LOAN MODIFICATION OPT-IN PROGRAM

The mortgage loan modification program that was built into Michigan's foreclosure by advertisement statute in 2009 has been extended by the Michigan legislature every six months prior to sunset. It is currently due to sunset (or renew) on June 30, 2013. As previously reported, this provision adds a mandatory workout period prior to commencing foreclosure on property that is the principal residence of a mortgagor. If the mortgagor "opts in" to the process, the foreclosure is stopped for 90 days during which time the lender must review the mortgagor for loan modification possibilities. Given the number of sunset extensions by the legislature, it may likely become a permanent piece of Michigan's non-judicial foreclosure process.

RECORDING OF AFFIDAVITS

Michigan's recording statute has been amended to allow for recording of affidavits used to correct errors or omissions of previously recorded documents, essentially codifying the use of a scrivener's error affidavit. Additionally the statute now allows these affidavits to be used as prima facie evidence in a proceeding affecting real property. This is an important change for lenders that need to correct recorded documents in the chain of title prior to foreclosure.

THE SAGA OF THE KIM CASE

The Michigan Supreme Court has upheld a prior Court of Appeals decision holding that if a loan is purchased from the FDIC as receiver of a closed bank, this is not a transfer by "operation of law" (such as in the case of a direct acquisition without a receiver) and a recorded assignment must exist prior to foreclosure, Kim v JPMorgan Chase Bank, 493 Mich 98 (2012). The Supreme Court distinguished however that the foreclosure sale in Kim was voidable rather than void ab initio as held in the prior decision. Therefore, all foreclosure sales that took place without an assignment prior to this decision remain valid and only voidable if properly challenged and the borrower can show prejudice. This requirement that the borrowers must show prejudice creates a possible loophole for lenders that acquired loans from the FDIC without an assignment.

FORECLOSURE WITHOUT A NOTE

In another victory for lenders, the Michigan Court of Appeals has held that a lender may pursue foreclosure notwithstanding loss of the underlying promissory note. In Sallie v Fifth Third Bank, 297 Mich App 115 (2012), the lender began foreclosure proceedings after default and was unable to produce the note at the time of sale. The borrowers challenged the foreclosure arguing that the lender was not allowed to foreclose the mortgage without showing that it was in possession, and entitled to enforce, the underlying note. In ruling that the foreclosure was valid, the Court of Appeals held that nothing in the statute required that the mortgagee produce the note in order to foreclose and that the lender was able to establish the borrowers' underlying debt and default with "clear proof". The mortgagee presented testimony establishing the borrowers' payment history and default and provided un-refuted testimony that the lost note was never transferred, assigned or sold. By establishing its continuing ownership of the borrower's debt, defendant eliminated the risk that plaintiff would face multiple collections on the same debt.

For further information, please contact:

Jonathan L. Engman, Esq.
Fabrizio & Brook, P.C.
888 W. Big Beaver Rd., #800
Troy, MI 48084
248-362-2600