Editor: David Reiss
Brooklyn Law School

March 11, 2013

Michigan Court Holds that Foreclosure Sale May Be Voidable When Assignee Does Not Record the Mortgage Before Foreclosure

By Abigail Pugliese

In Kim v. JPMorgan Chase Bank, N.A., 825 N.W2d 329 (Mich. 2012), the court held that a foreclosure sale was voidable since the assignment of the mortgage to Defendant Bank was not recorded.

Mortgagor Plaintiffs executed a mortgage agreement with Washington Mutual Bank (“WaMu”) in 2007. In 2008, WaMu collapsed and its receiver, the Federal Deposit Insurance Corporation (“FDIC”), transferred the mortgage to JP Morgan Chase (the “Bank”) pursuant to a purchase and sale agreement. In 2009, Mortgagor Plaintiffs sought to modify the loan and a WaMu representative told them they were not eligible for a modification until they were three months in arrears. Accordingly, Mortgagor Plaintiffs stopped paying their mortgage in order to be eligible for a modification. Instead of modifying the loan, Defendant Bank foreclosed and sold the property to itself at a sheriff’s sale even though it had not recorded the mortgage assignment. Mortgagor Plaintiffs filed a lawsuit claiming they had received a loan modification and that Defendant Bank did not pay fair market value at the sheriff’s sale. Defendant Bank moved for, and was granted, summary judgment on the basis that the mortgage transfer was by operation of law. “As a consequence MCL 600.3204(3), which requires that a mortgage assignment be recorded before initiation of a foreclosure by advertisement, was inapplicable.” Plaintiffs appealed and the Court of Appeals held that the foreclosure sale was void ab initio because Defendant Bank did not obtain mortgage by operation of law and therefore had to comply with MCL 600.3204(3). Defendant appealed.

The Supreme Court of Michigan reversed the Court of Appeals’ decision in part and held that the foreclosure was “voidable, not void ab initio.” The Court stated that the transfer here was not by operation of law since the Defendant Bank paid cash in exchange for the mortgage, and therefore Defendant Bank had to comply with MCL 600.3204(4), which “requires a party that is not the original mortgagee to record the assignment of the mortgage to it before foreclosing.” However, “defects or irregularities in a foreclosure proceeding result in a foreclosure that is voidable, not void ab initio.” The case was remanded to the trial court to determine whether Mortgagor Plaintiffs could prove the foreclosure sale was voidable.

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