Editor: David Reiss
Brooklyn Law School

March 5, 2013

Michigan Court of Appeals holds that Bank has Standing to Foreclose on Property by Advertisement because Bank had a Sufficient Interest in the Indebtedness Secured by the Mortgage as Record Holder of the Mortgage

By Robert Huberman

In Fawaz v. Aurora Loan Services LLC, 302840, 2012 WL 1521589 (Mich. Ct. App. May 1, 2012), the Michigan Court of Appeals held that Aurora Loan Servicing LLC had standing to foreclose on homeowners’ property by advertisement.

Nazih and Iman Fawaz obtained a loan from American Brokers Conduit Corporation which was secured by a mortgage on their residential property. MERS was designated the mortgagee with the right of foreclosure and the power of sale. When the Fawazs defaulted MERS assigned the mortgage to Aurora. Six months later, Aurora foreclosed on the property by advertisement. The Fawazs brought this action to quiet title on grounds that they had entered into loan modification negotiations with Aurora.

The Fawazs contend that the foreclosure was void because Aurora did not own or have any interest in the indebtedness secured by the mortgage. MCL 600.3204(1) governs foreclosure by advertisement and provides, in relevant part, as follows: “[A] party may foreclose a mortgage by advisement if all of the following circumstances exist: (d) The party foreclosing on the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” The Fawazs argue that MERS, as mortgagee, did not own or have an interest in their indebtedness and therefore when MERS assigned its interest to Aurora, such interest did not give Aurora the authority to foreclose by advertisement.

The court cited the proposition expressed in Residential Funding Co., LLC v. Saurman, 490 Mich. 909; 805 NW2d 183 (2011) that MERS, as mortgagee, owned a sufficient interest in the indebtedness secured by the subject mortgage because, as record holder of the mortgage, MERS owned a security lien on the property. Thus MERS could foreclose by advertisement. Thus, when MERS assigned its interests in the mortgage to Aurora, Aurora had the same authority to foreclose under MCL 600.3204(1). Therefore, the foreclosure was valid.

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