Thomas et al v. JPMorgan Chase Bank, N.A. et al
Filing
9
OPINION and ORDER Regarding Defendants' 3 Motion to Dismiss. Signed by District Judge Gerald E. Rosen. (JOwe)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
JOE THOMAS and
BERNICE THOMAS,
Plaintiffs,
No. 14-CV-14183
Hon. Gerald E. Rosen
Magistrate Judge Michael J. Hluchaniuk
vs.
JPMORGAN CHASE BANK, N.A.
and FEDEREAL HOME LOAN
MORTGAGE CORPORATION,
Defendants.
___________________________________/
OPINION AND ORDER REGARDING DEFENDANTS’
MOTION TO DISMISS
I. INTRODUCTION
Plaintiffs Joe Thomas and Bernice Thomas commenced this suit in Wayne
County Circuit Court on September 19, 2014, asserting claims against Defendants
JPMorgan Chase Bank, N.A., and Federal Home Loan Mortgage Corporation,
arising from the foreclosure sale of Plaintiffs’ home in Detroit, Michigan.
Plaintiffs claim that Defendants conducted the foreclosure process without regard
to Michigan’s statutory requirements -- in particular that Defendant JPMorgan
Chase Bank, N.A. failed to include one of the mortgagee’s names in the Notice of
1
Foreclosure and that Defendant Federal Home Loan Mortgage Corporation is not a
valid purchaser under Michigan foreclosure law. Defendants removed the case to
this Court on October 30, 2014, and Defendants have now filed a Motion to
Dismiss (Dkt. # 3). Collectively, Defendants argue that Plaintiffs lack standing to
bring this suit because the statutory redemption period for the foreclosure has
passed and, in the alternative, that Plaintiffs have failed to sufficiently allege any
violation of Michigan’s foreclosure laws.
Having reviewed and considered the parties’ briefs and supporting
documents and the entire record of this matter, the Court has determined that the
pertinent allegations and legal arguments are sufficiently addressed in these
materials and that oral argument would not assist in the resolution of this motion.
Accordingly, the Court will address the motion “on the briefs.” See L.R. 7.1(f)(2).
II. PERTINENT FACTS
On December 19, 2008, Plaintiffs Joe Thomas and Bernice Thomas, a
married couple, entered into a loan agreement with Defendant JPMorgan Chase
Bank, N.A. (“Chase”) in the amount of $219,000 (“the Loan”). Pl’s Compl., Dkt.
# 1-2, ¶ 6. The Loan was secured by a mortgage (“the Mortgage”) against the
property at issue in this case, 17381 Pontchartrain Blvd., Detroit, Michigan 48203
(“the Property”). Id. ¶¶ 4, 6; See also Mortgage, Dkt. # 3-2. The Mortgage was
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recorded on December 30, 2008 in the Wayne County Records, with Chase acting
as servicer for the Mortgage. Pl.’s Compl. ¶¶ 8, 12, see generally Mortgage.
Plaintiffs defaulted on the Loan at some point in 2013, and Chase
subsequently initiated the foreclosure by advertisement process by mailing a
Notice of Foreclosure to Plaintiffs and by publishing a Notice of Foreclosure in the
Detroit Legal News once per week between October 14, 2013, and November 4,
2013. Pl’s Compl. ¶¶ 12-13. Importantly for purposes of Plaintiffs’ theory, both
the published and the mailed Notice of Foreclosure identified the mortgagor as
“Joe Nathan Thomas, married,” but did not mention Bernice Thomas or identify
her interest in the Loan, Mortgage, or Property. Id. ¶ 14.
The Loan remained in default, and accordingly a Sheriff’s Sale was held on
March 20, 2014. Id. ¶ 17; see also Sherriff’s Deed, Dkt. # 3-3. Defendant Federal
Home Loan Mortgage Corporation (“Freddie Mac”) won the auction with a bid of
$109,387.43, and was granted a Sherriff’s Deed, which was recorded on April 3,
2014. Sherriff’s Deed, Dkt. # 3-3, at 1. The statutory redemption period was set
to expire on September 20, 2014. Id. at 1, 4.
On September 19, 2014, one day prior to the expiration of the redemption
period, Plaintiffs brought this suit in Wayne County Circuit Court. Plaintiffs’
complaint asserts four claims for relief: wrongful foreclosure in violation of MCL
§ 600.3201 et seq. (Count I); quiet title (Count II); slander of title (Count III); and
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violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (Count
IV). Each claim, however, relies on the same two theories of relief: (1) that
Chase’s failure to name Bernice Thomas as a party to the Mortgage renders the
foreclosure proceedings invalid, and (2) that Freddie Mac is not a valid purchaser
under MCL § 600.3228, and accordingly “was not authorized by statute to
purchase the . . . Property.” See, e.g., Pl.’s Compl. ¶¶ 19-20. Defendants removed
the action to this Court on October 30, 2014. Def.’s Removal, Dkt. # 1. The
September 20, 2014 expiration of the redemption period has now passed, and
Plaintiffs have not redeemed the Property.
III. DISCUSSION
A.
Rule 12(b)(6) Standard
In deciding a motion brought under Rule 12(b)(6), the Court must construe
the complaint in the light most favorable to Plaintiffs and accept all well-pled
factual allegations as true. League of United Latin Am. Citizens v. Bredesen, 500
F.3d 523, 527 (6th Cir. 2007). To withstand a motion to dismiss, however, a
complaint “requires more than labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007). The factual allegations in the complaint, accepted as true,
“must be enough to raise a right to relief above the speculative level,” and must
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“state a claim to relief that is plausible on its face.” Id. at 570. “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
The Court must “construe the
complaint in the light most favorable to the plaintiff, accept its allegations as true,
and draw all reasonable inferences in favor of the plaintiff.” DirecTV, Inc. v.
Treesh, 487 F.3d 471, 476 (6th Cir. 2007). However, the Court “need not accept as
true legal conclusions or unwarranted factual inferences.” Id. (quoting Gregory v.
Shelby Cnty., 220 F.3d 433, 446 (6th Cir. 2000)).
If the well-pled facts in Plaintiffs’ Complaint -- accepted as true -- are
insufficient for Plaintiffs to recover on a claim, that claim must be dismissed.
Iqbal, 556 U.S. at 680 (“Because the well-pleaded fact of parallel conduct,
accepted as true, did not plausibly suggest an unlawful agreement, the Court held
the plaintiffs’ complaint must be dismissed.”).
B.
Plaintiffs Have Standing to Bring This Case
Defendants first argue that “a party claiming an interest in a property loses
standing if he fails to redeem within the statutory redemption period.” Def.’s Mot.
to Dismiss, at 4. Therefore, Defendants reason, Plaintiffs have lost the ability “to
raise any claims related to the Property . . . and their Complaint should be
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dismissed.” Id. at 5 (emphasis added). This issue has been the subject of much
confusion, though recent Sixth Circuit law has provided some clarity.
It is true that under Michigan’s foreclosure law, “[u]nless the
premises. . . shall be redeemed within the time limited for such redemption . . . ,
[the sheriff’s] deed shall thereupon become operative, and shall vest in the grantee
therein named, his heirs or assigns, all the right, title, and interest which the
mortgagor had at the time of the execution of the mortgage.” M.C.L. § 600.3236.
Based on a strict reading of the statute, one might infer that “the homeowner has
no legal interest in the property that litigation might vindicate.” El-Seblani v.
IndyMac Mortg. Servs., 510 F. App’x 425, 428 (6th Cir. 2013). Several recent
unpublished decisions from the Michigan Court of Appeals have reached such a
conclusion,
predicating
dismissals
of
post-redemption-period
foreclosure
challenges on the theory that plaintiffs lacked standing. Awad v. Gen. Motors
Acceptance Corp., No. 302692, 2012 WL 1415166, at *4 (Mich. Ct. App. Apr. 24,
2012), appeal denied, 493 Mich. 905 (2012) (“Upon the expiration of the
redemption period, [Plaintiff] lost all right, title, and interest in the property and,
therefore, lost her standing to sue.”); Overton v. Mortg. Elec. Registration Sys., No.
284950, 2009 WL 1507342, at *1 (Mich. Ct. App. May 28, 2009) (“Once the
redemption period expired, all of plaintiff’s rights in and title to the property were
extinguished.”); Mission of Love v. Evangelist Hutchinson Ministries, No. 266219,
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2007 WL 1094424, at *5 (Mich. Ct. App. Apr. 12, 2007) (“[D]efendants are
correct that, after title vested in [Defendants] pursuant to the foreclosure, it was no
longer necessary to resolve the subject matter of plaintiff’s lawsuit, i.e., the validity
of the warranty deed, because plaintiff no longer had standing.”).
As this Court has recently noted, however, those decisions “are in tension
with established standing principles.” Jackson v. Bank of Am., N.A., ___ F. Supp.
3d ___, No. 14-CV-11073, 2014 WL 7157172, at *4 (E.D. Mich. Dec. 15, 2014).
“When jurisdiction is premised on diversity of citizenship, a plaintiff must have
standing under both Article III and state law in order to maintain a cause of
action.” Morell v. Star Taxi, 343 F. App’x 54, 57 (6th Cir. 2009). Under Article
III, a plaintiff has standing when he has sustained an injury that is “concrete and
particularized” and “actual or imminent,” that injury is “fairly traceable to the
challenged action of the defendant,” and “it is likely . . . that the injury will be
redressed by a favorable decision.” Friends of the Earth, Inc. v. Laidlaw Envtl.
Servs. (TOC), Inc., 528 U.S. 167, 180-81 (2000). Such standing is obviously
present here -- Plaintiffs in this case claim concrete injuries resulting from an
allegedly defective foreclosure procedure.
And under Michigan’s standing
requirements, “a litigant has standing whenever there is a legal cause of action.”
Lansing Sch. Educ. Ass’n v. Lansing Bd. of Educ., 792 N.W.2d 686, 699 (Mich.
2010). Michigan’s courts have provided such a cause of action in this context,
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allowing plaintiffs to challenge the validity of a foreclosure through summary
proceedings, M.C.L. § 600.5714, or by a separate lawsuit, El-Seblani, 510 F.
App’x at 428.
The obvious question then looms: “If plaintiffs litigating the
validity of a foreclosure after the expiration of the redemption period meet these
basic requirements, as Plaintiff does here, how can these standing principles be
squared with the holdings of Awad, Overton, and Mission of Love?” Jackson, 2014
WL 7157172, at *4.
A recent Sixth Circuit case provides the most complete answer. In ElSeblani, the court noted that longstanding Michigan state law has held that in cases
seeking to set aside a foreclosure following the expiration of the statutory
redemption period, plaintiffs face a “stringent” burden, and must allege “fraud or
irregularity” that is “relate[d] to the foreclosure procedure itself.” El-Seblani, 510
F. App’x at 429 (internal quotation marks omitted).
Accordingly, the court
assessed Awad, Overton, and Mission of Love, and concluded that those cases,
despite making superficial references to standing, “[did] not turn on standing
doctrine. . . . It is more accurate to say that the ‘fraud or irregularity’ claims in
Overton, Awad, and Mission of Love lacked sufficient merit to meet the high
standard imposed by Michigan law on claims to set aside a foreclosure sale.” Id.
(internal quotation marks omitted).
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Therefore, based on the reasoning of El-Seblani, the Court finds that
Plaintiffs have standing in this case, under both Article III and Michigan state law,
to bring their claims. As this Court has recently stated, a “plaintiff who meets both
Article III and state standing requirements does not forfeit his standing when the
statutory foreclosure redemption period expires.” Jackson, 2014 WL 7157172, at
*5.
C.
Plaintiffs Have Failed to Allege Sufficient Facts to Set Aside the
Foreclosure
As discussed above, Plaintiffs’ complaint asserts four claims for relief, but
each explicitly relies on the same two legal theories: (1) that Chase’s failure to
name Bernice Thomas as a party to the Mortgage renders the foreclosure
proceedings invalid, and (2) that Freddie Mac is not a valid purchaser under
M.C.L. § 600.3228, which provides that “[t]he mortgagee, his assigns, or his or
their legal representatives, may, fairly and in good faith, purchase the premises
. . . at [the sheriff’s] sale.”
In Count I, Plaintiffs assert a claim of wrongful
foreclosure because the failure to name Bernice Thomas “was either a significant
procedural irregularity, or was a fraud perpetrated by Chase” and because
“Defendant Freddie Mac . . . was not authorized by [M.C.L. § 600.3228] to
purchase the . . . Property.” Pl.’s Compl, ¶¶ 16, 20. In Count II, Plaintiffs assert a
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claim of quiet title “because the notice of foreclosure was improper and Freddie
Mac and Chase did not comply with MCL 600.3228.” Id. ¶ 27. In Count III,
Plaintiffs assert a claim of slander of title because “the recording of the sheriff’s
deed . . . was done with the specific intent that it confuse the chain of title” when
the foreclosure notice only included Joe Thomas and because “[t]he recording of
the Sheriff’s Deed was not authorized because Freddie Mac was not a foreclosing
party as defined in the Michigan Statutes.” Id. ¶¶ 34-35. And in Count IV,
Plaintiffs assert a claim of violation of the Fair Debt Collection Practices Act on
the basis that Defendants unlawfully “[p]roceed[ed] with the foreclosure even
though Freddie Mac was not authorized to be a foreclosing party under the
Michigan statutes” and that Defendants “[i]ntentionally delet[ed] the name of
Plaintiff Bernice Thomas from the foreclosure notice and thereby creat[ed]
confusion.” Id. ¶ 39. Accordingly, because each Count turns on the proper
resolution of Plaintiffs’ two main arguments, the Court addresses each of those
arguments in turn, in lieu of discussing each Count individually. 1
1
Plaintiffs do assert a third argument in their response brief, though the theory
does not appear anywhere in the Complaint. In their brief, Plaintiffs argue that
“Defendants have violated M.C.L. § 600.3204(3) because no assignment of
mortgage was ever recorded.” Pl.’s Resp. to Def.’s Mot. to Dismiss, at 14.
Plaintiffs are correct that, at least according to the complaint, the Mortgage was at
some point assigned to Chase Home Finance, LLC, though Plaintiffs maintain that
assignment occurred without proper power of attorney. Pl.’s Compl. ¶¶ 9-10.
Plaintiffs’ argument, at least as the Court discerns it, is that M.C.L. § 600.3204(3)
requires that “[i]f the party foreclosing a mortgage by advertisement is not the
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A brief review of the relevant statutory provisions underlying Michigan
foreclosures by advertisement is helpful before reaching each issue. M.C.L. §
600.3201 provides that “every mortgage of real estate, which contains a power of
sale, upon default being made in any condition of such mortgage, may be
foreclosed by advertisement, in the cases and in the manner specified in this
chapter.”
The statute then provides several requirements for foreclosure by
advertisement to proceed, including that “[a] default . . . has occurred,” “[t]he
original mortgagee, a record chain of title must exist before the date of sale,” and
that there is no proper record chain of title regarding the alleged assignment to
Chase Home Finance. Plaintiffs also assert (seemingly contradictorily) that
Freddie Mac was the party foreclosing the mortgage, leading to an alleged
violation of M.C.L. § 600.3204(1)(d), which provides that the foreclosing party
must be “either the owner of the indebtedness or of an interest in the indebtedness
secured by the mortgage.” These arguments fail for several reasons. First, they are
not articulated in any of Plaintiffs’ Counts in the Complaint, nor have Plaintiffs
attempted to amend the Complaint to include them. To that end, the Court now
invites Plaintiff to amend its Complaint as described below. But even if these
arguments were properly presented in the Complaint, the Court is not convinced
that they have merit. Plaintiffs are incorrect that Freddie Mac is the foreclosing
party. A purchaser is not a foreclosing party with regard to M.C.L. § 600.3204 and
accordingly is not subject to the recordation requirements which apply to assignees
of the mortgage. See Moon v. Ocwen Loan Servicing, LLC, Nos. 11-000215-CH,
12-000009-CH, 2013 WL 1689276, at *3 (Mich. Ct. App. Apr. 18, 2013) (holding
that Freddie Mac, as purchaser of the foreclosed property, was not the party
engaged in the action of foreclosing on the mortgage). M.C.L. § 600.3204(1)(d)
refers to the party initiating the foreclosure. Plaintiffs’ argument regarding the
allegedly faulty assignment to Chase Home Finance is similarly inapposite, as
Chase Home Finance was not the party initiating the foreclosure -- that party was
instead JPMorgan Chase Bank. See Pl.’s Compl. ¶ 12. Accordingly, any faulty
chain of title with regard to Chase Home Finance is irrelevant here. And finally, as
explained below, Plaintiffs have failed to explain how any of these alleged errors
prejudiced them by limiting their ability to redeem the property. See infra Part IIIC-1.
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mortgage . . . has been properly recorded,” and a record chain of title exists. Id. §
600.3204.
M.C.L. § 600.3208 then describes the process by which to initiate the
foreclosure, requiring a notice that the mortgage will be foreclosed by sale of the
premises. This notice “shall be given by publishing the same for 4 successive
weeks at least once in each week”. The statute goes on to define the requirements
of such notice, requiring that the names of the mortgagor, the original mortgagee,
and the foreclosing assignee be included in every notice of foreclosure. M.C.L. §
600.3212(a).
M.C.L. § 600.3216 prescribes the time and place of the foreclosure sale after
all previous procedural requirements have been satisfied. “The sale shall be at
public sale, between the hour[s]” of 9 AM and 4 PM in the “circuit court within the
county in which the premises to be sold . . . are situated” and the property is to be
sold “to the highest bidder.” Finally, M.C.L. § 600.3228 specifically allows that
the “mortgagee, his assigns, or his or their legal representatives, may, fairly and in
good faith, purchase the premises so advertised, or any pert thereof, at such sale.”
Once the foreclosed-upon property is sold at the sheriff’s sale, the mortgagor
is given six months to redeem the property. M.C.L. § 600.3240(7). Once this
statutory redemption period lapses, however, the mortgagor’s “right, title, and
interest in and to the property” are extinguished and the mortgagor no longer has
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the right to assert any claims with respect to the property. Conlin v. Mortgage
Electronic Registration Systems, Inc., 714 F.3d 355, 359 (6th Cir. 2013) (quoting
M.C.L. § 600.3236) (internal quotation marks omitted); see also Bryan v.
JPMorgan Chase Bank, 848 N.W.2d 482, 485 (Mich. Ct. App. Apr. 10, 2014) (“If
a mortgagor fails to avail him or herself of the right of redemption, all the
mortgagor’s rights in and to the property are extinguished”). Filing a lawsuit
immediately prior to the expiration of the redemption period will generally not toll
the redemption period. See, e.g., Rubin v. Fannie Mae, 587 Fed. App’x. 273, 276
(6th Cir. 2014) (“[O]nce the redemption period lapses, a former property owner
may not assert any claims with respect to the property. The filing of a lawsuit -even one filed before the expiration of the redemption period -- will not toll the
redemption period.”); Jackson, 2014 WL 7157172, at *7; Whitehead v. Fed. Nat.
Mortg. Ass’n, No. 12-CV-13840, 2013 WL 5353050, at *4 (E.D. Mich. Sept. 24,
2013); Moriarity v. BNC Mortg., Inc., No. 10-13860, 2010 WL 5173830, at * 2
(E.D. Mich. Dec.15, 2010); Nafso v. Wells Fargo Bank, N.A., No. 11-10478, 2011
WL 1575372, at *2-3 (E.D. Mich. Apr.26, 2011); Mitan v. Fed. Home Loan Mtg.
Corp., No. 10-13286, 2011 WL 4837502, at * 2 (E.D. Mich. Sept. 22, 2011);
Overton, 2009 WL 1507342, at *1.
Because a mortgagor’s rights to challenge the foreclosure are substantially
reduced once the redemption period has expired, Michigan courts have long held
13
that for a mortgagor to set aside a foreclosure by advertisement after expiration of
the period, facts must be alleged which support a finding of fraud or irregularity in
the foreclosure procedure itself, in addition to a demonstration that the mortgagor
was prejudiced by the allegedly faulty procedures.
Conlin, 714 F.3d at 359
(“[O]nce the statutory redemption period lapses, [courts] can only entertain the
setting aside of a foreclosure sale where the mortgagor has made a clear showing
of fraud, or irregularity (internal quotation marks omitted)); see also Sweet Air
Inv., Inc. v. Kenney, 739 N.W.2d 656, 659 (Mich. Ct. App. May 15, 2007) (“The
Michigan Supreme court has held that it would require a strong case of fraud or
irregularity, or some peculiar exigency, to warrant setting a foreclosure sale aside.”
(quoting United States v. Garno, 974 F. Supp. 628, 633 (E.D. Mich. 1997))); Kim
v. JPMorgan Chase Bank, N.A., 825 N.W.2d 329, 338 (Mich. 2012) (“[T]o set
aside the foreclosure sale, plaintiffs must show that they were prejudiced by
defendants failure to comply.”).
Under this legal framework, the Court proceeds to address Plaintiffs’ legal
theories in this case.
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1.
Plaintiffs Have Failed to Allege Prejudice Resulting From
Defendants’ Failure to Strictly Comply with the Naming Requirements of
M.C.L. § 600.3212(a)
Plaintiffs’ first argument relies on the fact that when Chase initiated the
foreclosure, the published Notice identified the mortgagor as “Joe Nathan Thomas,
married,” but did not identify Bernice Thomas’s interest in the Loan, Mortgage, or
Property.
Plaintiff asserts that the Notice was “required to have some basic
information,” specifically “the names of the mortgagors, the original mortgagee,
and the foreclosing assignee.” Pl.’s Resp. to Def.’s Mot. to Dismiss, at 12 (citing
M.C.L. § 600.3212). Plaintiffs assert that “from the notice, it appeared that only
Joe Nathan Thomas had executed the mortgage,” and maintain that such an error
“was either a significant procedural irregularity or was a fraud perpetrated by
Chase.” Id. at 12-13.
Defects in the notice of foreclosure can vary in severity, and accordingly,
can vary in the extent to which they can operate to set aside a foreclosure sale. In
asserting that the failure to include Bernice Thomas on the Notice of Foreclosure
amounts to a fraud or irregularity, Plaintiffs rely heavily on Oades v. Standard Sav.
& Loan Ass’n, 241 N.W. 262 (Mich. 1932). In that case, the Michigan Supreme
Court held that a foreclosure on property owned by the plaintiff, Mr. Oades, in
which the notice failed to name Mrs. Oades as a mortgagor, was beyond a “slight
15
and inconsequential irregularit[y]” and led to a voiding of the mortgage. Id. at
263-64.
The proper interpretation of Oades is not entirely clear in this context.
Plaintiff is correct that Oades involved similar facts to those of this case, and the
primary reasoning of Oades -- that the plain language of M.C.L. § 600.3212(a)
requires that the “names of the mortgagor, the original mortgagee, and the
foreclosing assignee” must be included in the notice of foreclosure by
advertisement -- applies here as well. Clearly, the failure to include the names of
all mortgagors in the Notice is at least some type of error. However, the age of
Oades (a 1931 case) makes its application difficult in light of changes to modern
Michigan foreclosure law. When Oades was decided, the framework requiring “a
clear showing of fraud, or irregularity” in order to set aside a foreclosure sale was
not so well-defined as it is today. See Schulthies v. Barron, 167 N.W.2d 784, 785
(Mich. Ct. App. 1969). Accordingly, it is difficult to discern, from Oades alone,
whether the error in the instant case rises to the level of fraud or irregularity as
articulated in more recent cases. This Court has previously held that various minor
mistakes regarding the foreclosure notice do not amount to fraud or irregularity.
See, e.g., Worthy v. World Wide Fin. Servs., Inc., 347 F. Supp. 2d 502, 509-10
(E.D. Mich. Dec. 13, 2004) (finding that a misstatement mortgagor’s gender in a
foreclosure notice is a “slight or inconsequential mistake[]” that does not amount
16
to fraud or irregularity (internal quotation marks omitted)); Gallagher v. BAC
Home Loans Servicing, L.P., No. 1:11-CV-1356, 2012 WL 1952349, at *7 (W.D.
Mich. May 30, 2012) (finding the same regarding a misspelling of the mortgagors’
last name).
However, at this juncture the Court need not reach the question of whether
Chase’s failure to identify Bernice Thomas in the Notice of Foreclosure constitutes
fraud or irregularity, because Plaintiffs have failed to allege any prejudice resulting
from the alleged error. As the Michigan Supreme Court has consistently held,
defects in the foreclosure process, even when they amount to fraud or irregularity,
render a foreclosure sale voidable, but can only void a foreclosure sale in
circumstances where the error affected the plaintiff’s rights:
[D]efects or irregularities in a foreclosure proceeding result in a
foreclosure that is voidable, not void ab initio . . . . [T]o set aside the
foreclosure sale, plaintiffs must show that they were prejudiced by
defendant’s failure to comply with [the statute at issue]. 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.
Kim, 825 N.W.2d at 337 (emphasis added)). Here, Plaintiffs’ complaint provides
not a single explanation of how Chase’s failure to include Bernice Thomas’s name
in the Notice harmed Plaintiffs during the foreclosure process. Plaintiffs concede
that they defaulted on the loan, and Plaintiff Joe Thomas received actual notice of
the default via the mailed and published Notices. Plaintiffs have not alleged that
17
Bernice Thomas somehow did not know about the foreclosure proceedings, and
given that Plaintiffs were both apparently residing at the Property at the time the
foreclosure was initiated and that Plaintiffs remained married during the
foreclosure process, it is implausible to think that Bernice Thomas lacked, at a
minimum, constructive notice of the foreclosure. The fact that Chase failed to
strictly comply with the notice requirements imposed by M.C.L. § 600.3212(a) did
not appear to affect any part of the foreclosure process, and accordingly, did not
result in prejudice to Plaintiffs.2 See Lopez v. Bank of America, N.A., 920 F. Supp.
2d 798, 803 (W.D. Mich. Jan. 14, 2013) (Because Plaintiff had notice of her right
to request a loan modification meeting, any failure of the defendants to comply
with the notice requirements did not result in prejudice); see also Jackson
Investment Corp. v. Pittsfield Products, Inc., 413 N.W.2d 99, 101 (Mich. Ct. App.
Sep. 9, 1987) (No harm is suffered when “the mortgagor would have been in no
2
Further, Plaintiffs have made no allegation that they would have been able to
redeem the home. They do not contest that they were in default of the Loan at the
time the foreclosure was initiated. Plaintiffs, in their complaint, do make various
claims of prejudice, including that the property was sold at the sheriff’s sale for an
amount below true market value, that the alleged errors in the foreclosure process
made Plaintiffs “fearful of making mortgage payments,” and that the foreclosure
has damaged their credit. Pl.’s Compl., ¶ 23. But Plaintiffs make no claim that
remedying the alleged errors in the foreclosure process would have prevented any
of these harms from befalling Plaintiffs. Critically, Plaintiffs make no allegation
that, had the statutory foreclosure process been followed perfectly, they would
have been able to redeem or otherwise come into compliance with the Loan and
subsequently retain the home. Accordingly, Plaintiffs have not sufficiently alleged
the required prejudice to set aside the foreclosure sale.
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better position had notice been fully proper and the mortgagor lost no potential
opportunity to preserve some or any portion of his interest in the property”).
Despite these problems, the Court recognizes that a mortgagee’s failure to
properly list the names of all of the mortgagees in the notice for a foreclosure by
advertisement is a potentially serious issue. Such an error, where it leads to a lack
of actual notice to the mortgagors, could render the entire process unfair and
undermine the policy intent behind the foreclosure by advertisement statutes.
Accordingly, out of an abundance of caution, the Court invites Plaintiffs to amend
their complaint to properly allege prejudice resulting from the error, if such
prejudice exists. As described above, the Court is skeptical, as it seems likely that
Joseph would have notified Bernice as soon as he learned of the foreclosure,
rendering any error harmless. However, if Plaintiffs can present to the Court facts
articulating the harm that they incurred directly resulting from the error, the Court
will consider those facts.
The Court further reminds Plaintiffs that mere blanket assertions regarding
prejudice will not satisfy the requirements of Rule 12(b)(6). “[T]he tenet that a
court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S.
at 678; see also Jackson, 2014 WL 7157172, at *8 (applying this standard to the
19
foreclosure prejudice context). Any allegations regarding prejudice must also be
plausible, and “[d]etermining whether a complaint states a plausible claim for
relief will . . . be a context-specific task that requires the reviewing court to draw
on its judicial experience and common sense.” Iqbal, 556 U.S. at 679. Increased
specificity allows the Court to better evaluate the plausibility of Plaintiffs’ claims
for relief, and the Court accordingly encourages Plaintiffs to clearly articulate the
prejudice suffered with specific, supportable facts.
2.
Plaintiffs’ Argument Made Pursuant to M.C.L. § 600.3228 is
Based on a Misreading of the Statute
Plaintiffs’ second argument that the foreclosure was faulty is that while
M.C.L. § 600.3228 allows that “[t]he mortgagee, his assigns, or his or their legal
representatives may, fairly and in good faith, purchase” property foreclosed by
advertisement, “[c]learly Freddie Mac was not the mortgagee nor an assignee of
the mortgage[,] was a stranger to title[,]” and accordingly “was not statutorily
authorized to purchase the property at the sheriff’s sale.” Pl.’s Resp. to Def.’s Mot.
to Dismiss, Dkt # 5, at 17.
Plaintiffs’ argument is based on a misunderstanding of the statute. Section
600.3228 does not state anywhere in its text that only the “mortgagee, his assigns,
or his or their legal representatives” may purchase the property at the sheriff’s sale.
Instead, it provides a limitation on those specific purchasers -- their purchase must
20
be made “in good faith,” whereas purchases from other purchasers are not so
conditioned.
Other provisions also make clear that the universe of potential
purchasers is not limited. M.C.L. § 600.3216 -- the primary provision governing
the sheriff’s sale -- simply states that “the sale shall be made . . . to the highest
bidder.” That provision does not contemplate any limitation on the individuals
who may bid at the sale. Indeed, clear language of cases from both this Court and
Michigan state courts makes clear that purchasers other than the mortgagee may
purchase property sold at the sheriff’s sale. See, e.g., Grayer v. JPMorgan Chase
Bank, Nat. Ass’n, No. 12-11125, 2013 WL 4414867, at *4 n.6 (E.D. Mich. Aug.
15, 2013) (describing § 600.3228 as a “permissive and nonrestrictive statutory
provision”); Ruby & Associates, P.C. v. Shore Fin. Servs., 741 N.W.2d 72, 77
(Mich. Ct. App. 2007) vacated on other grounds, 745 N.W.2d 752 (Mich. 2008)
(“Upon [sheriff’s] sale, the purchaser, including potentially the mortgagee,
acquires a sheriff’s deed.”); Pulleyblank v. Cape, 446 N.W.2d 345, 347 (Mich. Ct.
App. 1989) (noting that “as a purchaser under the foreclosure sale, a mortgagee
stands in the same position as any other purchaser,” and discussing the
circumstances “[i]f a third party had bid and purchased [the] property”).
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IV. CONCLUSION
For all of the foregoing reasons,
IT IS HEREBY ORDERED that Plaintiffs, having failed to adequately
allege prejudice in their Complaint, will have 10 days to file an amended
complaint with the Court. If Plaintiffs fail to file an amended complaint, the Court
will enter an order dismissing this case for the reasons described in this Opinion.
IT IS FURTHER ORDERED that Defendants’ Motion to Dismiss (Dkt. # 3)
is DENIED as premature.
Should Plaintiffs file an amended complaint,
Defendants may refile their Motion, and may include supplemental argument
regarding any new claims made in Plaintiffs’ amended complaint.
IT IS SO ORDERED.
s/Gerald E. Rosen
Chief Judge, United States District Court
Dated: May 12, 2015
I hereby certify that a copy of the foregoing document was served upon the parties
and/or counsel of record on May 12, 2015, by electronic and/or ordinary mail.
s/Julie Owens
Case Manager, (313) 234-5135
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