February 22, 2013
Michigan Supreme Court holds that MERS has Standing to Foreclose on Homeowner’s Property by Advertisement
In Residential Funding Co., L.L.C. v. Saurman, 490 Mich. 909, 805 N.W.2d 183 (2011), the Michigan Supreme Court held that under Michigan law, mortgagees of record could commence foreclosures-by-advertisement.
Saurman and Messner purchased property and obtained financing from a financial institution. Both transactions involved loan documentation and a mortgage security instrument and the original lender in both cases was Homecomings Financial, LLC. The mortgage, however, did not list Homecomings Financial as the mortgagee but instead identified MERS. Defendants challenge the respective foreclosures as invalid because, they allege, MERS did not have authority under MCL 600.3205(1)(d)—regarding, inter alia, foreclosures by advertisement—to foreclose by advertisement. The Michigan Court of Appeals vacated foreclosure proceedings and remanded the case to the Michigan Supreme Court.
The court stated, pursuant to MCL 600.3204(1)(d), “Mortgage Electronic Registration System (MERS) is ‘the owner … of an interest in the indebtedness secured by the mortgage’ at issue in each of these consolidated cases because “[MERS’] contractual obligations as mortgagee were dependent upon whether the mortgagor met the obligation to pay the indebtedness which the mortgage secured.”
MERS’ status as an owner of an interest in the indebtedness did not equate to an ownership interest in the note. Instead, as record-holder of the mortgage, MERS owned a security lien on the properties, the continued existence of which was contingent upon the satisfaction of the indebtedness. This interest in the indebtedness authorized MERS to foreclose by advertisement under MCL 600.3204(1)(d).
The court also noted that in cases where the mortgagee transferred a beneficial interest but retained record title, courts have unanimously held that “[o]nly the record holder of the mortgage has the power to foreclose; the validity of the foreclosure is not affected by any unrecorded assignment of interest held for security.”
Finally, the court held that the phrase “interest in the indebtedness” denoted a category of parties entitled to foreclose-by-advertisement and indicated the Legislatures intent to include mortgagees of record among the parties entitled to foreclose-by-advertisement, along with parties who own the indebtedness and parties who act as the servicing agent of the mortgage. Therefore, the court reversed the Court of Appeals’ decision because it erroneously construed MCL 600.3204(1)(d).
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