Fed. Home Loan Mortg. Ass'n v. Kelley

306 Mich.App. 487

858 N.W.2d 69

FEDERAL HOME LOAN MORTGAGE ASSOCIATION

v.KELLEY (On Reconsideration).

Docket No. 315082.

Court of Appeals of Michigan.

Submitted June 11, 2014, at Lansing.

Decided Aug. 26, 2014, at 9:00 a.m.

Dykema Gossett PLLC (by Jill M. Wheaton, Ann Arbor and Christyn M. Scott, Bloomfield Hills) for plaintiff.

Legal Services of South Central Michigan (by Nicole Shannon, Columbiaville, Kellie Maki, and Perry Thompson, East Lansing) for defendants.

Warner Norcross & Judd LLP, Grand Rapids, (by Gaëtan Gerville–Réache and Rodney D. Martin ) for the Michigan Bankers Association.

Before: BORRELLO, P.J., and SERVITTO and BECKERING, JJ.

ON RECONSIDERATION

PER CURIAM.

In this foreclosure-related litigation, plaintiff, Federal Home Loan Mortgage Association¹ (Freddie Mac), appeals by leave granted an Ingham Circuit Court opinion and order reversing the 55th District Court's July 31, 2012 order terminating the possession by defendants Michael R. and Kathryn M. Kelley² of residential property located in East Lansing. For the reasons set forth in this opinion, we reverse and remand for reinstatement of the district court's order.

I. BACKGROUND

A. UNDERLYING MORTGAGE TRANSACTION

This dispute involves real property located at 2458 Barnsbury Road, in East Lansing, Michigan. On March 21, 2003, First National Bank of America loaned defendants $240,000 for the purchase of the property. Defendants executed a mortgage encumbering the property to First National. The mortgage was recorded on April 24, 2003. On March 26, 2003, First National assigned the mortgage to ABN–AMRO Mortgage Group, Inc. The assignment was recorded on November 25, 2003. On September 1, 2007, CitiMortgage, Inc. and ABN–AMRO merged and maintained the name CitiMortgage (hereinafter CMI).

B. FREDDIE MAC AND THE FEDERAL HOUSING FINANCE AGENCY CONSERVATORSHIP

Freddie Mac is a federally chartered corporation that was created as part of the Emergency Home Finance Act of 1970.³ See 12 U.S.C. § 1451 et seq.; American Bankers Mtg. Corp. v. Fed. Home Loan Mtg. Corp., 75 F.3d 1401, 1404 (C.A.9, 1996). Freddie Mac operates in the secondary mortgage market, purchasing and securitizing residential mortgages. Sonoma Co. v. Fed. Housing Fin. Agency, 710 F.3d 987, 989 (C.A.9, 2013). Freddie Mac is governed by the Federal Housing Enterprises Financial Safety and Soundness Act, 12 U.S.C. § 4501 et seq. Sonoma Co., 710 F.3d at 989.

In 2008, Congress amended the Financial Safety and Soundness Act by enacting the Housing and Economic Recovery Act (HERA), 12 U.S.C. § 4511 et seq. “HERA established the Federal Housing Finance Agency [FHFA], an independent agency charged with supervising [Fannie Mae and Freddie Mac] and the Federal Home Loan Banks.” Sonoma Co., 710 F.3d at 989. HERA empowered the FHFA to act, under certain circumstances, as a conservator or receiver of Freddie Mac or the Federal National Mortgage Association (Fannie Mae) for purposes of “reorganizing, rehabilitating, or winding up the affairs” of either entity. 12 U.S.C. § 4617(a)(2). It is undisputed that the FHFA placed Freddie Mac into conservatorship in September 2008.⁴

C. FORECLOSURE OF THE PROPERTY

In June 2011, defendants defaulted on the mortgage and CMI foreclosed on the property under Michigan's foreclosure by advertisement statute, MCL 600.3201 et seq. Freddie Mac purchased the property at an October 20, 2011 sheriff's sale. Defendants failed to redeem the property within the six-month statutory redemption period, and the property vested in Freddie Mac on April 20, 2012. See MCL 600.3236.

On May 1, 2012, after expiration of the statutory redemption period, Freddie Mac initiated eviction proceedings in district court pursuant to MCL 600.5704. Defendants challenged the foreclosure, arguing in part that the foreclosure violated their Fifth Amendment due process rights. Defendants maintained that Freddie Mac was a federal actor by virtue of FHFA's conservatorship and was subject to the due process requirements of the Fifth Amendment, and therefore could not foreclose by advertisement.⁵ Defendants also argued that CMI's foreclosure was invalid under MCL 600.3204(3) because there was no chain of title evidencing the transfer of the mortgage from ABN–AMRO to CMI. Therefore, according to defendants, CMI did not own the debt and the foreclosure notice failed to properly identify the foreclosing entity.

The district court granted Freddie Mac's motion for summary disposition under MCR 2.116(C)(9) (failure to state valid defense) and MCR 2.116(C)(10) (no genuine issue of material fact). The district court held in relevant part that Freddie Mac was not a governmental actor subject to Fifth Amendment claims and that the chain of title was proper under MCL 600.3204(3) because the merger between ABN–AMRO and CMI did not constitute an “assignment” of the mortgage that necessitated a recording.

Defendants appealed, and the circuit court reversed. The circuit court held that Freddie Mac was a governmental entity subject to the Fifth Amendment's notice and hearing requirements. The circuit court reasoned that Freddie Mac filed tax exemptions as the United States under MCL 207.526(h)(i ) and 505(h)(i ) and that the federal government retained permanent control over all aspects of Freddie Mac. Noting that “FHFA controls every aspect of [Freddie Mac's] business and its Board of Directors is appointed by and answers to the Director of the FHFA,” the court concluded that “the procedures and provisions in place in this case make the conservatorship, in all practicality, permanent.” Regarding the chain of title, the circuit court held that the foreclosure was invalid because MCL 600.3204(3) requires assignments to be made whenever the foreclosing party is not the original mortgagee, so that assignments must be recorded when a mortgagee merges into another company. The court stated, “ABN AMRO ceased to exist when it merged with [CMI]. Because of this, [CMI] is not synonymous with ABN AMRO, but is an entirely different entity that is required to be assigned the mortgage under MCL 600.3204(3).”

The circuit court reversed the district court's order awarding possession to Freddie Mac and dismissed the complaint. Freddie Mac applied for leave to appeal and the FHFA moved to intervene. This Court granted both applications.⁶ On appeal, Freddie Mac argues that the circuit court erred by holding that it was a governmental entity for constitutional purposes, erred by concluding that the foreclosure failed to comply with MCL 600.3204(3), and, to the extent there was a defect in the chain of title, erred by concluding that the foreclosure was void ab initio as opposed to merely voidable.

II. STANDARD OF REVIEW

“We review de novo a trial court's decision on a motion for summary disposition to determine whether the moving party is entitled to judgment as a matter of law.” Cuddington v. United Health Servs., Inc., 298 Mich.App. 264, 270, 826 N.W.2d 519 (2012). We review constitutional issues and issues of statutory construction under the same standard. Great Lakes Society v. Georgetown Charter Twp., 281 Mich.App. 396, 425, 761 N.W.2d 371 (2008) ; Cuddington, 298 Mich.App. at 271, 826 N.W.2d 519.

III. ANALYSIS

A. DUE PROCESS

The Fifth Amendment “appl[ies] to and restrict[s] only the Federal Government and not private persons.” Pub. Utilities Comm. of D.C. v. Pollak, 343 U.S. 451, 461, 72 S.Ct. 813, 96 L.Ed. 1068 (1952). Therefore, the threshold question in this case is whether Freddie Mac is a governmental entity subject to a Fifth Amendment claim.

The circuit court concluded that Freddie Mac is a governmental entity subject to Fifth Amendment claims for two reasons: (1) Freddie Mac “ filed tax exemptions as the United States under MCL 207.526(h)(i ) and 505(h)(i )”; and (2) Freddie Mac is a governmental entity under Lebron v. Nat'l. R. Passenger Corp., 513 U.S. 374, 377, 115 S.Ct. 961, 130 L.Ed.2d 902 (1995). Both of these conclusions are erroneous.

With respect to Freddie Mac's tax status, while MCL 207.505(h)(i ) and MCL 207.526(h)(i ) provide tax exemptions for certain instruments and transactions involving the United States, Freddie Mac is specifically authorized by federal statute to be exempt from “all taxation now or hereafter imposed by any ... State,” except for real property taxes. 12 U.S.C. § 1452(e). Thus, Freddie Mac would have been exempt regardless of whether it sought an exemption “as the United States.” Moreover, the circuit court did not cite, and defendants do not provide, any authority supporting the position that seeking a tax exemption “as the United States” subjects federally created corporations to constitutional claims under the Fifth Amendment. As the United States Court of Appeals for the Ninth Circuit stated in Hall v. American Nat'l. Red Cross, 86 F.3d 919, 922 (C.A.9, 1996), “Government-created corporations are often held to be tax-immune government instrumentalities, but courts have also frequently found them not to be subject to constitutional treatment as government actors.”⁷ Thus, the mere fact that Freddie Mac filed for tax exemptions as “the United States” was not dispositive of whether Freddie Mac is a governmental entity for constitutional purposes. Instead, Lebron, 513 U.S. 374, 115 S.Ct. 961, is controlling on this issue, and under the Lebron framework, we conclude that Freddie Mac is not a governmental entity.

In Lebron, the United States Supreme Court addressed whether the National Railroad Passenger Corporation (commonly known as Amtrak) was a governmental entity for constitutional purposes. In that case, Amtrak refused to display the plaintiff's political advertisement on a large billboard at Penn Station commonly known as “the Spectacular.” The plaintiff sued, alleging violations of his First and Fifth Amendment rights. Id. at 377–378, 115 S.Ct. 961. At issue was whether Amtrak was a governmental entity subject to the plaintiff's constitutional claims. Id. at 378–379, 115 S.Ct. 961.

In resolving this issue, the...