In Hargrow v. Wells Fargo Bank N.A., 491 F. App’x 534 (6th Cir. 2012), the United States Court of Appeals in Michigan held that Wells Fargo Bank had standing to foreclose upon the mortgaged property.

Mary and M.L. Hargrow bought property and borrowed $164,000 from MHA Financial Service. The Hargrows then executed a loan document listing MHA Financial as the lender, and signed a separate mortgage security instrument as security for the Note. The mortgage also identified MERS as the nominee for MHA Financial and the mortgagee. As per the security instrument, MERS was given the power of sale among other rights. MERS assigned the mortgage to Wells Fargo and recorded the assignment on September 4, 2009. On September 2009, Wells Fargo initiated statutory foreclosure proceedings against the Hargrows by advertising a notice of intent to foreclose. The Hargrows alleged that Wells Fargo did not have standing to foreclose on their home.

The Hargrows first argued that Wells Fargo could not foreclose by advertisement because a mortgagee who does not also own the underlying debt is not an owner of the indebtedness or of an interest in the indebtedness or the mortgage servicing agent, as required under § 600.3204(1)(d). The court noted, however, that in Residential Funding Co. v. Saurman, 490 Mich. 909, 805 N.W.2d 183 (Mich. 2011), the court held that “an entity has standing to foreclose upon properties for which it is the record holder of the mortgage, even if it does not own the underlying debt.” Here, MERS was the record holder of the mortgage and thus had the right to foreclose by advertisement. Since that interest was validly assigned to Wells Fargo, Wells Fargo was the record holder of the mortgage and also had the right to foreclose by advertisement.

Next, the Hargrows claimed that the assignment of the mortgage from MERS to Wells Fargo was invalid because a mortgage cannot be assigned without a corresponding assignment of the interest in the underlying debt. The court stated that if a property owner grants MERS the power to assign the mortgage, the assignment of the mortgage to the foreclosing bank was valid. Here, MERS was the original mortgagee of the Hargrows’ mortgage. Further, the Hargrows granted MERS the power to assign the mortgage and to initiate foreclosure proceedings. Once the mortgage was assigned to Wells Fargo, they were the record holder of the mortgage and also had the power to foreclose. Since the chain of title was properly recorded, Wells Fargo was the owner of an interest in the indebtedness and had the power to foreclose by advertisement.

Finally, the Hargrows argued that the required record chain of tile must include a record of who owns the underlying Note. The court held, however, that § 600.3204(3) clearly required only a record chain of title for the mortgage, not the underlying debt. Under Michigan law, it is unlawful for the holder of the mortgage to be different from the holder of the debt. Thus, the Hargrows failed to present a case or compelling reason to justify reading the statute more broadly than its plain terms.

In Residential Funding Co., L.L.C. v. Saurman, 490 Mich. 909, 805 N.W.2d 183 (2011), the Michigan Supreme Court held that under Michigan law, mortgagees of record could commence foreclosures-by-advertisement.

Saurman and Messner purchased property and obtained financing from a financial institution. Both transactions involved loan documentation and a mortgage security instrument and the original lender in both cases was Homecomings Financial, LLC. The mortgage, however, did not list Homecomings Financial as the mortgagee but instead identified MERS. Defendants challenge the respective foreclosures as invalid because, they allege, MERS did not have authority under MCL 600.3205(1)(d)—regarding, inter alia, foreclosures by advertisement—to foreclose by advertisement. The Michigan Court of Appeals vacated foreclosure proceedings and remanded the case to the Michigan Supreme Court.

The court stated, pursuant to MCL 600.3204(1)(d), “Mortgage Electronic Registration System (MERS) is ‘the owner … of an interest in the indebtedness secured by the mortgage’ at issue in each of these consolidated cases because “[MERS’] contractual obligations as mortgagee were dependent upon whether the mortgagor met the obligation to pay the indebtedness which the mortgage secured.”

MERS’ status as an owner of an interest in the indebtedness did not equate to an ownership interest in the note. Instead, as record-holder of the mortgage, MERS owned a security lien on the properties, the continued existence of which was contingent upon the satisfaction of the indebtedness. This interest in the indebtedness authorized MERS to foreclose by advertisement under MCL 600.3204(1)(d).

The court also noted that in cases where the mortgagee transferred a beneficial interest but retained record title, courts have unanimously held that “[o]nly the record holder of the mortgage has the power to foreclose; the validity of the foreclosure is not affected by any unrecorded assignment of interest held for security.”

Finally, the court held that the phrase “interest in the indebtedness” denoted a category of parties entitled to foreclose-by-advertisement and indicated the Legislatures intent to include mortgagees of record among the parties entitled to foreclose-by-advertisement, along with parties who own the indebtedness and parties who act as the servicing agent of the mortgage. Therefore, the court reversed the Court of Appeals’ decision because it erroneously construed MCL 600.3204(1)(d).

In Horton v. Aurora Bank FSB, 1:12-CV-365, 2012 WL 3307451 (W.D. Mich. Aug. 13, 2012), the Michigan District Court granted Defendants’ motion to dismiss Aaron and Suzanne Hortons’ claims.

In January 2007, the Hortons purchased property and executed a promissory note, with Lehman FSB, in exchange for a $148,000 loan. The Hortons then granted a mortgage to MERS who acted solely as nominee for the lender and the lender’s successors and assigns. The mortgage was recorded on January 31, 2007. MERS later assigned the mortgage to Aurora Loan Services LLC. The Hortons defaulted on their loan on or around August 12, 2010, so Aurora initiated foreclosure by advertisement proceedings on the property. On September 8, 2011, Aurora foreclosed on the property and a Sheriff’s Deed was recorded on September 22, 2011. One day before the redemption period expired, the Hortons filed a lawsuit against Defendants.

The Hortons filed a six-count complaint against eight entities and other unknown defendants. The Hortons alleged 1) wrongful foreclosure for failure to comply with various provisions of Michigan’s foreclosure statute; 2) quiet title; 3) slander of title; 4) unfair deceptive business practices; 5) intentional infliction of emotional distress; and 6) breach of the duty to negotiate in good faith. In response, Defendants filed a motion to dismiss.

First, the Hortons claimed that their mortgage was not properly recorded. But because the Hortons failed to provide a reason why the mortgage was improperly recorded the court dismissed the Hortons’ allegation. Second, the Hortons alleged that neither MERS, Lehman, nor Aurora owned the indebtedness, owned an interest in the indebtedness, or were the servicing agents. The court noted, however, that Aurora had an interest in the indebtedness because Aurora was the record holder of the Hortons’ mortgage. Thus, the court dismissed the Hortons’ second allegation.

Third, the Hortons’ alleged that foreclosure on their mortgage violated M.C.L. § 600.3204(3) which states “[i]f the party foreclosing a mortgage by advertisement is not the original mortgagee, a record chain of title shall exist prior to the date of sale . . . evidencing the assignment of the mortgage to the party foreclosing the mortgage.” Here, MERS assigned the recorded mortgage to Aurora, who recorded the assignment with the Barry County Register of Deeds. Thus, the court held, a record chain of title existed that evidenced the assignment of the mortgage from MERS to Aurora. Thus, Defendants did not violate M.C.L. § 600.3204(3).

Fourth, the Hortons’ alleged that one of the defendants adjourned the originally scheduled Sheriff’s Sale without publishing the required notices. The court dismissed this claim, however, because the Hortons did not support their allegation with any facts. Fifth, the Hortons’ claimed that Defendants did not negotiate in good faith, because Defendants responded to the Hortons’ requests to modify the subject loan with nothing more than cursory responses and flat denials. But the court held that cursory responses do not characterize Defendants’ failure to negotiate in good faith. Sixth, the court dismissed the Hortons’ allegation that Defendants engaged in unfair and deceptive business practices, because the Hortons’ provided no factual support for their claim.

Seventh, the Hortons alleged that one or more Defendants intentionally inflicted emotional distress on the Hortons by violating Michigan’s foreclosure statute. But because the Hortons did not validly claim that any Defendant violated Michigan’s foreclosure statute, the court dismissed the Hortons’ allegation.

Finally, Michigan law does not allow an equitable extension of the period to redeem property from a statutory foreclosure sale, in connection with a mortgage foreclosed on by advertisement, in the absence of a clear showing of fraud or irregularity. Furthermore, filing a lawsuit prior to the expiration of the redemption period is insufficient to toll the redemption period. Accordingly, since the Hortons failed to successfully show fraud or irregularities in the foreclosure process, the court granted Defendants’ motion to dismiss.

In Marrocco v. Chase Bank, N.A., 12-10605, 2012 WL 3061031 (E.D. Mich. July 26, 2012), the Michigan District Court granted Chase Bank’s and MERS’s motion to dismiss.

Marrocco obtained a loan of $181,000 from GreenPoint Mortgage Funding, Inc. As security for the loan, Marrocco executed a mortgage where MERS was the mortgagee, as nominee for the lender, and the lender’s successors. Marrocco defaulted on his loan and, in August 2009, filed for bankruptcy. Marrocco was granted a discharge, however, and continued to live on the property. Marrocco then brought this action alleging that JP Morgan Chase and Wells Fargo threatened to foreclose on the property, even though, he believed, the debt was discharged. Marrocco claimed that Defendants violated the Real Estate Settlement Procedures Act (RESPA) and sought to quiet title to the property extinguishing any interest claimed by the defendants. In response, Chase and MERS filed motions to dismiss.

In order for Marrocco to bring a claim under RESPA, he must allege actual damages resulting from the RESPA violation. Here, Marrocco claimed that he sent Chase a Qualified Written Request (QWR) under RESPA, and Chase failed to adequately respond. The court held, however, that Marrocco’s complaint contained no allegations indicating a connection between the response to his QWR and the subsequent threats of foreclosure. Instead, foreclosure was threatened because Marrocco failed to make the scheduled loan payments. Accordingly, the court dismissed Marrocco’s RESPA claim.

Next Marrocco wanted the court to extinguish any interest in property claimed by defendants. The court noted that in order to seek quiet title, a plaintiff must prove that his claim to the property is superior to any other person’s claim. As a result, Marrocco claimed that the mortgage was null and void. Specifically Marrocco supported his claim based on GreenPoint’s transfer of the note without the mortgage. The court noted, however, that a mortgage is enforceable under Michigan law even if it has been separated from the promissory note. Thus, the court held that the validity of the mortgage was unaffected by the separation of the note and mortgage. In response, Marrocco contested the transfer of his loan into a trust pursuant to a Pooling and Servicing Agreement, but the court stated that a litigant who is not a party to an assignment lacks standing to challenge that assignment.

Thus, the court concluded that Marrocco’s claim under RESPA and his quiet title claim must be dismissed because he failed to allege facts that would provide sufficient grounds for invalidating the mortgage.

In Matthews v. Mortgage Elec. Registration Sys., 10-CV-13740, 2011 WL 2563180 (E.D. Mich. June 28, 2011), the Michigan District Court, affirmed the Magistrate Judge’s determination that MERS had standing to foreclose on the Matthews’ property.

Shelia and Eugene Matthews took out a mortgage in 2006. They defaulted on the loan leading to the initiation of foreclosure proceedings and a sheriff’s sale of their home in 2009. Nine months later, the Matthews’ filed this lawsuit against MERS and Fannie Mae. Magistrate Judge Randon issued a Report and Recommendation which granted Defendants’ motion to dismiss the Matthews’ complaint. The Matthews’ then filed a motion to vacate the Magistrate Judge’s report pursuant to Civil Rule 60(b) (Relief from a Judgment or Order).

The court held that the Matthews’ did not challenge any of the Magistrate Judge’s findings of fact or conclusions of law. In addition, when MERS responded saying that the Matthew’s motion was not a proper basis for objecting a Magistrate Judge’s report, the Matthews’ did not correct their pleadings. Furthermore, Rule 60(b) only allows relief from a final judgment, order, or proceeding—a Report and Recommendation is not binding or final. Thus the court did not reach the merits of the Matthews’ motion.

The court also adopted the Magistrate Judge’s Report and Recommendation holding that MERS had standing to initiate a foreclosure by advertisement against the Matthews’ property. The Matthews’ claimed that MERS failed to have a valid security interest in the property and, as a result, violated Michigan’s foreclosure by advertisement statute. The court noted, however, that the Matthews’ voluntarily entered into a mortgage agreement with MERS as nominee for lender Quicken Loans, Inc. The Matthews’ mortgage contained a power of sale which gave MERS the right to foreclose and sell their property. Thus, the court held that the ability to foreclose by advertisement extended beyond the owner of the indebtedness and, therefore, MERS was within their right to pursue foreclosure by advertisement.