February 25, 2013
Michigan Court of Appeals Holds that Bank has Standing to Foreclose on Mortgaged Property Because the Bank was Validly Assigned Property Owners’ Mortgage and thus was the Record Holder of the Mortgage
In Hargrow v. Wells Fargo Bank N.A., 491 F. App’x 534 (6th Cir. 2012), the United States Court of Appeals in Michigan held that Wells Fargo Bank had standing to foreclose upon the mortgaged property.
Mary and M.L. Hargrow bought property and borrowed $164,000 from MHA Financial Service. The Hargrows then executed a loan document listing MHA Financial as the lender, and signed a separate mortgage security instrument as security for the Note. The mortgage also identified MERS as the nominee for MHA Financial and the mortgagee. As per the security instrument, MERS was given the power of sale among other rights. MERS assigned the mortgage to Wells Fargo and recorded the assignment on September 4, 2009. On September 2009, Wells Fargo initiated statutory foreclosure proceedings against the Hargrows by advertising a notice of intent to foreclose. The Hargrows alleged that Wells Fargo did not have standing to foreclose on their home.
The Hargrows first argued that Wells Fargo could not foreclose by advertisement because a mortgagee who does not also own the underlying debt is not an owner of the indebtedness or of an interest in the indebtedness or the mortgage servicing agent, as required under § 600.3204(1)(d). The court noted, however, that in Residential Funding Co. v. Saurman, 490 Mich. 909, 805 N.W.2d 183 (Mich. 2011), the court held that “an entity has standing to foreclose upon properties for which it is the record holder of the mortgage, even if it does not own the underlying debt.” Here, MERS was the record holder of the mortgage and thus had the right to foreclose by advertisement. Since that interest was validly assigned to Wells Fargo, Wells Fargo was the record holder of the mortgage and also had the right to foreclose by advertisement.
Next, the Hargrows claimed that the assignment of the mortgage from MERS to Wells Fargo was invalid because a mortgage cannot be assigned without a corresponding assignment of the interest in the underlying debt. The court stated that if a property owner grants MERS the power to assign the mortgage, the assignment of the mortgage to the foreclosing bank was valid. Here, MERS was the original mortgagee of the Hargrows’ mortgage. Further, the Hargrows granted MERS the power to assign the mortgage and to initiate foreclosure proceedings. Once the mortgage was assigned to Wells Fargo, they were the record holder of the mortgage and also had the power to foreclose. Since the chain of title was properly recorded, Wells Fargo was the owner of an interest in the indebtedness and had the power to foreclose by advertisement.
Finally, the Hargrows argued that the required record chain of tile must include a record of who owns the underlying Note. The court held, however, that § 600.3204(3) clearly required only a record chain of title for the mortgage, not the underlying debt. Under Michigan law, it is unlawful for the holder of the mortgage to be different from the holder of the debt. Thus, the Hargrows failed to present a case or compelling reason to justify reading the statute more broadly than its plain terms.
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