a stated consideration of $10. Dyami recorded the deed on May 18, 2010. Plaintiff, Behrends then filed a complaint that asserted that the deed was evidence of a sale, and thus it triggered her right of first refusal.
Dyami responded that no sale occurred, simply put – they didn’t intend any sale. $10 wasn’t really given.
This part is important: “Dyami asserted that the stated $10 consideration was merely a part of the quitclaim form deed from LegalZoom.com, and was never paid. Dyami submitted the affidavit of Sharon Baily of LegalZoom.com, in which she stated that all deeds from LegalZoom.com contain “standard $10.00 considerations hardcoded into the form[.]”  Behrends v. Stupyra, 307551, 2012 WL 4801034 (Mich. Ct. App. Oct. 9, 2012)
What result?
The Court, after entertaining the evidence of the true consideration given, agreed that it was not a sale that triggered a right of refusal.
However, this case illustrates a point that should not go unmentioned:
the Defendants relied on a form deed, likely without having any input from legal counsel. They didn’t really intend to exchange $10, but, it was on the form they purchased, so they used it, and opened themselves up to litigation.
Questions? Comments?  Feel free to contact me: Jeshua@dwlawpc.com Ph: 616 454-3883

 

 

Ambiguities in the Promissory Note: When is a Personal Guarantee REALLY a Personal Guarantee?

In the world of lending if a business wants to secure financing, you will be hard-pressed to find a bank that is not going to require some collateral, including a personal guarantee of the debt by the principal(s) of the business.
businesses don’t want to sign personal guarantees; it’s why businesses take on the corporate formalities of a limited liability company, or a corporation – to limit their personal liability. Therefore, it is understandable in a lawsuit over a promissory note that an individual would argue against the enforceability of a personal guarantee.
This is a reason why lenders, private investors, should make sure their legal documents are precise – so that in the event a lawsuit needs to be filed the document is not drafted so as to create an ambiguity.
Such an example is illustrated in the 2012 unpublished Michigan Court of Appeals case of Marcuz v. Steven Premiere Properties & Dev., L.L.C., 305733, 2012 WL 4801060 (Mich. Ct. App. Oct. 9, 2012)
FACTS:
Steven Branoff (“Branoff”) was looking for a private investor in his real estate development business.  The lawsuit claims that in the spring of 2007,  Branoff  through his company, Steven Premiere Properties & Development, LLC (“Premiere Properties”) sought a private investor to invest in a construction development project in Utah, specifically, the construction of luxury homes.
Branoff found Paul Marcuz who loaned Premiere Properties $85,000. in March 2007. On April 3, 2007, Marcuz loaned Premiere Properties an additional $85,000; the terms of the April 3, 2007 loan were memorialized in a promissory note.
The promissory note indicated that Premiere was to pay the balance of the note, plus interest, to Marcuz by October 3, 2007.
The promissory note was signed by Branoff twice: once as a “member” of Premiere Properties, and once “individually.” The note was also signed by defendants Mario and Antonio Giannandrea “individually.”
Premiere Properties defaulted on the promissory note so Marcuz sued the company and individuals on September 3, 2009.
In court, Branoff admitted that he signed the promissory note twice, but he claimed his second signature was not intended as a personal guarantee.  But his signature and the two other individuals were simply “because “we were showing…who were going to be the finalized members of the company.”

Thus, an ambiguity exists.
Regardless, the trial court and the Court of Appeals disagreed with Branoff.
“Parole (or “Oral”) Evidence is Admissible to  explaining the intent of the Parties to a Note
The court held that “Parol evidence is admissible to show the intent of the parties to a negotiable instrument, where one signs in a manner that makes it doubtful whether he or she signs individually or in a representative capacity. Accordingly, parol evidence is admissible to show that the individual or individuals have executed a bill or note as officers of the corporation and that the intention of all concerned was that it should bind the corporation and not the individuals.”   Marcuz v. Steven Premiere Properties & Dev., L.L.C., 305733, 2012 WL 4801060 (Mich. Ct. App. Oct. 9, 2012) citing Simon v. Tropp, 252 Mich. 559, 233 NW 415 (1930).
The Court looked at parol evidence, including the testimony of the parties and found Branoff’s testimony unpersuasive.
The Court held that “[w]hen Branoff signed the promissory note first as a “member” of Premiere and second “individually,” he manifested his intent to personally guarantee the note. Simply put, it would have been redundant for Branoff to sign the promissory note a second time if he did not intend that his second signature have some legal effect different from his first signature.”

LESSON: Don’t Draft Legal Documents In a Manner That Creates Ambiguities.
Although the Lender in this instance did in fact win the day, the problem remained – he won after litigating a case that went to appeal, which undoubtedly cost him tens of thousands of dollars in legal fees. He was the drafter of the promissory note – much of the trouble could have likely been avoided if his promissory note clearly listed two words: “Personal Guarantee”.
This is another example of why it pays to retain an attorney to draft documents a head of time.
Questions? Comments? Shoot me an e-mail at Jeshua@dwlawpc.com or call me at (616) 454-3883

 

Marcuz v. Steven Premiere Properties & Dev., L.L.C., 305733, 2012 WL 4801060 (Mich. Ct. App. Oct. 9, 2012)

Lessons from Trial: The Indestructible Deed: Joint Tenants with Full Rights of Survivorship

I just had a trial that ended yesterday. Very interesting case that involved some interesting facets of real estate law and provides a good example of why you should get legal advice prior to entering into any contract, real estate, or otherwise.

 

Briefly, the facts of my case are as follows:

Mom and Dad owned a large Farm. They had 3 children. One of the 3 children (“Bill”) operated the farm along with his wife (“Brenda”) for many years.

Mom and Dad added Bill as an owner to the farm with a deed as follows: “Mom and Dad and Bill, as Joint Tenants with Full Rights of Survivorship”

This “full right of survivorship” language means that when a joint tenant passes away, his or her interest passes to the remaining owner (as opposed to passing to the deceased’s heirs).

In my case, Bill died unexpectantly, predeceasing Mom and Dad.  Under the language of the deed, Bill’s interest did not pass to wife, Brenda, but simply reverted to Mom and Dad.

Thereafter, Mom and Dad executed another deed, this one adding Brenda as a joint tenant with full rights of survivorship.

Dad passed away. At that point Mom and Brenda were the legal owners of the farm.

years later, Mom, without Brendan’s knowledge or permission, in her old age, signed a quitclaim deed, deeding the entire property to her Trust.

Thereafter, mom passed away. One of the children brought suit against my client, Brenda. They claimed that the Property belonged to Bill’s siblings, not Brenda, since mom’s last deed put the property in her trust.

The legal question I was presented with was a simple one:

what is the effect of Mom’s later deed?

 

The Answer is: nothing.

 

It had zero legal effect.

 

Law: Distinction Between Tenants in Common and Joint Tenants with Full Rights of Survivorship

 

Under Michigan law, there are generally two ways to own real property – Tenants in Common and Joint Tenants with Full Rights of Survivorship. (A third way, not part of my discussion, but very interesting topic, being as husband and wife, or tenants by the entirety).

Tenants in Common

Holding property as Tenants in Common means that each owner holds the entire title along with the owners. . Each owner shares in possession of the entire property, and each is entitled to an undivided share of the whole. If an owner dies, his interest in the property is passed on two his heirs.

Joint Tenants with Full Rights of Survivorship

Conversely, in Joint Tenants with Full Rights of Survivorship, when an owner passes away, their “remainder interest in the property passes to the remaining owners. Simply put, the last joint owner to die takes the entire property.

Another way to characterize this  tenancy is: “joint tenancy with full rights of survivorship” is comprised of a joint life estate with dual contingent remainders. While the survivorship feature of the ordinary joint tenancy may be defeated by the act of a cotenant, the dual contingent remainders of the “joint tenancy with full rights of survivorship” are indestructible.”

This issue was made clear in the Michigan Supreme Court Decision of Albro v. Allen, 434 Mich. 271, 287, 454 N.W.2d 85, 93 (1990).

Put another way: “A cotenant’s contingent remainder cannot be destroyed by an act of the other cotenant.”

Mom’s actions to separate her interest were ineffective. The only interest she could separate was her “life estate” or her ability to jointly own and possess the property during her lifetime.  When she passed away, by law, the Property reverted to Brenda. Brenda owns the farm.

 

Lesson:

This is a case in point of why you get legal advice before entering real estate transactions.  Know the legal consequences of the deeds you decide to execute.  Michigan law is very clear – mistake as to the legal effects of of executing document will not undo the transaction.   See Schmalzriedt v Titsworth, 305 Mich 109, 114 (1943) “[i]t is elementary, of course, that a mistake as to law will not invalidate the act of a person who, at the time, was laboring under no mistake of fact, or who was not the victim of fraud, undue influence or other form of wrong-doing.” (Emphasis added).

 

 

 

 

My Guest Blog Post for EarlyCareerists: Be Someone Who Cares – Serve on a Non-Profit Board

Happy Friday to all!

 

I recently wrote an article that was published as a Guest Blog post with Early Careerists where I discussed serving on a Non-Profit Board.

You can check out my article http://earlycareerists.com/blog/a-lesson-in-professional-development-be-someone-who-cares-serve-on-a-non-profit-board

You can also connect with Early Careerists on twitter at @earlycareerists

 

Mistakes in Real Estate Closing Documents: Court Decides Not to Invoke Equity to Save a “Sophisticated Lender” from its Mistake.

Mistakes in Real Estate Closing Documents happen. It is a fact.  What are the ramifications?
I will give you  the cliche “lawyer answer” –
It depends.
Among other things, it depends on how significant the mistake is (does it render the lender’s ability to enforce its rights invalid?), and if the lender seeks a Court to “fix” the mistake; how much admissible evidence can be produced to show the Court true intent of the parties.
It may also depend on the sophistication of the party that the lender is dealing with, as demonstrated in a recent Court of Appeals decision.
The Case is Lasalle Bank Midwest NA v Abernathy, No. 304111, 2012 WL 3046137 (Mich Ct App July 26, 2012), app den 493 Mich 940 (2013)
The basic facts are as follows:

In June of 2000, Joel Abernathy (“Joel”) was preapproved for a $145,000 mortgage loan.  Joel made an offer on real estate in St. Clair Shores. After the offer was accepted, Joel applied for a mortgage loan (for which he had been pre-approved) with Standard Federal (“Bank”).

The Bank used a Uniform Residential Loan Application form for that purpose, and identified “JOEL ABERNATHY” as the “Borrower.” It also indicated on that form, however, that title to the property would held in the name of “JOEL ABERNATHY AND CARMEN D. ABERNATHY, HIS WIFE.”

Carmen Abernathy (“Carmen”) did not accompany Joel to apply for the mortgage loan.

The closing on the mortgage occurred at the time of the real estate closing, on December 19, 2000. Joel and Carmen both were present at the closing, which took place at the Bank, along with Bank’s representatives, real estate agents, the prior homeowners, and the title company.

Joel signed a Standard mortgage form that granted Bank a mortgage on the property.
The mortgage form identified the “Borrower” as “JOEL ABERNATHY, A MARRIED PERSON”, was prepared for signature by “JOEL ABERNATHY” as the “BORROWER”, and was prepared for notarization of the signature of “JOEL ABERNATHY, A MARRIED PERSON”.
The mortgage form was not prepared for Carmen’s signature, although the Bank obviously knew that Joel was married to Carmen. Joel signed the mortgage form.  Carmen did not.
At the closing, the sellers then conveyed the property, by Warranty Deed, to “JOEL ABERNATHY AND CARMEN D. ABERNATHY, HIS WIFE”, the identical language to that Bank had used in its Loan Application and mortgage forms. Bank’s “Settlement Statement” form for the real estate closing identified, however, only “JOEL ABERNATHY” as “Borrower”, again consistent with the manner in which the Bank had prepared the mortgage form.
So, just to recap, at the closing, we have a Warranty Deed prepared for Husband and Wife, Mortgage signed by Joel, and a Loan, signed by Joel.
At this point, the Bank doesn’t realize it, but it does not have a valid mortgage.  This is trouble for the Bank.
As time went on, Joel stopped making payments on the mortgage loan.  The Bank attempted to foreclose on the mortgage. However, the Bank can’t foreclose on the mortgage in its current state.
This is because the Bank cannot foreclose on Property that is owned by someone different than the person who signed the mortgage.
Husband and Wife, a distinct legal entity, owns the Property, while the mortgage is only signed by Joel, individually. Those are different legal entities.
The Bank sued for reformation of the mortgage. In essence,  the Bank argued that the Court should change the mortgage with its equitable powers since “we all knew that Carmen was supposed to be listed on the mortgage with Joel, why would we execute a mortgage that was invalid?” or alternatively, “we all knew that Joel was supposed to own the Property in his own name, why would we execute a mortgage that was invalid?”
The Trial Court, after hearing the evidence, granted the Bank’s request to reform the mortgage; the Court basically decided  that since all the parties intended a valid mortgage on the property – the court will reform it.
The Court of Appeals disagreed!
In order to understand why the Court of Appeals disagreed, a discussion of the legal doctrine of “reformation” is necessary.
REFORMATION:
Michigan courts possess the equitable power to “reform an instrument that does not express the true intent of the parties as a result of: fraud, mistake, accident, or surprise.” Lasalle Bank, citing Johnson Family Ltd Partnership v. White Pine Wireless, LLC, 281 Mich.App 364, 371–372; 761 NW2d 353 (2008), citing Scott v. Grow, 301 Mich. 226, 238–239; 3 NW2d254 (1942).
This power to reform an instrument…may be applied to unambiguous documents that nonetheless fail to “express the obvious intention of the parties.” Johnson, 281 Mich.App at 372–373, citing Farabaugh v. Rhode, 305 Mich. 234, 240; 9 NW2d 562 (1943).
The Courts recognize two types of mistakes – Mutual Mistakes and Unilateral Mistakes based on Fraud.
When a party is asking for the Court to reform a document due to a “mutual mistake” – such party has the burden to prove the existence of a mutual mistake “by clear and convincing evidence.”  This is a high burden of proof.
The Court noted that Reformation of a document is appropriate to correct a mutual mistake of fact, or a mistake of the scrivener.
In this case, the Court was not convinced the evidence merited a finding of either a mutual mistake or a unilateral mistake based on fraud.
The Court noted that the Loan Application was prepared by the Bank and signed by Joel,  and clearly indicated that title to the property would be held by Joel and Carmen, husband and wife. “Thus, [the Bank] was on notice at all times that defendants intended to be co-owners of the property, particularly since it was [the Bank] who prepared the Loan application.” Id.
Further, “it was the Bank that dictated who signed which documents at the closing, and that the bank ‘for whatever reason’ directed Carmen that she did not need to sign the mortgage.” Id.
Here is the hard pill to swallow for the lender, the Court further opined that:
“Plaintiff was a sophisticated mortgage lender who had an opportunity to correct any mistake by requiring Carmen to so-sign the mortgage.” “We think it insufficient to invoke equity to save the mortgagee from its won mistake, particularly where the mortgagee is a sophisticated commercial lender.” Id. Citing Townsend, 254 Mich App 140.
Also noteworthy, The Bank petitioned the Michigan Supreme Court for review – the Court denied review on March 4th of this year.
LESSON:
In mistakes that go to the heart of the enforceability of a real estate agreement or mortgage, lenders should take caution in careful execution! A Court has the equitable power to change, or reform a document to conform with the parties true intentions, but it can be a high burden of proof required (clear and convincing evidence). Further, in the event that the borrowers in the transaction are individuals, as opposed to sophisticated commercial mortgagor, the Court may, in reliance on Abernathy and Townsend, hold that a “sophisticated lender” does not deserve a Court’s equitable power.