Editor: David Reiss
Brooklyn Law School

March 15, 2013

United States Court of Appeals Holds that MERS has Standing to Foreclose on Homeowner’s Property because the Promissory Note, Mortgage, and Assignment were Valid and Homeowner Defaulted on His Loan

By Robert Huberman

In Yuille v. Am. Home Mortg. Services, Inc., 483 F. App’x 132 (6th Cir. 2012), the United States Court of Appeals Sixth Circuit held that homeowner’s quiet title claim failed because the note, mortgage, and assignment were valid and the homeowner defaulted on his loan.

Bruce Yuille obtained a $3.6 million loan secured by a mortgage on his residence. After Yuille defaulted on the loan, foreclosure proceedings began. Thereafter, Yuille filed a complaint against American Home Mortgage Services, Inc. (AHMSI), MERS, Duetsche Bank National Trust Company, and Oakland County Sheriff Michael J. Bouchard, seeking to stop the foreclosure and the scheduled sheriff’s sale. AHMSI removed the case to district court asserting diversity of citizenship, cancelled the sheriff’s sale, and stated that they would forego foreclosure until the conclusion of this litigation. The District Court granted Sheriff Bouchard’s motion to dismiss.

Yuille’s amended complaint asserted: 1) an action to quiet title; 2) defamation; 3) a violation of the Michigan Mortgage Brokers, Lenders, and Servicers Licensing Act; and 4) a violation of the Michigan Consume Protection Act. Following discovery, Yuille and Defendants filled cross-motions for summary judgment. The District Court adopted the magistrate judge’s report and recommendation and granted Defendants’ motion for summary judgment. Yuille then appealed, only addressing the dismissal of his quiet-title claim.

The court held that Yuille was foreclosed from equitable relief under the unclean-hands doctrine because Yuille: 1) received $3.6 million in exchange for the note and mortgage, 2) failed to pay that debt as he agreed, and 3) then sought judicial assistance in avoiding his contractual obligations. In addition, Yuille’s quiet-title claim failed on the merits. Under Michigan law, the plaintiff bears the burden of proof in an action to quiet title; once the plaintiff makes a prima facie case of title, then the Defendants have the burden of proving superior right of title in themselves. Yuille claims that he established a prima facie case by presenting a certified copy of the warrant deed at the hearing before the magistrate judge.

The court, however, did not find the deed in the record. In addition, the court noted that “1) Yuille signed the note and mortgage, both of which identified the lender as American Brokers Conduit; 2) under the terms of the mortgage, Yuille mortgaged the property to MERS, as nominee of ABC and ABC’s successors and assigns, and to MERS’s successors and assigns; 3) Yuille failed to make payments as the note required; and 4) Deutsche, as trustee for the GSR Trust, is currently in possession of the note, which is endorsed in blank by ABC.” Defendants presented evidence that MERS assigned the mortgage to Deutsche, as trustee for GSR Trust. The court stated that any defect in the written assignment of the mortgage would make no difference where both parties to the assignment ratified the assignment by their subsequent conduct in honoring its terms. And since Yuille was a stranger to the assignment, he lacked standing to challenge its validity.

Thus, even if Yuille acted with clean hands, his quiet title claim failed. “The record established a valid note and mortgage, both of which had been assigned to Deutsche, as trustee for the GSR Trust, as well as Yuille’s default.” Hence, the court affirmed the district court’s judgment in favor of the Defendants.

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