“The Power of Words” – Indemnification Clauses in Construction Contracts

I recently contributed a guest blog post for Coastline Building, a Custom Designer/Builder of Energy Efficient Homes in Southwest Michigan.

 

The article analyzes a recent case from the Michigan Court of Appeals that provides a great example of why the language of a Construction Contract is important for liability purposes. I would recommend anyone in the construction industry to have their contracts reviewed by an attorney if its been a while.

You can check out the blog post here:

http://blog.coastlinebuilding.com/2012/11/27/the-power-of-words.aspx

Does Your Mortgage Advertisement Violate Federal Law?

Today the Federal Trade Commission came out with a press release indicating that certain real estate agents, home builders and other real estate professionals may be violating federal law with their advertisement.

The FTC protects consumers from unfair or deceptive business practices. As indicated in a form letter sent out to several companies, “The FTC also enforces the Mortgage Acts and Practices-Advertising Rule, Regulation N (MAP-AD Rule), 12 C.F.R. Part 1014, which specifically prohibits material misrepresentations in any commercial communication regarding the terms of any mortgage financing.”

Check out the FTC Press Release Here:

http://www.ftc.gov/opa/2012/11/mortgageadvertise.shtm

Proposed Michigan Legislation Would Crackdown on Mortgage Fraud with House Bill 5969

HB 5969 was introduced on October 17, 2012 by Rep. Brown and referred to the Committee on Judiciary.

It would create criminal and civil penalties for anyone who knows or has reason to know that a forged mortgage document is recorded on Property.  See details about the Proposed HB 5969 here: http://www.legislature.mi.gov/(S(aso5z0rpfjra1155ck222yuh))/mileg.aspx?page=GetObject&objectname=2012-HB-5969

The penalized actions all relate to falsely representating the title of the Property, include “robosigning” or “causing a document to be robosigned”, “notarizing” or “causing a document to be executed”.  The intent of this legislation seems to be to cast a broad net of prohibited conduct, and would include criminal penalties of felony conviction and civil penalties for damages incurred, including attorney fees.  Interestingly, the Bill would specifically target “robosigning” by making such perpetrator liable for 3 times the damages suffered by the owner of the Property.

 

 

Independent Foreclosure Review – Ends December 31, 2012

Just as a follow up to an earlier post about the Independent Foreclosure Review through the Office of Comptroller on Currency, homeowners with qualifying mortgage loans have until December 31st to request an independent foreclosure review.

On the OCC’s website it provides some background into this program: “On April 13, 2011, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Office of Thrift Supervision announced enforcement actions against 14 large residential mortgage servicers and two third-party vendors for unsafe and unsound practices related to residential mortgage servicing and foreclosure processing.”

“As part of those consent orders, federal regulators required servicers to engage independent firms to conduct a multi-faceted review of foreclosure actions in process in 2009 and 2010. Under the orders, independent consultants are charged with evaluating whether borrowers suffered financial injury through errors, misrepresentations, or other deficiencies in foreclosure practices and determining appropriate remediation for those customers. Where a borrower suffered financial injury as a result of such practices, the agencies’ orders require financial remediation to be provided”

for more information, please check out the website at: http://www.occ.treas.gov/topics/consumer-protection/foreclosure-prevention/correcting-foreclosure-practices.html

 

Michigan Enrolled House Bill 4928 – Making it Simpler to Correct Errors in Real Estate Documents

The mortgage crisis created a lot of problems in the last several years, one of those problems was the flooding of Register of Deeds offices with documents concerning real property – sheriff deeds related to foreclosures, assignments of mortgages after sub-prime lenders went out of business, etc… With this increase in filing came an increase in documents with errors.

How to fix these errors has been a matter of uncertainty.

The legislature passed a simple bill, HB 4928 to “simplify the process of correcting certain minor errors”.  A section is added to Public Act 123 of 1915 to allow affidavits to correct errors or omissions in previously recorded documents (MCL 565.451(d).

See the Enacted Bill at http://www.legislature.mi.gov/documents/2011-2012/publicact/pdf/2012-PA-0336.pdf

Also, for a review of the legislative analysis: http://www.legislature.mi.gov/documents/2011-2012/billanalysis/House/pdf/2011-HLA-4928-1.pdf

 

My Guest Blog Post on Steve Volkers Group Website – What to do when a Buyer or Seller wants out of a real estate contract?

check out my guest blog on Steve Volkers Group Website where I discuss what to do if a Buyer or Seller want to get out of a real estate transaction after the contract has been signed.  http://stevevolkersgroup.com/deal-deal-real-estate-sales-agreement-contract/

Foreclosed Property That Appears Abandoned – Does the Purchaser “Stand in the Shoes” of the Mortgagee for Purposes of Accelerating Redemption?

IMG_1768It is a practice of some purchasers at foreclosure sales to attempt to speed up the redemption period if the Property appears abandoned. Unless they are the mortgagee – they cannot do so under Michigan law.

 

The Michigan Court of Appeals, in an unpublished decision, Leggio v Huffer, No. 301821, 2012 WL 2605926 (Mich Ct App July 3, 2012) addressed the issue of who is entitled to accelerate the redemption period when property that appears abandoned has been foreclosed on. The Leggio Court held that under the plain meaning of the abandonment statute, MCL 600.3241a, only the mortgagee is entitled to accelerate the redemption period for abandoned property.

 

Facts of the Case:

In Leggio, the plaintiff, homeowner, defaulted on a mortgage with CitiMortgage, Inc. (the “Bank”). The Bank foreclosed on its mortgage and, at the sheriff’s sale the property was sold to the defendant Michael Huffer (“Purchaser”).  The sheriff’s deed was then recorded and indicated that the property may be redeemed 6 months after the sheriff’s sale.

Thereafter, the Purchaser went to the property and it appeared abandoned. The Purchaser then advised his agent, defendant Ralph Roberts (“Agent”), to take action required by the abandonment statute  in order to shorten the redemption period. Id. The Agent went to the property and posted a notice of presumptive abandonment and apparently mailed a copy to plaintiff’s last known address, which was the foreclosed property. Thereafter, an affidavit of abandonment was apparently recorded with the register of deeds on July 23, 2010, which indicated that the redemption period was shortened to 30 days from the date of the sheriff’s sale pursuant to MCL 600.3241 a.

 

The Lawsuit:

Homeowner then filed suit against Purchaser and his Agent, claiming that the affidavit of abandonment failed to comply with MCL 600.3241a and was, therefore, null and void because neither defendant was the “mortgagee.”

Conversely, The Purchaser and Agent argued that a purchaser at a sheriff’s sale “stands in the shoes of the mortgagee” and, thus, has the same rights as the mortgagee under MCL 600.3241a.

 

The Abandonment Statute – MCL 600.3241a

MCL 600.3241a provides:

 

…if foreclosure proceedings have been commenced…against residential property not exceeding 4 units, abandonment of premises shall be conclusively presumed upon satisfaction of all of the following requirements before the end of the redemption period:

 

(a)    The mortgagee has made a personal inspection of the mortgaged premises and the inspection does not reveal that the mortgagor…are presently occupying or will occupy the premises.

 

(b)   The mortgagee has posted a notice at the time of making the personal inspection and has mailed by certified mail…a notice to the mortgagor at the mortgagor’s last known address, which notices state that the mortgagee considers the premises abandoned and that the mortgagor will lose all rights of ownership 30 days after the foreclosure sale…unless the mortgagor…provides the notice required by subdivision (c).

 

(c)    Within 15 days after the notice required by subdivision (b) was posted and mailed, the mortgagor…has not given written notice by first-class mail to the mortgagee at an address provided by the mortgagee in the notices required by subdivision (b) stating that the premises are not abandoned.

 

In a concise analysis, the Court applied the plain language of the statute. Simply put, “mortgagee” meant “mortgagee”. The Court further reasoned: “[w]e decline defendants’ invitation to re-write the plain and unambiguous language so as to grant those same rights to third-party sheriff sale purchasers” Id.

 

 

Application:

 

Third parties who purchase property at foreclosure sales and are looking to capitalize on a bargain property cannot speed up the redemption period simply because the property is abandoned.  They do not stand in the shoes of the mortgagee.  Such purchasers are left to simply wait out the redemption period or, alternatively, negotiate with the property owners for a waiver of their redemption rights.

 

 

 

 

 

The Bank and the “Lost Promissory Note”: Can a Lender Foreclose on a Mortgage Without Presenting the Promissory Note?

In the last several years foreclosure litigation has boomed. An object of focus for many such property owners who find themselves in such a lawsuit has been to shift the burden to the Bank to “produce the note!”
What happens if a Bank wants to foreclose on a mortgage and cannot find the underlying note that evidences the debt? Is the debt extinguished and the mortgage discharged?
As the Michigan Court of Appeals in Sallie v Fifth Third just held on June 19th, merely failing to produce the promissory note is not fatal to a Bank’s foreclose on its mortgage.
In Sallie v Fifth Third Bank, Docket  No. 302554 (Mich Ct App June 19, 2012) the court upheld a bank’s entitlement to foreclose on its mortgage. The facts are as follows: in August 2000, plaintiff and his now-deceased wife borrowed $63,665.32 from Old Kent Bank (“Bank”) and granted the bank a mortgage on their home as security for the loan. Id.  “In 2003, plaintiff’s wife died. Plaintiff defaulted on the loan in September 2009, and the Bank, pursuant to the power of sale contained in the mortgage, sought to foreclose on plaintiff’s property by advertisement.”  Although plaintiff and wife had signed a promissory note as part of the mortgage loan transaction, the Bank could not locate the note at the time it began foreclosure proceedings. Id.
Plaintiff challenged the foreclosure, arguing that the Bank was not entitled to foreclose on the mortgage without showing that it was in possession and entitled to enforce the underlying note at the time that the note was lost.
The Sallie Court held that “A mortgagee may foreclose on a mortgage without producing the note secured by the mortgage.” Citing Snyder v. Hemmingway, 47 Mich. 549, 553; 11 NW 381 (1882). The Court further held” “In order to do so, however, the mortgagee must produce a valid mortgage and power of sale. Id. “[I]t is only under the power of sale that any steps can be taken.” Id. The mortgagee must also give “clear proof” of the debtor’s default and continuing debt obligation to the mortgagee.” (Emphasis added.) Citing Hungerford v. Smith, 34 Mich. 300, 301 (1876).
The Sallie Court further expounded how deeply engrained this rule is in Michigan jurisprudence “This century-old case law is consistent with our current statutory law, which provides that “[e]very mortgage of real estate, which contains a power of sale, upon default being made in any condition of such mortgage, may be foreclosed by advertisement, in the cases and in the manner specified in this chapter.” MCL 600.3201.
What about the issue of the underlying debt?  Under Michigan law, a mortgage that has no underlying debt is void.  In this case the Sallie Court was satisfied that the Bank produced enough evidence to demonstrate there existed a debt that Plaintiff owed to the Bank. “Defendant produced documentary evidence and presented testimony establishing plaintiff’s payment history, his default, and the amount outstanding on the debt. In fact, plaintiff admitted that he stopped making payments on the debt.” (Emphasis added.) Id.
The Bank also established that it owned plaintiff’s debt. The Bank provided unrefuted testimony that the lost note was never transferred, assigned, or sold. “By establishing its continuing ownership of plaintiff’s debt, defendant eliminated the risk that plaintiff would face multiple collections on the same debt.” Id.
Application: Merely because a Bank cannot locate a “lost note” will not nullify its right to foreclose on a mortgage that is otherwise valid, so long as the Bank has clear evidence that a debt exists, and the Defendant owes the debt.

Foreclosures: Mortgagor has No Standing To Sue If Redemption Expires During the Lawsuit

When a mortgagor of real property has found itself defaulted, foreclosed on, and nearing the end of the redemption period (typically 6 months to 1 year) what rights do they have to bring claims in court related to that real property?

 

Not many, it appears, absent a signficant showing of fraud or irregularity in the foreclosure process.

In  Awad v Gen Motors Acceptance Corp, No. 302692, 2012 WL 1415166 (Mich Ct App April 24, 2012), an April 24, 2012 decision, the the Michigan Court of Appeals affirmed the lower court’s granting of summary disposition to Defendant, mortgagee, holding that the mortgagor, Awad, lacked standing since during the pendency of the action, the redemption period expired.

in Awad, after default of the mortgage loan , GMAC commenced foreclosure by advertisement on March 31, 2010.  A sheriff’s sale occurred on May 26, 2010. The Government sponosored entity Fannie Mae was the successful bidder at the sheriff’s sale. Pursuant to the sheriff’s deed, Awad’s statutory right to redeem the property was six months, which expired on November 26, 2010.  Id.

Awad failed to redeem the property before the expiration of the redemption period. Instead,  filed suit on November 8, 2010, alleging  claims for Quiet Title (MCL 600.2932); Declaratory Judgment (MCR 2.705); Slander of Title (MCL 565.108); and Temporary Restraining Order/Preliminary Injunction. Awad asserted that the foreclosure was improper and that the sheriff’s deed was void because GMAC lacked standing to foreclose. Id.
GMAC then moved for summary disposition arguing, inter alia, that Awad “lacked standing to challenge the foreclosure sale because the statutory redemption period had expired and, therefore, she no longer had an interest in the property.” Id.
 The Lower court granted summary disposition, holding  “Plaintiff did not redeem the property…. She lost all right, title, and interest in the property when she failed to redeem within the period. Therefore, she lacks standing to bring a lawsuit regarding this property.”  Id.
The Court of Appeals affirmed.  It agreed with the lower Court that Awad lacked standing stating the law as:

“The law in Michigan does not allow an equitable extension of the period to redeem from a statutory foreclosure sale in connection with a mortgage foreclosed by advertisement and posting of notice in the absence of a clear showing of fraud, or irregularity.” (Emphasis added.) Id.

Accordingly, the Awad Court held that : “[a]lthough Awad filed suit before expiration of the redemption period, Awad made no attempt to stay or otherwise challenge the foreclosure and redemption sale. Upon the expiration of the redemption period, all of Awad’s rights in and title to the property were extinguished, and she no longer had a legal cause of action to establish standing.” Id.

Despite the Awad court’s ruling on a debtor’s standing to sue when redemption has expired, see the ruling in a Federal District Court for the Eastern District of Michigan, Haigh v Orlans Assoc, PC, No. 12-10867, 2012 WL 1365081 (ED Mich April 19, 2012).  There, under facts similar to Awad the Judge found Plaintiff had standing since the Court may set aside the foreclosure sale based upon a strong showing of fraud or irregularity. Regardless, that court did infact find no fraud or irregularity existed in the foreclosure process and dismissed the debtor’s case for failing to state a valid claim.

Lessons from Awad:

  • A debtor waiting until the last minute to act faces a serious uphill battle. Courts are looking unfavorably at mortgagees who get foreclosed on and make no attempts to redeem their property and wait until the last minute to bring suit against the mortgagor in connection with the foreclosure process.
  • A debtor has a heavy burden in proving fraud or irregularity.  In cases where a mortgagor brings forth claims similar to Awad’s, Courts will closely scrutinize  the foreclosure process and absent some clear proof of fraud or irregularity the foreclosure sale will not be set aside. A mere allegation of failure to post a Notice of Foreclosure is not likely to set the sale aside.
  • No equitable tolling of Redemption. The Courts will not equitably toll the redemption period, absent some serious proof of fraud or irregularity.  Once redemption expires, the debtor loses all rights in the property and lacks standing.