March 14, 2013
Michigan Court of Appeals Holds that Foreclosure is Void Because Mortgagee Commenced the Foreclosure Before It Obtained an Interest in the Indebtedness
In Davenport v. HSBC Bank USA, 739 N.W.2d 383 (Mich. Ct. App. 2007), the Court of Appeals held that the foreclosure was void ab initio because Assignee Defendant did not have an interest in the indebtedness secured by the mortgage when it commenced the foreclosure proceedings.
Mortgagor Plaintiff executed a mortgage. “The initial mortgagee assigned its interest to another entity, which in turn assigned the mortgage to defendant on October 31, 2005.” Plaintiff defaulted on the mortgage and “Defendant initiated foreclosure proceedings, publishing its first notice on October 27, 2005.” At the sheriff’s sale, Defendant purchased the property. Plaintiff commenced a lawsuit in order to have the foreclosure voided and “any continuing proceedings enjoined, on the ground that defendant published its first notice of foreclosure several days before it actually acquired its interest in the indebtedness.” The trial court granted summary judgment in favor of the Defendant. Plaintiff appealed.
The Court of Appeals held that the trial court erred in granting summary judgment in favor of the Defendant, and that “the foreclosure proceedings were void ab initio.” According to MCL §600.3204(1)(d), the foreclosing party must be “either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.” Here, Defendant admitted it did not own the mortgage when it commenced the foreclosure. Further, this “is not a mere notice defect,” which would render a foreclosure by advertisement voidable. Rather, “it is a structural defect that goes to the very heart of defendant’s ability to foreclose by advertisement in the first instance.” Accordingly, the foreclosure was void ab initio.
Note: This case was abrogated by Kim v. JPMorgan Chase Bank.
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