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e-Journal Summary
Opinion Date: 04/21/2011
e-Journal Date: 04/25/2011
Full Text Opinion

Practice Area(s):   Real Property

Issues: Whether Mortgage Electronic Registration System (MERS) qualified under MCL 600.3204(1)(d) to foreclose by advertisement; What being the "owner . . . of an interest in the indebtedness secured by the mortgage" requires; Whether having an "interest in the mortgage" is sufficient; A "mortgage"; Citizens Mortgage Corp. v. Michigan Basic Prop. Ins. Ass'n; Whether MERS was a contractual owner of an interest in the notes based on its agreement with the lenders; Whether MERS had authority to foreclose by advertisement as the "agent" or "nominee" of the lender; Statutory interpretation; Coblentz v. City of Novi; Wickens v. Oakwood Healthcare Sys.; DiBenedetto v. West Shore Hosp.; Applicability of Jackson v. Mortgage Elec. Registration Sys., Inc. (MN); Applicability of Davenport v. HSBC Bank USA; Arnold v. DMR Fin. Servs., Inc. (After Remand); MERS v. Nebraska Dep't of Banking & Fin. (NE); Judicial foreclosure (MCL 600.3105(2)); Church & Church Inc. v. A-1 Carpentry
Court: Michigan Court of Appeals (Published)
Case Name: Residential Funding Co. v. Saurman
e-Journal Number: 48625
Judge(s): Shapiro and Servitto; Dissent – Wilder

Holding that MERS does not meet the requirements of MCL 600.3204(1)(d) and thus, could not foreclose by advertisement, the court reversed the circuit courts' orders affirming the district courts' decisions to proceed with eviction based on the foreclosures of the defendants' properties in these consolidated cases. Each defendant purchased property and obtained financing from a financial institution. The transactions involved loan documentation (the note) and a mortgage security instrument. Each note provided for the loan amount, interest rate, methods and requirements of repayment, the identity of the borrower and lender, etc. The mortgage instrument provided for the mortgagee's rights of foreclosure in the event of default on the loan. Although the lender was named as the lender in the mortgage instrument, MERS was designated as the mortgagee. Defendants defaulted on their notes. MERS began non-judicial foreclosures by advertisement, purchased the properties at the sheriff's sales, and quit-claimed the properties to the plaintiffs as successor lenders. When the plaintiffs began eviction actions, defendants challenged the foreclosures as invalid, arguing, inter alia, that MERS did not have authority under MCL 600.3204(1)(d) to foreclose by advertisement because it did not fall within any of the three categories of mortgagees allowed to do so under the statute. The issue on appeal was whether MERS, as mortgagee but not noteholder, could exercise its contractual right to foreclose by means of advertisement. Under the statute, MERS lacked authority to foreclose by advertisement on the defendants' properties unless it was "the owner . . . of an interest in the indebtedness secured by the mortgage." The court concluded that "reasonably construing the statute according to its common legal meaning," the defendants' indebtedness was only based on the notes because they owed monies pursuant to the terms of the notes. Thus, "in order for a party to own an interest in the indebtedness, it must have a legal share, title, or right in the note." The court held that plaintiffs' assertion an "interest in the mortgage" was sufficient under MCL 600.3204(1)(d) lacked merit. The indebtedness (the note) and the mortgage "are two different legal transactions providing two different sets of rights, even though they are typically employed together." It was "the plaintiffs lenders that lent defendants money pursuant to the terms of the notes. MERS, as mortgagee, only held an interest in the property as security for the note, not an interest in the note itself." The evidence established that "MERS owned neither the notes, nor an interest, legal share, or right in the notes." Since the mortgages and the notes were separate documents, reflecting separate interests and obligations, "MERS' interest in the mortgage did not give it an interest in the debt." The fact that the lender gave MERS authority to take "any action required of the Lender" did not transform MERS into an owner of an interest in the notes. Further, the lender could not grant MERS authority to take action where the statute prohibited it. The "Legislature specifically requires ownership of an interest in the note before permitting foreclosure by advertisement." The court vacated the foreclosure proceedings and remanded.

Full Text Opinion

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