Michigan: Court of Appeals Rules Against MERS

by Robert J. Kinggo III
Trott & Trott, P.C. – USFN Member (MI)

Last month, the Michigan Court of Appeals, in a consolidated case, ruled that MERS cannot foreclose mortgages under Michigan’s foreclosure by advertisement statute, MCL §§ 600.3201, et seq. Residential Funding Co., LLC v. Saurman, No. 290248 and Bank of New York Trust Co. v. Messner, No. 291443 (MI Court of Appeals, April 21, 2011). The decision has been approved for publication. The court’s holding was based upon its rigid interpretation of the Michigan legislature’s designation of what parties may conduct a statutory foreclosure.

The defendants defaulted on their loans secured by mortgages given to MERS. The plaintiffs, the mortgage servicers, then initiated statutory foreclosure proceedings in the name of MERS, resulting in MERS being granted sheriff deeds. Subsequently, MERS quitclaimed its interests in the properties to the plaintiffs, who then filed eviction actions in district court following the expiration of the redemption period. The defendants challenged the plaintiffs’ right to possession, arguing that the foreclosures were invalid due to MERS’s lack of standing to avail itself of Michigan’s foreclosure by advertisement statute. The district courts ruled in favor of the plaintiffs, and their decisions were affirmed by the respective circuit courts on appeal. The Michigan Court of Appeals granted leave to appeal in both cases, which it then consolidated.

Michigan statute allows for either the owner of the indebtedness or a party owning an interest in the indebtedness or a servicing agent to foreclose a mortgage by advertisement. MCL § 600.3204(1)(d). In its opinion, the court honed its focus with the belief that the parties had agreed that MERS was neither the servicing agent nor the owner of the indebtedness. Therefore, the court reasoned that the validity of the foreclosures was contingent upon a finding that MERS was the “owner of an interest in the indebtedness.”

The Michigan Court of Appeals determined that a party “must have a legal share, title, or right in the note” in order to own an interest in the indebtedness — rejecting the plaintiffs’ assertion that an ownership interest in the mortgage was sufficient. The court reasoned that MERS lacked an ownership interest in the indebtedness because it had no right to possess, convey or take any action in regards to the notes and that it was not entitled to receive any payments made on the notes. The court’s precise application of MCL § 600.3204(1)(d) precluded it from accepting the plaintiffs’ arguments grounded in contract and agency principles; instead, the court’s focus on the plain language of the statute carried the day.

In closing, the Michigan Court of Appeals has determined that MERS may not foreclose a mortgage by advertisement under current Michigan law. At this time, it is unknown whether the plaintiff-servicers intend to pursue an appeal.

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