June 2012
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Co-Editors:
Howard A. Lax, Lipson, Neilson, Cole, Seltzer & Garin, PC
Patricia Paruch, Kemp Klein Law Firm
Foreclosure by Advertisement Violated “One Action Rule”
By Jeshua T. Lauka, David & Wierenga, P.C.
In Greenville Lafayette, LLC v. Elgin State Bank, (Mich. App., No. 308450, April 17, 2012) the Michigan Court of Appeals invalidated a mortgagee’s foreclose by advertisement initiated simultaneously with its lawsuit on the debt’s guaranty.
Elgin State Bank (the “Bank”) and Greenville Lafayette, LLC (“Greenville”) entered into a loan agreement secured by a mortgage and two guaranties. When the loan came due, Greenville unsuccessfully attempted to renegotiate the debt. The Bank sued on the guaranties. With the lawsuit pending, the Bank sent Greenville notice of its intent to foreclose by advertisement. Greenville subsequently filed suit, arguing that the Bank’s foreclosure was invalid under MCL 600.3204(1)(b).
Greenville argued that the Bank was not entitled to foreclose by advertisement since the Bank filed suit to recover the “debt secured by the mortgage” violating MCL 600.3204(1)(b), which holds that a party may foreclose a mortgage by advertisement if: “[a]n action … has not been instituted … to recover the debt secured by the mortgage.” (The “One Action Rule“).
The court acknowledged a mortgagee’s general ability to foreclose by advertisement and simultaneously sue on a guarantee, pursuant to US v. Leslie, 421 F.2d 763, 766 (CA6, 1970). Leslie held that in such case a “guaranty is an obligation separate from the mortgage note.” Id. However, the Greenville court distinguished the Bank’s mortgage from the one in Leslie, holding that the Bank’s mortgage defined “indebtedness” to mean “all … amounts … under the Note or Related Documents ….” The mortgage defined “Related Documents” to include “all … guaranties … executed in connection with Indebtedness.” The court held the lawsuit was an action to recover the debt pursuant to MCL 600.3204(1)(b) and it invalidated the foreclosure.
Application for lenders’ counsel: avoid the “One Action Rule” by not including “guaranties” in a mortgage’s definition of “indebtedness.”
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Be Careful When Drafting Tenant/Debtor Criteria
By Howard A. Lax, Lipson, Neilson, Cole, Seltzer & Garin, P.C.
The federal government increased its commitment to reduce discriminatory practices that limit opportunities for minority groups. The U.S. Department of Housing and Urban Development (HUD) issued a rule prohibiting discrimination based on sexual orientation in HUD assisted programs. The Consumer Financial Protection Bureau issued a bulletin reminding lenders that compliance with equal credit opportunity laws will be strictly enforced. HUD’s proposed rule reaffirms its commitment to prohibit housing business practices that have a disparate impact on protected classifications. U.S. Department of Justice’s investigations of certain business practices for discriminatory impact are increasing, as evidenced by the recent charges against GFI Mortgage.
Landlords, private lenders, and others should evaluate “credit” and “housing” application practices, approval criteria, and discretionary pricing policies for disparate impact based on race, color, religion, national origin, sex, marital status, age, sexual orientation, or handicap. Businesses should also evaluate practices for discriminatory impact based on classifications that the state and local units of government protect. For example:
- The Elliott-Larsen Civil Rights Act prohibits discrimination based on height or weight.
- The Ann Arbor and Detroit Municipal Codes prohibit discrimination based on sexual orientation, gender identity, HIV/AIDS status, or expression of a person's friends, cohabitants, or associates.
- The Lansing Municipal Code prohibits discrimination based on student status, veteran status, political affiliation or belief, sexual orientation, gender identity or expression, or mental or physical limitation.
- The East Lansing Municipal Code prohibits discrimination based on height, weight, sexual orientation, student status, use of adaptive devices or aids, and legal source of income.