- The Michigan Supreme Court Upholds MERS Foreclosures, and a Statewide Title Mess is Cured
- July 18, 2011 | Author: J. Scott Timmer
- Law Firm: Miller Johnson - Grand Rapids Office
In November, the Michigan Supreme Court issued an order that reversed a 2011 Michigan Court of Appeals opinion that had found two foreclosures conducted by Mortgage Electronic Registration Systems, Inc. (MERS) to be void. MERS had been formed in 1993 by a group of mortgage lenders to facilitate mortgage assignments. It operated as a clearinghouse to keep track of mortgage assignments and act as a nominee for mortgage lenders. MERS also exercised a contractual right to conduct foreclosures on delinquent mortgages. Two of those mortgages were challenged in two consolidated cases, Residential Funding Co., LLC v Saurman, and Bank of New York Trust Company v Messner. The homeowners challenged eviction proceedings brought after completion of the foreclosures, claiming that MERS did not have the authority to conduct the foreclosures. Under the Michigan foreclosure by advertising statute, a foreclosing party must either own an interest in the indebtedness or be the "servicing agent" for the lender. The Michigan Court of Appeals found, on a two-to-one vote, that although MERS had an interest in the mortgage, it didn't have an interest in the indebtedness represented by the mortgage note. The two judges also found that although MERS was a contractual agent for the lenders, it wasn't a servicing agent, and therefore could not foreclose. The dissenting judge disagreed, and said that MERS had an interest in the indebtedness based on its contractual agreements with the mortgage lenders. That judge also concluded that it would be too technical a reading of the foreclosure statute to find that a servicing agent can foreclose but a contractual agent cannot, and that the legislature never intended such a fine distinction.
The Saurman decision sent shockwaves through the Michigan real estate industry. It brought into question the status of title to thousands of properties in Michigan that had been previously foreclosed by MERS, and led to a large number of new cases challenging MERS foreclosures. Title companies that had previously issued policies on the resale of MERS-foreclosed properties were extremely concerned about claims against those policies. Purchasers of MERS-foreclosed properties faced ownership challenges from prior owners. Some lenders began repeating foreclosures in their own names, instead of through MERS, to try to clear title to previously foreclosed properties. Real estate agents and owners offering properties for sale had to consider disclosure of potential MERS foreclosure title problems to prospective purchasers. Since the statute of limitations for contesting foreclosures is five years, any MERS foreclosure done within the last five years was potentially subject to challenge.
There was no automatic right of appeal of the Saurman case to the Michigan Supreme Court. MERS requested permission to appeal. Numerous amicus briefs on the appeal request were filed on behalf of parties with an interest in the Saurman on both sides. However, rather than granting leave to appeal the decision the Supreme Court simply reversed the decision (which is done far less frequently than hearing an appeal). It essentially adopted the opinion of the dissenting judge in Saurman. The Court specifically held that a mortgage is a security lien on the property, which was sufficient to authorize MERS to foreclose. The Court also relied on a long line of Michigan cases concluding that the holder of a mortgage is entitled to foreclose even if there are differences as to who holds the debt. Finally, the Court found no "indication" that the legislature intended to deny entities like MERS the right to foreclose. Rather, the "interest in the indebtedness" wording in the statute is an indication that mortgage holders like MERS should have that right. The four Republican justices approved the Order; the three Democrats did not and voted to grant leave to appeal.