Home > Uncategorized > Banks and Mortgage Servicers: The Dangers of Not Complying With Michigan Foreclosure Law and the difference between “Void” and “Voidable”.

Banks and Mortgage Servicers: The Dangers of Not Complying With Michigan Foreclosure Law and the difference between “Void” and “Voidable”.

Failing to comply with Michigan Statute when foreclosing by advertisement can render the foreclosure void – not merely “voidable”.
A 6th Circuit Court of Appeals decision provides a good example to lenders, servicers, and other real estate professionals on why it is important to follow MCL 600.3205’s requirements to hold off foreclosure by advertisement for 90 days and provide a borrower the opportunity to request a conference with the lender to potentially modify the loan. (At least until June 30th of this year when the statute is supposedly going to sunset).
The Case is Mitan v Fed Home L Mortg Corp, 703 F3d 949, 950 (CA 6 2012), petition to U.S. Supreme Court was denied on January 25, 2012.
FACTS:
Wells Fargo Home Mortgage foreclosed by advertisement on the Home.  The home owner, Frank J. Mitan, was deceased. Keith Mitan was the personal representative of his estate. Federal Home Loan Mortgage Corporation (“Freddie Mac”) purchased the foreclosed home at a sheriff’s sale on February 2, 2010, and the redemption period expired six months later.
Two weeks prior to the expiration of redemption, Mitan filed a complaint, which was removed from the Eastern District of Michigan. In his complaint, Mitan alleged that the foreclosure by advertisement was contrary to Michigan law, that the Bank failed to comply with MCL 600.3205, and he sought a jury trial, monetary damages, to quiet the property’s title, and fees and costs. Freddie Mac moved for summary judgment in response. It claimed that the redemption period had expired; therefore Mitan had no rights in the property and therefore no standing to maintain his lawsuit.  The District Court agreed.

However, the 6th Circuit Court of Appeals reversed.
The 6th Circuit noted that Mitan argued that since the property was foreclosed without statutory authority (in violation of MCL 600.3205)  the foreclosure was void ab initio (at the inception). Id. at 951 (CA 6 2012).
MICHIGAN FORECLOSURE BY ADVERTISEMENT STATUTE: MCL 600.3205
The Court then analyzed the Michigan foreclosure by advertisement statute: “When a lender wishes to foreclose by advertisement on a borrower’s principal residence, it must provide the borrower with a notice designating a person whom the borrower may contact to negotiate a loan modification. Mich. Comp. Laws § 600.3205a(1).” Id. If the law is not complied with, the borrower may sue to convert the foreclosure by advertisment (MCL 600.3205c(8)), and therefore force the lender through the time and cost of filing a lawsuit and obtaining a judgment from a court for sale of the property. Id.
The Court made a point of expressing that the “law also affirmatively prohibits foreclosure by advertisement in certain circumstances. These include situations where the designated person has not negotiated with the borrower as requested, where the parties have independently agreed to a loan modification, and where the statutory calculations show that the borrower qualifies for a loan modification. Id. §§ 600.3204(4)(d)–(f).”

NOTICE DEFECTS RENDER A FORECLOSURE MERELY VOIDABLE WHEREAS STRUCTURAL DEFECTS RENDER THE SALE VOID
The Court analyzed the distinction between a “notice defect” in the foreclosure process as opposed to a “structural defect”.  Notice defects presume the mortgagee had the power to foreclose and simply asks the question: was there a problem with the way that the borrower was notified of the foreclosure?  If so, then the sale is voidable: which generally  means it will be upheld, absent an extreme irregularity in the foreclosure process (generally a high bar).  However, a structural defect asks the question: did the mortgagee actually have authority to foreclose on the Property?  As the 6th Circuit Court observed, this inquiry goes “to the very heart of defendant’s ability to foreclose by advertisement in the first instance.”Citing Davenport, 739 N.W.2d at 384. Therefore “[s]tructural defects, on the other hand, render the foreclosure absolutely void.” Davenport, 739 N.W.2d at 385.
The Court held that it was factually in dispute whether or not the Lender had the authority to foreclose based upon whether or not it complied with MCL 600.3204-5’s requirements to notify buyer of the opportunity to modify the loan. “the failure to comply with the loan-modification process as outlined in the statute is a structural defect because it deprives the borrower *953  of the opportunity to demonstrate eligibility for a loan modification that would avoid foreclosure altogether.” Id. 952-53.
LESSON:
The Mitan Case tells us that lenders and servicers should be careful to comply with the requirements of MCL 600.3205. A failure to do so could render the foreclosure void – not merely voidable.  Borrowers will always argue that they did not receive notice of the foreclosure, and therefore the foreclosure was not valid.  However, notice defects simply render the sale void-“able”.  It would take a serious irregularity, including fraud, in order to overturn a foreclosure sale.  However, if Michigan law is not complied, then the lender never had authority to foreclose and the sale is rendered void.
Don’t hesitate to contact me if you have any further questions about this ruling, or other real estate related legal questions:
email: Jeshua@dwlawpc.com
phone: (616) 454-3883
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