SBM Real Property Law Section eNewsletter

May 2012

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Howard A. Lax, Lipson, Neilson, Cole, Seltzer & Garin, PC

Patricia Paruch, Kemp Klein Law Firm

FDIC Assignees and Foreclosure by Advertisement

By Phillip J. Neuman, Nadis Neuman, PC

The Michigan Court of Appeals limited the ability of FDIC's assignees to foreclose by advertisement in Kimv. JP Morgan Chase Bank, 295 Mich.App. 200, (Mich.App., No. 302528, January 12, 2012). In Kim, the borrowers gave the mortgage to Washington Mutual in 2007. In 2008, the Office of Thrift Supervision closed Washington Mutual. The receiver, FDIC, sold the assets (including 1.5 million loans) in bulk to Chase. Because of the bulk sale, FDIC did not execute an assignment of each individual loan. After Chase foreclosed, the borrowers filed suit to set aside the sheriff's sale because Chase failed to record its mortgage interest before the sale as required by MCLA 600.3204(3). The trial court denied the borrowers' claim, but the Court of Appeals reversed.

Relying on Michigan Attorney General Opinion No. 7147 (2004), Chase argued that it was not required to record its interest before the sale because it acquired its interest by operation of law. The Court of Appeals held that the Attorney General's opinion failed to comport with the plain statutory language of MCLA 600.3204(3), and furthermore, is not binding on the court. The Court of Appeals also held that regardless, Chase did not acquire its interest by operation of law. Therefore, Chase had to record an assignment from the FDIC before it could start foreclosure by advertisement.

Because there have been eight bank closures in Michigan in the past three years (including Fidelity Bank on March 30, 2012), as well as closures of major mortgage lenders such as IndyMac Bank, Net Bank, and Miami Valley Bank, practitioners should carefully check the chain of title to determine if the foreclosing lender recorded an assignment prior to commencing the foreclosure proceeding.

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Federal Judge: Fannie Mae/Freddie Mac Owe Millions Transfer Taxes

By K.J. Miller and Jeffrey Jamison, DykemaGossett, PLLC

Last month, Judge Victoria Roberts, E.D. Michigan, ruled that Fannie Mae and Freddie Mac are not exempt from paying real estate transfer taxes and are liable for millions of dollars of unpaid taxes. The two mortgage giants have long claimed exemptions based on specific federal statutes exempting them from "all taxation." In Oakland County v. Federal Housing Finance Agency (E.D. MI., No. 11-12666, March 23, 2012), Judge Roberts rejected this argument and granted summary judgment in favor of plaintiffs.

The Court explained that the "Supreme Court in [United States v. Wells Fargo Bank, 485 U.S. 351 (1988)] made clear that where a statute prohibits the collection of 'all taxation,' an excise tax is still due." The facts in the Oakland County case were largely undisputed and the sole issue in controversy was whether the federal statute at issue precluded the imposition of state and local real estate transfer taxes. According to the decision, the parties did not dispute the characterization of the real estate transfer taxes as excise taxes, and the Court concluded: "Wells Fargo dictates that the defendant's exemptions do not cover the Transfer Taxes," and that Fannie Mae and Freddie Mac "are liable for the Transfer Taxes." The damages in the Oakland County case are estimated to be $13.5 million.

An appeal of this ruling—the first ruling involving Fannie Mae's and Freddie Mac's claim of exemption from real estate transfer taxes—is expected given its potentially far-reaching implications. Although borrowers may attempt to use this ruling as an affirmative defense or a counterclaim, such claims would fail as the real estate transfer tax statutes do not provide private causes of action or defenses for borrowers.