Diem v. Sallie Mae Home Loans, Inc.

307 Mich.App. 204

859 N.W.2d 238

DIEM

v.SALLIE MAE HOME LOANS, INC.

Docket No. 317499.

Court of Appeals of Michigan.

Submitted Oct. 7, 2014, at Lansing.

Decided Oct. 16, 2014, at 9:00 a.m.

William E. Maxwell, Jr., for Philip J. Diem.

David M. Dell for Orlans Associates, PC, and Danielle Jackson.

Kullen & Kassab, PC (by John A. Kullen, West Bloomfield, and Andrew M. White, Rochester Hills), for Mortgage Electronic Registration Systems, Inc., JPMorgan Chase Bank, and Federal National Mortgage Association.

Before: SAAD, P.J., and O'CONNELL and MURRAY, JJ.

Opinion

O'CONNELL, J.

This challenge to a mortgage foreclosure by advertisement is one of the spate of actions that have arisen in Michigan. Mortgagors, mortgagees, mortgage servicing agents, and the courts have contended with statutes, caselaw, and procedural rules attempting to lay bare the proper method of challenging foreclosure. Plaintiff's claims in this case present several issues the courts have previously addressed and have determined to be insufficient to state a claim. Having reviewed the issues in this case, we affirm the circuit court's dismissal of plaintiff's claims, and we reconfirm the high substantive and procedural standards a mortgagor must meet to state a claim challenging a foreclosure by advertisement.

I. FACTS AND PROCEDURAL HISTORY

In March 2003, plaintiff and his wife signed a 30–year note for a $300,000 loan from defendant Pioneer Mortgage, Inc. Paragraph 1 of the note established that the lender could transfer the note: “I understand that the Lender may transfer this Note. The Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the ‘Note Holder.’ ” Paragraph 6(B) of the note established that plaintiff and his wife had to make monthly payments on the loan: “If I do not pay the full amount of each monthly payment on the date it is due, I will be in default.”

As security for the loan, plaintiff and his wife executed a mortgage on their home, naming defendant Mortgage Electronic Registration Systems, Inc. (MERS) as the mortgagee and Pioneer as the lender. The mortgage stated: “MERS is a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns.”¹ The mortgage was recorded in the Washtenaw County Register of Deeds on April 10, 2003.

In 2010, plaintiff defaulted on the loan. In January 2011, defendant Orlans Associates informed plaintiff that mortgage foreclosure proceedings would be commenced. The following month, defendant Danielle Jackson—who was an Orlans attorney—recorded an affidavit of scrivener's error to correct a mistake in the mortgage's legal description of the property.² In Paragraph 5 of the affidavit, Jackson attested, “A review of the public record reveals that said mortgage was last assigned to JPMorgan Chase Bank, National Association by assignment submitted to and recorded by the Washtenaw County Register of Deeds.” The pleadings in this case indicate that an assignment from MERS to JPMorgan Chase took place on October 5, 2011, several months after Jackson signed the affidavit. The assignment was recorded in October 2011.

On October 17, 2011, Orlans sent a certified letter informing plaintiff that JPMorgan Chase intended to initiate mortgage foreclosure proceedings. The parties did not attain a modification of the mortgage, and the foreclosure by advertisement proceeded. JPMorgan Chase purchased the property at a sheriff's sale on February 23, 2012. The applicable statutory redemption provision allowed plaintiff to redeem the property before August 23, 2012.

Plaintiff did not redeem the property. Two days before the redemption period expired, plaintiff filed a three-count complaint against Pioneer, Orlans, Jackson, JPMorgan Chase, MERS, and defendant Federal National Mortgage Association (Fannie Mae).³ In Count 1, entitled “Wrongful Foreclosure by Advertisement,”⁴ plaintiff alleged that the assignment of the mortgage and note from MERS to JPMorgan Chase was invalid. Plaintiff further alleged that as a result the foreclosure and sheriff's sale were invalid, because the foreclosure and sale were initiated by an entity that did not own the note or the mortgage and had no record chain of title. In Count 2, entitled “Negligence,” plaintiff alleged essentially the same acts against defendants and asserted that the acts violated defendants' duty to the public and to plaintiff.

Against specific defendants, plaintiff alleged that Jackson's affidavit falsely represented the date that MERS had assigned the mortgage to JPMorgan Chase. Plaintiff further alleged that MERS lacked legal ownership of the loan and that JPMorgan Chase should not have accepted the assignment from MERS. Plaintiff alleged that any assignments of the mortgage were invalid, because the mortgage terms required the note and mortgage to be maintained as a unit, rather than sold as separate interests.

In Count 3, entitled “Fraud & Conversion,” plaintiff alleged that defendants falsely represented they were the holders of plaintiff's note and mortgage and that defendants falsely represented themselves as proper parties to foreclose. Plaintiff went on to allege, “Defendants, with their false representations, intended to induce, and did induce Plaintiff to forebear from asserting his legal rights to challenge this fraudulent foreclosure.” Plaintiff further alleged that he relied on defendants' “publications and sworn filings” and that this reliance caused him to lose an opportunity to challenge the foreclosure before the sheriff's sale.

On August 29, 2012, Fannie Mae filed a district court action for possession of the property. On plaintiff's motion, the circuit court consolidated the district court case with plaintiff's circuit court case. Defendants moved for summary disposition in November 2012. Because of various delays in the litigation, the circuit court did not hear arguments on the motion until March 6, 2013. On that date, the circuit court entered a stipulated order of dismissal without prejudice, which dismissed Orlans and Jackson from plaintiff's suit. On the same day, plaintiff filed a motion to amend his complaint to assert new claims against Orlans, Jackson, and the other defendants under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692k.

In May 2013, the circuit court denied plaintiff's motion to amend and granted summary disposition in favor of the remaining defendants. Citing Kim v. JPMorgan Chase Bank, NA, 493 Mich. 98, 825 N.W.2d 329 (2012), the circuit court determined that the foreclosure sale was voidable and that plaintiff was required to show he was prejudiced by the alleged defects in the foreclosure procedure. The circuit court concluded that plaintiff's claims were clearly unenforceable and that no factual development could establish a cognizable claim. Plaintiff moved for reconsideration, which the court denied.

II. ANALYSIS

A. FAILURE TO STATE A CLAIM

We review de novo the circuit court's summary disposition ruling. LaFontaine Saline, Inc. v. Chrysler Group, LLC,

496 Mich. 26, 34, 852 N.W.2d 78 (2014). “Summary disposition under MCR 2.116(C)(8) is appropriate where the complaint fails to state a claim on which relief may be granted.” Id. We must accept the plaintiff's allegations as true. Bosanic v. Motz Dev., Inc., 277 Mich.App. 277, 279 n. 2, 745 N.W.2d 513 (2007). In addition, we draw any reasonable inferences from the alleged facts. Adair v. Michigan, 470 Mich. 105, 119, 680 N.W.2d 386 (2004). However, “[c]onclusory statements, unsupported by factual allegations, are insufficient to state a cause of action.” Churella v. Pioneer State Mut. Ins. Co., 258 Mich.App. 260, 272, 671 N.W.2d 125 (2003).

Our Supreme Court identified the substantive requirements for a mortgagor to challenge a foreclosure by advertisement in Kim, 493 Mich. 98, 825 N.W.2d 329. The Kim Court held that “defects or irregularities in a foreclosure proceeding result in a foreclosure that is voidable, not void ab initio. ” Id. at 115, 825 N.W.2d 329. The Court also explained that

to set aside the foreclosure sale, plaintiffs must show that they were prejudiced by defendant's failure to comply with MCL 600.3204. To demonstrate such prejudice, they must show that they would have been in a better position to preserve their interest in the property absent defendant's noncompliance with the statute. [Id. at 115–116, 825 N.W.2d 329.]

The Kim decision established that a mortgagor seeking to set aside a foreclosure by advertisement must allege facts to support three essential elements of the claim: (1) fraud or irregularity in the foreclosure procedure, (2) prejudice to the mortgagor, and (3) a causal relationship between the alleged fraud or irregularity and the alleged prejudice, i.e., that the mortgagor would have been in a better position to preserve the property interest absent the fraud or irregularity. See Kim, 493 Mich. at 115–116, 825 N.W.2d 329.

The Kim Court cited three cases as examples of the nature of prejudice needed to support a foreclosure challenge. Kim, 493 Mich. at 116 n. 33, 825 N.W.2d 329. In the earliest case, Kuschinski v. Equitable & Central Trust Co., 277 Mich. 23, 268 N.W. 797 (1936), the Court upheld a sheriff's sale against the plaintiff-borrower's challenge. The Court first noted that the plaintiff had not been misled about whether the sale had occurred. Id. at 26, 268 N.W. 797. The Court concluded, “[t]he total lack of equity in plaintiff's claim, his failure to pay anything on the mortgage debt and his laches preclude him from any relief....” Id. at 27, 268 N.W. 797. In the next case, Jackson Investment Corp. v. Pittsfield Prod., Inc., 162 Mich.App. 750, 413 N.W.2d 99 (1987), this Court upheld a sheriff's sale against a challenge that the sale had occurred five days early. The Court noted that at no time during the redemption period had the mortgagor attempted to redeem the property. Id. at 757, 413 N.W.2d 99. Similarly, in Sweet Air Investment, Inc. v....