The Michigan Court of Appeals has issued a decision that will affect thousands of Michigan properties. In the consolidated case of Residential Funding Co, LLC v Suaman, April 21, 2011 (NO. 290248 and 291443), the Court of Appeals examined the question of whether foreclosures instituted by Mortgage Electronic Registration System (“MERS”) could properly be foreclosed under Michigan’s foreclosure by advertisement statute. MERS was developed as system allowing mortgage lenders to more quickly buy and sell mortgage debt in the marketplace. Many of the larger banks utilize MERS as their agent for mortgages. MERS has instituted a large percentage of the foreclosures by advertisement currently underway in Michigan.
The Court of Appeals ruled that MERS could not properly foreclose a mortgage by advertisement but would rather have to institute a judicial foreclosure. The court did not address how its ruling might affect foreclosures that already have been completed but where the banks have not taken steps to evict the former homeowner.
A judicial foreclosure takes significantly more time to complete and is more expensive to undertake. With thousands of foreclosures by advertisement taking place, banning MERS’s ability to utilize the process will have a profound impact on publishing companies and sheriff’s departments that post the advertisements, not to mention the flood of judicial foreclosures that may be filed in courtrooms across Michigan. The case is likely to be appealed to the Michigan Supreme Court who will have to decide whether to hear the case and, if heard, whether the Court of Appeals was correct in their ruling, a process that will likely take at least a year. Another possible solution would be for the Legislature to amend the statute if the Court of Appeals’ interpretation of the statute is not what the Legislature intended the statute to mean.
This ruling will have a significant impact on a bank’s ability to foreclose in Michigan if they utilize MERS. For example, any homeowner has had their home foreclosed by advertisement where the mortgage was held by MERS may have an opportunity to either stop the foreclosure or perhaps even take back their home. Title insurance companies will also have to carefully examine issuing any foreclosure policies to make sure they can adequately insure title. If any of these situations apply to you, please give us a call to see if there may be something we can do to assist you.
To learn more, contact our Real Estate Department Chair Douglas J. Austin at firstname.lastname@example.org or 517.377.0838. For over 45 years, Doug has been at the center of real estate law and was named “Lawyer of the Year” in Lansing Real Estate by the publication Best Lawyers in 2014.