COA answers question: void or voidable?

Though the Aug. 25 Court of Appeals opinion in Richard v Schneiderman & Sherman, et al might have answered at least one question for a mortgage industry that is still wondering what will be the ultimate fallout of Residential Funding Co. v. Saurman: Are MERS foreclosures void or voidable?

Saurman, decided by the Michigan Court of Appeals earlier this year, halted a significant number of real estate transactions when the divided court decided that the Mortgage Electronic Registration Systems (MERS) didn’t have the authority to execute a non-judicial foreclosure defendants Gerald Saurman and Corey Messner.

Following that decision, there have been questions in the mortgage and title industry regarding whether a MERS foreclosure is “void” or “voidable.”

The Court said in Richard, authored by Judge Stephen L. Borrello, that it’s voidable.
That was good news to William L. Robinson, president of Attorneys Title Agency in Farmington Hills.

“Void is as if the foreclosure never happened. There is no obligation to appear in court and challenge it if it never happened,” Robinson said. The Saurman decision pointed to those foreclosures being void. But in Richard, the Court said that Saurman has limited applicability.

In May 2006, Aaron Richard bought a house on Hubbell St. in Detroit for $50,000 from Homecomings Financial Network Inc.

At some point, he fell behind on his mortgage payments. In October 2009, Schneiderman & Sherman PC, acting as GMAC’s agent, sent Richard a notice of the mortgage default, and informed him of his rights to mediation. MERS began non-judicial foreclosure by advertisement under MCL 600.3201 and purchased the property at sheriff’s sale, according to the Court opinion.

Richard sued during the redemption period, claiming that the sale was flawed on numerous grounds, and saying that MERS did not have any rights to the debt. The defendants filed for summary disposition; the trial court granted it, and dismissed the claim.

The Court of Appeals reversed, saying: “Although many of the plaintiff’s claims are without merit, it is clear that the sheriff’s sale was invalid because, although MERS was only a mortgagee, MERS foreclosed on plaintiff’s property utilizing non-judicial foreclosure by advertisement. This Court has held that MERS is not entitled to utilize foreclosure by advertisement where it does not own the underlying note. Residential Funding Co. Inc. v. Saurman.”

And Robinson wasn’t surprised that the Court applied Saurman retroactively.

“That was a no-brainer,” he said.

But the Court also added some further definition on the breadth of Saurman: “Saurman does not apply in action to recover title or possession of property if the mortgagor failed to challenge the foreclosure by advertisement during the redemption period or any proceedings seeking an order of eviction, or if the foreclosed property has been sold to a bona fide purchaser. Here, because plaintiff filed his claim during the redemption period and there is no evidence of a bona fide purchaser, he is entitled to relief under Saurman.”

That could open another can of worms, though.

Robinson wonders what happens if there has been a foreclosure and the redemption period has run.
“Then maybe the property was abandoned so there was no eviction. And there’s been no resale to a bona fide purchaser. Then what?” he said. “Could the borrower move back in and take possession, and if you try to evict me then have the legal remedies run? There are a lot of properties like that. There’s the gray area out there.”

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