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Before Foreclosing, Financial Institutions Must Ensure Interest is Properly Recorded

A recent decision from the Michigan Court of Appeals makes one thing clear for all financial institutions initiating foreclosure proceedings: Make sure you follow the rules and have the necessary documentation before you start a foreclosure proceeding.

In Everbank v. Hikmat Zeer, the Court of Appeals affirmed the grant of summary disposition to the defendant homeowner after it was found that the plaintiff Everbank did not have a mortgage interest in the property at the time it initiated foreclosure proceedings, therefore violating MCL 600.3204 and making the foreclosure void from the outset.

The defendant in the foreclosure proceeding initially borrowed $650,000 from First Chicago NBD Mortgage in 1999, with the loan secured by a home in West Bloomfield, Michigan. It was undisputed that the defendant borrowed the money and that he defaulted on the loan. The plaintiff initiated foreclosure proceedings in August 2009 and bought the home at the foreclosure sale in January 2010 for $300,000, leaving a $300,000 deficiency that the plaintiff sued to collect the deficiency in this case.

The lower court granted the plaintiff’s request for summary disposition, but on reconsideration the defendant noted that the chain of title evidenced that plaintiff did not have an interest in the subject property at the time foreclosure proceedings were initiated in August 2009. The trial court affirmed its ruling, however, because the defendant had not raised such a defense until the reconsideration hearing.

The Court of Appeals reversed the lower court, first holding that it could consider the defendant’s late defense on appeal because it had all of the relevant facts necessary to determine the issue. Relying on the interpretation of MCL 600.3204, as explained in Davenport v. HSBC Bank, 275 Mich App 344; 739 NW2d 383 (2007), the Court held that “a foreclosing entity must establish that it has a mortgage interest in the property at the time it initiates foreclosure by advertisement, and at the time of the mortgage sale.”

In this case, while the plaintiff had begun foreclosure proceedings on August 12, 2009, it was not until two weeks later, on September 1, 2009, that plaintiff was assigned the mortgage from MERS. However, that conveyance was ineffective because NetBank, who had assigned the mortgage to MERS, had not acquired anything from Chase until the defect in the chain of title was rectified on September 25, 2009.

Therefore, Everbank did not have an interest in the mortgage it was foreclosing upon until six weeks after it had initiated foreclosure proceedings, which the Court held violated MCL 600.3204. The Court noted that Everbank acknowledged there was a gap in the chain of title and the bank was aware of the problem before it initiated foreclosure proceedings. However, even if there had not been a gap in the chain of title, the earliest Everbank had an interest in the mortgage was September 1, 2009, which was weeks after it had improperly initiated foreclosure proceedings.

The attorneys of Dalton & Tomich, PLC have extensive experience handling a variety of foreclosure matters on behalf of financial institutions in Michigan, Illinois, California, and beyond. For more information, please do not hesitate to contact us.

To read the full opinion in Everbank v. Hikmat Zeer, click here.

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