Opinion Date: 12/21/2012
Issues: The manner in which defendant-Chase the successor in interest to WaMu (a failed bank) acquired plaintiffs' mortgage; Whether Chase acquired plaintiffs' mortgage by "operation of law"; Purchase and assumption agreement (PAA); Federal Deposit Insurance Corporation (FDIC); The statutory provisions governing foreclosure of mortgages by advertisement; MCL 600.3201 et seq.; OAG, 2003-2004, No. 7147, p 93 (1/9/04); Miller v. Clark; 12 USC § 1821(d)(2); Whether Chase's failure to comply with MCL 600.3204(3) rendered the foreclosure of plaintiffs' property "voidable"; Davenport v. HSBC Bank USA; Fair market value (FMV)
Court: Michigan Supreme Court
Case Name: Kim v. JPMorgan Chase Bank, N.A.
e-Journal Number: 53605
Judge(s): M. Kelly, Cavanagh, Markman, and Hathaway; Concurrence - Markman; Dissent - Zahra, Young, Jr, and M.B. Kelly
The court held that defendant-Chase did not acquire plaintiffs' mortgage by operation of law. Rather, Chase acquired the mortgage through a voluntary purchase agreement. Thus, Chase was required to comply with the provisions of MCL 600.3204. The court also held, differently than the Court of Appeals, that the foreclosure sale in this case was voidable rather than void ab initio. The court affirmed in part, reversed in part, and remanded to the Court of Appeals for further proceedings. In 7/07, plaintiffs obtained a $615,000 loan from WaMu to refinance their home. They granted a mortgage on the property to WaMu, which recorded the mortgage later in July. When WaMu collapsed on 9/25/08, the bank was closed and the FDIC was appointed receiver for its holdings. The same day the FDIC, acting as WaMu's receiver, transferred virtually all of WaMu's assets to Chase. The FDIC sold WaMu's assets to Chase pursuant to a PAA. Plaintiffs sought a loan modification in 2009 because they had difficulty making their mortgage payments. They claimed WaMu advised them that they were ineligible because they were not at least three months in arrears on their payments. Plaintiffs claimed that based on this information they deliberately allowed their mortgage to become delinquent to qualify for a loan modification. They asserted that their attorney assured them that their loan modification was approved. Chase notified them in 5/09 that it was foreclosing on their property. They tried to find out if the foreclosure notice was sent in error and a WaMu representative told them "not to worry." Chase published the required notice of foreclosure in May and June 2009. The property was sold at a sheriff's sale on 6/26/09. Plaintiffs sued to set aside the sale based on their loan modification and because Chase did not bid the FMV for the property at the sale. The trial court granted defendant summary disposition ruling that defendant acquired plaintiffs' mortgage by operation of law, and MCL 600.3204(3), which requires that a mortgage assignment be recorded before initiation of a foreclosure by advertisement, was inapplicable. The Court of Appeals held that § 3204(3) applied to Chase and the foreclosure sale was void ab initio. Thus, the Court of Appeals remanded for entry of a judgment for plaintiffs. The court held that the transfer of WaMu's assets from the FDIC to Chase did not take place by operation of law. WaMu's assets did not pass to Chase "'without any act of [defendant's] own' or 'regardless of [defendant's] actual intent.'" Thus, Chase was required to record its interest in compliance with MCL 600.3204 before foreclosing on the property by advertisement.
Justice Markman concurred in the results of the majority opinion and added several criticisms of the dissent's analysis. He also concluded that the case concerned Michigan law and did not implicate federal law. The justice also offered guidance to the trial court as to the prejudice plaintiffs must show to set aside the foreclosure.
The dissenting justices disagreed with the majority's conclusion that plaintiffs' mortgage did not pass to Chase by operation of law, concluding that the majority's conclusions represented a "fundamental misunderstanding of the FDIC's authority to liquidate WaMu." Further, Chase was not required to record the mortgage before foreclosing because it obtained it by operation of law and stepped into WaMu's shoes as the original mortgagee. Thus, the recording requirement of the foreclosure by advertisement statute was inapplicable. The justices would reverse the Court of Appeals judgment.
Full Text Opinion