In Re Lemcool Trust – An Unfortunate Example of Why You Need to “Put it in Writing”

In real estate transactions it should go without saying that if you want the deal to hold up in a court of law, you should put it in writing. This is particularly primarily due to the Michigan “statute of frauds” which holds that any agreement for the sale of an interest in land must be evidenced in some sort of writing. MCL 566.106.
Case in point:  an unpublished decision dated October 18, 2012, the Michigan Court of Appeals  In re James R. & Marjorie V. Lemcool Trust, No. 306620, 2012 WL 5193182 (Mich Ct App October 18, 2012).
Some initial background:
On May 13, 1999, James R. Lemcool (James) and Marjorie V. Lemcool (Marjorie) created The James R. Lemcool and Marjorie V. Lemcool Trust (hereinafter, “the Trust”). They conveyed the property to the Trust. Their son Dennis Lemcool (“Dennis”) was specified as the successor trustee and the sole recipient of any eventual proceeds or assets from the Trust. James and Marjorie “intentionally made no provisions for” two of their other children, one of whom, James R. Lemcool, Jr. (James Jr.), is Linda Geddis’s father. The Trust was, by its terms, to be irrevocable and unmodifiable after the death of either James or Marjorie.
And the story goes like this:
 Linda Geddis testified that she had received phone calls from 2004 – 2006 from Dennis Lemcool, her cousin, asking her to come to Michigan from Iowa, where she was living, to take care of her aunt Marjorie Lemcool. Geddis agreed, and
moved into  the home from a good, well-paying job in Iowa and invested substantial resources into repairing and maintaining the Property on the understanding that she would receive a 1/2  interest in the Property.
According to Geddis, Dennis and his brother James Jr. agreed that she would inherit James Jr.’s half of the house, but she conceded that understanding was never reduced to writing. After James Jr. died in 2009 Geddis testified that Dennis told her “Will or no will, trust or no trust, as far as I’m concerned, you own your dad’s half…” Id. at pages 2…..
If you follow the chronology you understand that in 1999 the Trust was irrevocable – “unchangeable.”  Geddis’ father, James Jr., had no interest in the Property, since the Trust clearly directed it all went to Dennis.
Anyway, we continue on with the story…
As Trustee of the Trust, Dennis sued Geddis to evict her from the Property, that had belonged to the Trust.   Geddis countersued, claiming she should have legal or equitable ownership interest in the Property.
According to his testimony, “Dennis’s view of the overall situation was generally that Geddis had an agreement with James Jr., not with him, and that he had never in any way assented to Geddis ever acquiring an ownership interest in the house.”
The court found as fact that “Geddis and David made substantial improvements to the house, which was in a dilapidated state when Geddis and David moved in.” and that “Geddis and David left good jobs in Iowa to come to Michigan to live in the house.”
However,  as the Court of Appeals noted “Unfortunately, the trial court found that Geddis was simply unable to establish a prima facie showing that Dennis, who undisputedly had sole legal interest in the property, had ever made an explicit promise or agreement with Geddis to that effect. The trial court consequently denied Geddis’s counterclaim and granted Dennis the eviction.”

The Court of Appeals affirmed the decision.
You can tell the reluctance which this Court issued its ruling – just read the way the decision ends:
“We have a difficult time believing that Dennis did nothing to foster Geddis’s belief that she would receive an ownership interest in the house, but defendant failed to establish any evidence from which an actual agreement, as opposed to unilateral assumptions, no matter how reasonable, could be found. The result in this case therefore strikes us as unfair but inescapable. “In re James R. & Marjorie V. Lemcool Trust, No. 306620, 2012 WL 5193182 (Mich Ct App October 18, 2012)
LESSON:
Quite simply, get it in writing.  Even if its not in a mutually drafted, reviewed by your lawyer, agreement.  Get some writing to evidence that an agreement was reached. This certainly applies in the real estate context, particularly due to the statute of frauds, but it also applies in EVERY context.

Banks and Mortgage Servicers: The Dangers of Not Complying With Michigan Foreclosure Law and the difference between “Void” and “Voidable”.

Failing to comply with Michigan Statute when foreclosing by advertisement can render the foreclosure void – not merely “voidable”.
A 6th Circuit Court of Appeals decision provides a good example to lenders, servicers, and other real estate professionals on why it is important to follow MCL 600.3205’s requirements to hold off foreclosure by advertisement for 90 days and provide a borrower the opportunity to request a conference with the lender to potentially modify the loan. (At least until June 30th of this year when the statute is supposedly going to sunset).
The Case is Mitan v Fed Home L Mortg Corp, 703 F3d 949, 950 (CA 6 2012), petition to U.S. Supreme Court was denied on January 25, 2012.
FACTS:
Wells Fargo Home Mortgage foreclosed by advertisement on the Home.  The home owner, Frank J. Mitan, was deceased. Keith Mitan was the personal representative of his estate. Federal Home Loan Mortgage Corporation (“Freddie Mac”) purchased the foreclosed home at a sheriff’s sale on February 2, 2010, and the redemption period expired six months later.
Two weeks prior to the expiration of redemption, Mitan filed a complaint, which was removed from the Eastern District of Michigan. In his complaint, Mitan alleged that the foreclosure by advertisement was contrary to Michigan law, that the Bank failed to comply with MCL 600.3205, and he sought a jury trial, monetary damages, to quiet the property’s title, and fees and costs. Freddie Mac moved for summary judgment in response. It claimed that the redemption period had expired; therefore Mitan had no rights in the property and therefore no standing to maintain his lawsuit.  The District Court agreed.

However, the 6th Circuit Court of Appeals reversed.
The 6th Circuit noted that Mitan argued that since the property was foreclosed without statutory authority (in violation of MCL 600.3205)  the foreclosure was void ab initio (at the inception). Id. at 951 (CA 6 2012).
MICHIGAN FORECLOSURE BY ADVERTISEMENT STATUTE: MCL 600.3205
The Court then analyzed the Michigan foreclosure by advertisement statute: “When a lender wishes to foreclose by advertisement on a borrower’s principal residence, it must provide the borrower with a notice designating a person whom the borrower may contact to negotiate a loan modification. Mich. Comp. Laws § 600.3205a(1).” Id. If the law is not complied with, the borrower may sue to convert the foreclosure by advertisment (MCL 600.3205c(8)), and therefore force the lender through the time and cost of filing a lawsuit and obtaining a judgment from a court for sale of the property. Id.
The Court made a point of expressing that the “law also affirmatively prohibits foreclosure by advertisement in certain circumstances. These include situations where the designated person has not negotiated with the borrower as requested, where the parties have independently agreed to a loan modification, and where the statutory calculations show that the borrower qualifies for a loan modification. Id. §§ 600.3204(4)(d)–(f).”

NOTICE DEFECTS RENDER A FORECLOSURE MERELY VOIDABLE WHEREAS STRUCTURAL DEFECTS RENDER THE SALE VOID
The Court analyzed the distinction between a “notice defect” in the foreclosure process as opposed to a “structural defect”.  Notice defects presume the mortgagee had the power to foreclose and simply asks the question: was there a problem with the way that the borrower was notified of the foreclosure?  If so, then the sale is voidable: which generally  means it will be upheld, absent an extreme irregularity in the foreclosure process (generally a high bar).  However, a structural defect asks the question: did the mortgagee actually have authority to foreclose on the Property?  As the 6th Circuit Court observed, this inquiry goes “to the very heart of defendant’s ability to foreclose by advertisement in the first instance.”Citing Davenport, 739 N.W.2d at 384. Therefore “[s]tructural defects, on the other hand, render the foreclosure absolutely void.” Davenport, 739 N.W.2d at 385.
The Court held that it was factually in dispute whether or not the Lender had the authority to foreclose based upon whether or not it complied with MCL 600.3204-5’s requirements to notify buyer of the opportunity to modify the loan. “the failure to comply with the loan-modification process as outlined in the statute is a structural defect because it deprives the borrower *953  of the opportunity to demonstrate eligibility for a loan modification that would avoid foreclosure altogether.” Id. 952-53.
LESSON:
The Mitan Case tells us that lenders and servicers should be careful to comply with the requirements of MCL 600.3205. A failure to do so could render the foreclosure void – not merely voidable.  Borrowers will always argue that they did not receive notice of the foreclosure, and therefore the foreclosure was not valid.  However, notice defects simply render the sale void-“able”.  It would take a serious irregularity, including fraud, in order to overturn a foreclosure sale.  However, if Michigan law is not complied, then the lender never had authority to foreclose and the sale is rendered void.
Don’t hesitate to contact me if you have any further questions about this ruling, or other real estate related legal questions:
email: Jeshua@dwlawpc.com
phone: (616) 454-3883

“Laches” in Real Estate Disputes. Its Basically About Fairness.

“Laches” no, I don’t mean Latches.  In a legal sense, “laches” means failing to bring your claim in a timely manner and to the prejudice of the opposing party.
A recent Michigan Court of Appeals decision highlights an example of “laches” in the context of real estate disputes and how delaying in bringing a claim in court, even a claim that might otherwise succeed, could be devasting to your case.
THE FACTS:
The case is Knight v Northpointe Bank, No. 310206, 2013 WL 276067 (Mich Ct App January 24, 2013). The Property in dispute was 240 acres of real property in Kalkaska County, Michigan.  A summary of the relevant facts are as follows:
The dispute was over Plaintiff’s sister’s ability to convery 200 acres of Property to herself by using a power of attorney that her mother had given her.
Plaintiff’s mother, Laurene Marian Coe (“Mother”) owned the Property,  was widowed at the time and living in Florida. Plaintiff”s sister, Charlene Diane Cutro, (“Sister”) lived in Ann Arbor, Michigan. At some point prior to June 2001, Mother executed a power of attorney that gave Sister the authority to transfer Mother’s real property in Michigan.  In June 2001, Sister signed a warranty deed on behalf of Mother that transferred to herself 200 of the 240 acres.   In February 2002, Mother signed a warranty deed transferring the remaining 40 acres to Plaintiff.
In March 2005, Sister borrowed $180,000 from the Defendant, Northpoine Bank (“Bank”). Sister granted the Bank a mortgage on the 200 acres that she obtained from her Mother. In October of the same year, sister transferred the 200–acre parcel to her trust. Sister died in October 2006 and Mother died in February 2007.
In August 2007, Sister’s daughter, Edith Enders, acting as the successor trustee to her mother’s trust, transferred the 200 acre parcel to herself. Thereafter, Enders made payments on the Bank’s note, but fell into arrears. The Bank foreclosed on the 200 acre parcel and purchased it at a sheriff’s sale in September 2010 for more than $193,000. The redemption period for the 200 acre parcel expired in October 2011 and the Bank began to seek a purchaser for the property.
In November 2011, Plaintiff sued the Bank, alleging that her sister, Cutro, was “disabled as a matter of law” from making the “self-dealing conveyance” of the 200 acre parcel to herself as the attorney-in-fact for her mother. Moreover, because the “defect” in Cutro’s title was “plain on the face of the public record,” the Bank could not claim to be a bona fide purchaser from the Sister, Cutro. On the basis of these allegations, Plaintiff asked the trial court to “decree” that she was the rightful owner of the property and that she owned it free of any claims by the Bank.
Bank asserted that, since Plaintiff was asking for the court to declare with its “equitable powers” that Plaintiff owned the Property, Bank asserted the equitable defense of laches. The trial court agreed with the Bank. It held that Knight’s decision to wait so long to sue prejudiced the Bank and therefore dismissed Knight’s claim as untimely under the equitable doctrine of laches.
PLAINTIFF IS ASKING THE COURT TO DO “EQUITY”
The Court made a point of noting that the Plaintiff had come to the Court asking for “equity” – Plaintiff was asking  the Court to declare that she was the rightful owner of the Property, not the Bank. What Plaintiff asked for is also called a “quiet title action.” The Court, in its decision, went on to expound that there are certain requirements for a Plaintiff when they come to a Court asking the court to do “equity”.
“As our Supreme Court has explained, a complainant in equity must come to the court with a clean conscience, in good faith, and after acting with reasonable diligence: “ ‘Nothing can call forth this court into activity but conscience, good faith and reasonable diligence; where these are wanting the court is passive, and does nothing.’ “ Henderson v. Connolly’s Estate, 294 Mich. 1, 19; 292 NW 543 (1940), quoting Campau v. Chene, 1 Mich. 400, 405 (1850).

Knight v Northpointe Bank, No. 310206, 2013 WL 276067 (Mich Ct App January 24, 2013)
THE DOCTRINE OF LACHES:
The Court went on to cite the rule of law concerning laches: “Laches is an equitable tool used to remedy the inconvenience resulting from the plaintiff’s delay in asserting a legal right that was practicable to assert.” citing Public Health Dept v. Rivergate Manor, 452 Mich. 495, 507; 550 NW2d 515 (1996). As such, “when considering whether a plaintiff is chargeable with laches, we must afford attention to prejudice occasioned by the delay.” Lothian, 414 Mich. at 168. It is the prejudice occasioned by the delay that justifies the application of laches. Dunn v. Minnema, 323 Mich. 687, 696; 36 NW2d 182 (1949) Knight v Northpointe Bank, No. 310206, 2013 WL 276067 (Mich Ct App January 24, 2013).
Therefore in deciding on the issue of Laches, the Court asked the question: was there a delay in bringing the claim and, if so, did prejudice the Defendant?
The Court find that Laches prevented Plaintiff from succeeding on her claims, holding as relevant that Paintiff sued to quiet title to the 200–acre parcel more than 10 years after the transfer that she claims was invalid. Further , that during that ten-year period, the property was transferred several times.  Moreover, Plaintiff’s decision to delay suing until after the Bank acquired the property at the sheriff’s sale clearly prejudiced the Bank’s ability to defend itself against Plaintiff’s lawsuit. During the ten-year delay, the two most important witnesses to the underlying facts died. Knight v Northpointe Bank, No. 310206, 2013 WL 276067 (Mich Ct App January 24, 2013)
LESSON OF THE STORY:
Under Michigan law, parties suing over real estate matters will often ask the Court to make a judgment in “equity”. They are relying on the fairness of the Court to “make the right decision.” It is a good reminder that if you are asking the Court to do some act in “equity”, that you yourself have proven you have acted equitably as well. This means, in good faith, honesty, and with diligence.  If an opposing party can show that you have delayed in acting, and that it has plainly prejudiced them, the Northpointe Bank Case tells us that Courts will dismiss such actions, regardless of the merits of the underlying claim.

Proposed Michigan House Bill 4264 Would Allow Consecutive Sentencing for Financial Exploitation of Vulnerable Adults

The elderly and otherwise vulnerable population are particularly susceptible to exploitation, financial and otherwise. A Proposed House Bill would give Judges the discretion to sentence perpetrators convicted of multiple offenses against vulnerable adults consecutively (back to back) as opposed to concurrently (at the same time).  This would provide Judges with the discretion to give these perpetrators a much more stiff penalty if the facts merit such treatment.

You can check out a summary and fiscal analysis here: http://www.legislature.mi.gov/documents/2013-2014/billanalysis/House/pdf/2013-HLA-4264-742405FC.pdf

 

U.S. 6th Circuit: Mortgage Foreclosure is debt collection under the Fair Debt Collection Practices Act.

 The Fair Debt Collection Practice Act (“FDCPA”) is a consumer protection act that requires that debt collectors treat debtors fairly and prohibits certain methods of debt collection. Russell v Equifax ARS, 74 F3d 30, 33 (2d Cir 1996). Michigan has its own state statute, MCL 339.901 et seq., that mirrors the FDCPA.
In the context of residential real estate foreclosures the question has come up over the past few years whether a party foreclosing on a mortgage, being the law firm, mortgagee, or the mortgage servicer, is a “debt collector” for purposes of
the FDCPA.
A majority of courts have held that foreclosure is not “debt collection” and therefore lawyers, lenders, and servicers are exempt from the FDCPA, and presumably the state statutes as well.
Then came the Glazer decision.
The U.S. Court of Appeals for the Sixth Circuit recently bucked the majority trend in  its opinion, Glazer v Chase Home Finance LLC, 704 F3d 453, 455 (6th Cir 2013). There the Court held that mortgage foreclosure IS debt collection under the FDCPA. You can see the Full Text Opinion by clicking to the following link through the State Bar of Michigan. http://www.michbar.org/opinions/us_appeals/2013/011413/53675.pdf
The 6th Circuit goes through a detailed analysis of the FDCPA and other jurisdictions’ analyses.  In coming to its conlusion,  the 6th Circuit found the 4th Circuit’s opinion persuasive in Wilson v Draper & Goldberg, PLLC, 443 F3d 373 (4th Cir. 2006). The Wilson Court opined that if mortgage foreclosures were not “debt collection” under the FDCPA then it: “would create an enormous loophole in the [FDCPA] immunizing any debt from coverasge if that debt happened to be secured by a real property interest and foreclosure proceedings were used to collect the debt.” Glazer, citing Wilson at 376.
The practical application of the Glazer case (unless overturned by the U.S. Supreme Court) is that mortgagees, servicers, and law firms in the 6th Circuit’s jurisdiction who are sued under the FDCPA can no longer claim in defense that “mortgage foreclosure is not debt collection”.
That being said, there are still valid exceptions that might exempt a mortgage lender or servicer, or law firm for that matter, from the FDCPA.

Lenders Foreclosing on Residential Mortgages Must Still Offer 90-Day Foreclosure Moratorium: Sunset is Extended to June 30, 2013

Lenders who were hoping the 90-day postponement on many foreclosure by advertisements would come to an end December 31, 2012 will have to wait another 6 months.

 In 2009 the Legislature created a 90-day moratorium on foreclosure by advertisement to provide borrowers a chance to negotiate a loan modification with their lenders if the property was their principal residence.  Given the apparent stabilizing of the housing market, this program was set to end December 31, 2012. However  on December 12, Senate Bill 1172 was passed by both the House and the Senate- extending the 90-day moratorium on Foreclosure by Advertisement through June 30, 2013.

For more information, see the Legislative analysis here:

http://www.legislature.mi.gov/documents/2011-2012/billanalysis/Senate/pdf/2011-SFA-1172-B.pdf

 

 

The Benefits of a Short Sale….After Foreclosure?

A short sale  is a sale of property conditioned upon a bank’s  approval of a reduced loan pay off and its agreement to discharge its mortgage.
In a short sale a borrower owes the bank more than the property is worth. A short sale can make sense for both a buyer and a seller.  For more on buying on the context of a short sale – see my guest article posted on Amerifirst Home Mortgage’s Blog site http://blog.amerifirst.com/amerifirst-blog/bid/87723/Mortgage-Info-Buying-in-the-Context-of-a-Foreclosure-or-Short-Sale

From the Seller’s perspective, does it make sense to pursue a short sale AFTER the bank has already foreclosed on the Property?

The answer is a typical lawyer answer:  It depends.

Although it depends upon a lot of facts which I will not go into detail about,  in the typical scenario it largely depends on who was the highest bidder at the foreclosure sale and what amount was the highest bid.

Let’s say  the Property is sold at foreclosure and the mortgage holder, the mortgagee, (the “Bank”) was the highest bidder – it could take one of two paths:  1. it could get an appraisal and make a “credit bid” for what it believes is the fair market value of the Property.  If the credit bid is less than the loan, and they are the highest bidder, they are entitled to a sheriff’s deed in the amount of the bid, plus the ability to pursue a deficiency judgment against the borrower.  In this instance, a short sale would benefit the seller (borrower) if the bank is willing to waive the resulting deficiency.

However, the value to a borrower of obtaining a short sale becomes less clear if the bank makes a credit bid for the full amount of the loan.  In that case, regardless of the fair market value of the property, the bank could not collect a deficiency – because there is no deficiency. Essentially, the Bank took a gamble – they bid the entire amount of the debt and thought that the property might have been valued at or around its debt. The property may be worth less than the bid amount. Because the Bank bid the entire amount of the debt, the mortgage has been discharged and there is no deficiency balance.

Therefore, it is always the case that in a short sale the property is worth less than a borrower’s loan – it is NOT always the case that at foreclosure the Bank bids less than the amount of the loan.

Commercial Leases: Courts will apply the plain language of the contract in enforcing its terms.

Check out this article from attorney Lawrence Shoffner commenting on a July 10, 2012 Michigan Court of Appeals Decision:  Majestic
Golf, LLC, v. Lake Walden Country Club, Inc., (Mich App No 300140, July
10, 2012).

This underscores the fact that the law treats commercial landlord/tenant issues somewhat differently than residential tenancies.

In the residential context, tenants have certain statutory rights, in addition to contractual, that provide extra protection from a landlord’s ability to evict the tenant. The Property has to be kept fit for its intended use and in reasonable repair. These conditions must be met in order for a landlord to evict the tenant, stated otherwise, the covenant to pay rent is not an independant covenant to a landlord’s duty to keep the property fit for its intended use and in reasonable repair.

In a commercial context the courts will look at the contract that the parties’ agreed to, and enforce it by its terms.

This article published in the State Bar of Michigan’s December E-Newsletter can be viewed at the link below:

http://www.michbar.org/realproperty/eNews/eNews_December12.cfm