Michigan Court of Appeals Holds Affidavit Doesn't Revive Mortgage From Foreclosure

On November 18th, 2014, the Michigan Court of Appeals held in a property case that an affidavit filed in accordance with MCL 565.451a does not revive a mortgage from foreclosure after proper foreclosure by advertisement but before the lapse of the statutory redemption period.

In Trademark Properties of Michigan v. Federal National Mortgage Association (Fannie Mae), Docket No. 313296, the Michigan Court of Appeals addressed the issue of whether a purported interest holder in real property may file an affidavit in accordance with state law to void a foreclosure before the statutory period for redemption lapses.

The Court first recited the facts of the case.

On August 16, 2003, Earl F. Strickfaden obtained a mortgage loan from GMAC Mortgage Corporation. MERS was the mortgagee under the security instrument (the “MERS mortgage”). The lender’s interest was subsequently transferred to MERS. Strickfaden defaulted on his obligation. The MERS mortgage was foreclosed by advertisement and Fannie Mae purchased the property at a sheriff’s sale on May 11, 2010. The sheriff’s deed was recorded with the register of deeds on May 20, 2010. It is undisputed that the property was never redeemed. The MERS mortgage was extinguished.

On December 6, 2010, the association where the condominium unit was located, Manor Homes of Troy Association (MHTA), filed a notice of lien for non-payment of condominium assessments. The lien was not satisfied and MHTA foreclosed by advertisement. On February 15, 2011, plaintiff purchased the property at a sheriff’s sale for $6,761.45, and then recorded the sheriff’s deed with the register of deeds on February 22, 2011. The last day to redeem the property was August 15, 2011.

On August 9, 2011, before the redemption period for the MHTA foreclosure expired, an attorney for GMAC Mortgage Corporation, the lender for the MERS mortgage, recorded an affidavit purporting to expunge the May 11, 2010 sheriff’s sale to Fannie Mae. The affiant averred that, by virtue of this Court’s decision in an unrelated case, Residential Funding Co, LLC v Saurman, 292 Mich App 321; 807 NW2d 412 (2011), the May 11, 2010 sheriff’s deed was void ab initio, thereby leaving the MERS mortgage in full force and effect.

Plaintiff thereafter filed this action to quiet title to the property, alleging that the MERS affidavit could not effectively revive the previously extinguished MERS mortgage and thereby invalidate plaintiff’s interest in the property. The parties filed cross-motions for summary disposition. On October 31, 2012, the trial court denied plaintiff’s motion and granted summary disposition in favor of defendants pursuant to MCR 2.116(C)(10). The trial court reasoned that, by filing the affidavit prior to the redemption period for the MHTA foreclosure, the MERS foreclosure was expunged and MERS’s interest was superior to plaintiff’s interest. The trial court also ruled that plaintiff failed to establish it was a bona fide purchaser, reasoning that plaintiff had notice because the affidavit was filed before the redemption period ended and plaintiff failed to pay sufficient value. Plaintiff appealed from this order.

The Court's analysis of whether MERS's affidavit revived its purported interest in the foreclosed property followed.

Plaintiff maintains its claim to the property was superior to any claim of defendants, and contends that the trial court erred by ruling the MERS affidavit expunged the prior sheriff’s sale to Fannie Mae and revived the previously extinguished MERS mortgage. We agree . . .

It is undisputed that the MERS mortgage was foreclosed by advertisement, that Fannie Mae purchased the property at a foreclosure sale and received a sheriff’s deed for the property, and that the property was never redeemed. The foreclosure extinguished the MERS mortgage and, because the property was not redeemed, all rights, title, and interest in the property vested in Fannie Mae. Dunitz, 236 Mich at 49-50; MCL 600.3236. Afterward, plaintiff purchased and recorded Fannie Mae’s interest in the property. Months later, in an affidavit recorded pursuant MCL 565.451a, MERS claimed the foreclosure by advertisement of its mortgage interest was void ab initio following Saurman . . .

MERS claims that the mere filing of an affidavit by a mortgagee attesting that a foreclosure sale was void ab initio establishes the mortgagee’s interest in the foreclosed property. But we need not decide the effect of the filing of an affidavit where a foreclosure sale was void ab initio because, here, the foreclosure sale was not void.

Again, in attesting that the foreclosure sale was void ab initio, MERS’s affidavit relied on this Court’s decision in Saurman, 292 Mich App 321. In Saurman, the defendants purchased and obtained financing for their respective properties from a financial institution. The mortgage instrument did not designate MERS as the mortgagee. Id. at 325-326. This Court held that MERS, as a mortgagee and not a noteholder, had no “interest in the indebtedness secured by the mortgage” under the foreclosure by advertisement requirements in MCL 600.3204(1)(d), and therefore MERS could not exercise the contractual right to foreclose by advertisement. Id. at 329-332. Because MERS lacked the ability to comply with the statutory requirements for foreclosure by advertisement, the foreclosure proceedings were void ab initio. Id. at 342. This Court’s decision in Saurman was short-lived. Just as in Saurman, MERS was a mortgagee here and would have had no interest in the indebtedness under this Court’s decision in that case. On November 16, 2011, however, our Supreme Court reversed this Court’s Saurman decision and held that MERS’s ownership of a security lien on the properties constituted an interest in the indebtedness that authorized it to foreclose by advertisement. Saurman, 490 Mich 909.

Even if the filing of the affidavit regarding Saurman had some effect on the interest in the property here, plaintiff promptly filed the quiet title action to challenge that affidavit. “[T]he purpose of an action to quiet title is to determine the existing title to property by removing any cloud therefrom.” Ingle v Musgrave, 159 Mich App 356, 365; 406 NW2d 492 (1987). When the trial court resolved cross-motions for summary disposition, plaintiff presented a prima facie case of title based on the MHTA foreclosure and its purchase at the sheriff’s sale for $6,761.45. The sole basis for MERS’s assertion of a continued mortgage interest in the property—that the MERS foreclosure sale was void ab initio under this Court’s decision in Saurman—was no longer sustainable because our Supreme Court had reversed that decision nearly a year before. A trial court, like this Court, is bound by the doctrine of stare decisis to follow the decisions of our Supreme Court. Tenneco Inc v Amerisure Mut Ins Co, 281 Mich App 429, 447; 761 NW2d 846 (2008). Our Supreme Court’s decision in Saurman compelled the trial court to conclude that there was no question of fact that the MERS mortgage was extinguished and plaintiff had the superior interest in the property. Thus, the trial court erred in ruling that the MERS affidavit was effective in reviving the MERS mortgage, and in ruling that plaintiff’s interest in the property was subordinate to the revived mortgage interest.