Purpose Driven General Counsel

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.

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

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

See the Real Property Section of the State Bar of Michigan’s E-Newsletter which includes my article on Abandoned Foreclosed Property

http://www.michbar.org/realproperty/eNews/eNews_October12.cfm

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/

It 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.

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.

“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.

A Mortgagee can foreclosure by advertisement AND at that same time file suit to recover on a personal guaranty, right?  Not so fast.

On April 17th, 2012, the Michigan Court of Appeals decided Greenville Lafayette, LLC v Elgin State Bank, 2012 WL 1319417, — N.W.2d —- (Mich Ct App April 17, 2012) and put a wrinkle in a mortgage holder’s commonly understood ability to foreclose by advertisement and sue to recover on a personal guaranty in connection with the debt.

Facts of Greenville Lafayette v Elgin Bank

Greenville concerned Elgin State Bank’s foreclosure by advertisement of Greenville Lafayette’s real property located in Montcalm, MI.  In early June 2007, the parties entered into a “Business Loan Agreement” for approximately $1.8 million as well as a mortgage agreement to secure the debt. In the mortgage agreement, Greenville Lafayette mortgaged to the Bank real property it owned in Montcalm County. The $1.8 million loan was also secured by two separate commercial guaranties.

Rule v US Bank is a recent unpublished Michigan Court of Appeals decision dated January 17, 2012 in which Parents, homeowners, raise a novel issue, albeit unsuccessfully, on behalf of their daughter in order to save their home from being foreclosed on.

The facts presented invoke a lot of sympathy, the Court of Appeals acknowledges as much and recites the facts as follows:

 “In 1985, plaintiffs Wayne and Raisa Rule, husband and wife, acquired the property at issue in this case and thereafter built their home on the property. In 1999, their adult daughter, plaintiff Wanda L. Rule, was injured in a snowmobile accident that rendered her a quadriplegic, paralyzed from her neck down. After the accident, Wanda moved into her parents’ home. She received an insurance settlement, from which a significant portion of the proceeds were used to modify her parents’ home to accommodate her physical needs…anda is now 40 years old and requires full-time care, which her mother provides.”

Those are arguably the saddest facts I have heard in someone being forced from their home.

Long story short, at some point, Mother and Father fell behind in payments, defaulted on their loan, Bank foreclosed and after redemption expired the Bank sought to evict Parents along with their quadriplegic Daughter. 

At the Eviction hearing Mother and Father filed a counter lawsuit claiming that their daughter had a protected homestead interest in the Property that prevented the Bank from foreclosing.

As the Court of Appeals explained : “a homestead is protected from forced sale, except in cases of a valid mortgage on the property duly signed by both spouses if the debtor is married. (citation omitted) Here, Mother and Father are arguing that, yes, they had signed a valid mortgage on the Property, but daughter did not, and she had a homestead interest that was protected.

How is this argument even valid? 

The Court goes on to explain that  “[t]he homestead protection ‘extends to any person owning and occupying any house on land not his or her own and which the person claims as a homestead.”  “Owning” has been liberally interpreted…to include joint tenants, possessors of land under land contracts, and a lessee who erected and occupied a dwelling on a premises.” (Citation omitted).  A homestead interest does not exist, however, in property, “the title to which is in another person.” (Citation omitted).

So in short, a person’s homestead is protected from forced sale if someone else owns the land, but you “own” the building and you haven’t signed a mortgage.  Own can mean you purchased the land under land contract, you own the home jointly, and you are renting the land but built and live in the home on the rented land. 

Not many people would fall into these categories to avoid foreclosure, and that it is why Mother and Father create quite a novel argument: 

Mother and Father concede that Daughter does not own the Property, so “if this Court determines that [Daughter] has a homestead interest, “‘it will derive from her rights as a tenant in her parents[‘] home” and her unique circumstances.'”   

You can sort of read between the lines that the Court was sympathetic towards the daughter’s scenario, it admitted the “harshness of the result”, but nonetheless the Court found no protected Homestead interest for the daugther, holding, “Her claim is one of equity based on the modifications made to the home. We are unaware of any law, and plaintiffs admit  that there is no authority, recognizing a homestead interest in these or similar circumstances.”

The Court further commented that “We decline to create new law that extends the protections of MCL 600.6023(1)(h) beyond the clear statutory language”  as if to say, we are sympathetic to your daughter’s circumstances, but you are asking us to create a new law, and we can’t do that as judges, no matter how sympathetic we feel.

If anything, this case is instructive to the homeowner who may be anticipating a hardship such as a job loss that would make it hard to make your mortgage payments. 

If you are in that situation be proactive! Don’t wait until you are being served with eviction paperwork as a holdover and then seek legal counsel, (legal counsel who then may have to raise novel legal issues in order to attempt to keep you in your home). The sooner you meet with an attorney, the more options they have to work with to help you achieve your goal.

In the end there are a lot of questions raised by this