Smith v. Delta Funding Corporation et al

Filing 22

ORDER signed by District Judge George Caram Steeh denying 21 Motion for Rehearing or Reconsideration. (Grimes, K.)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

FELICIA SMITH, individually and as the
Personal Representative of the Estate of
Rena Johnson, a/k/a Renee Johnson,
dec’d & on behalf of all other persons
similarly situated,
Plaintiff,
CASE NO. 15-CV-13387
HONORABLE GEORGE CARAM STEEH

v.
DELTA FUNDING CORP., WELLS FARGO
BANK, N.A., successor by merger to Wells
Fargo Bank Minnesota, N.A., as Trustee
f/k/a Northwest Bank Minnesota, N.A., as
Trustee for the registered holders of
Renaissance Home Equity Loan AssetBacked Certificates, Series 2004-1,
Advantage Investors Mortgage Corporation,
WAYNE COUNTY, MI SHERIFF and WAYNE
COUNTY, MI REGISTER OF DEEDS,
Defendants.
/

ORDER DENYING PLAINTIFF’S MOTION FOR
REHEARING OR RECONSIDERATION (DOC. 21)
On February 11, 2016, the Court issued an order (Doc. 19) granting motions to
dismiss filed by defendants Wells Fargo Bank, N.A. (“Trustee”), the Wayne County Sheriff,
and the Wayne County Register of Deeds (Docs. 3, 11). The Court also sua sponte
dismissed the claims against defendant Delta Funding Corporation (“Delta”). The Court
then issued a judgment in favor of the defendants (Doc. 20). Plaintiff Felicia Smith
(“Plaintiff”) subsequently filed a motion for rehearing or reconsideration of the Court’s order
(Doc. 21). The Court, for the reasons explained below, will deny Plaintiff’s motion.

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I. BACKGROUND1
This action arises out of a mortgage foreclosure and sale of the property located at
5160 Glenis Street, Dearborn Heights, Wayne County, Michigan (the “Property”). In 2003,
Plaintiff’s mother, Rena Johnson (“Rena”), owned the Property. Rena and her husband,
Kenneth Smith (“Kenneth”), obtained a loan from Delta in the amount of $83,000.00. The
loan was secured by a mortgage on the Property, which was initially held by Mortgage
Electronic Registration Systems, Inc., solely as nominee for Delta, and then later assigned
to Trustee. The mortgage was signed by Rena and Kenneth, and both of them were the
“Borrowers.” However, Rena was the sole owner of the Property.
In 2011, Rena died intestate. Plaintiff, in her capacity as personal representative of
Rena’s estate, quit-claimed the Property from Rena to herself in August of 2014. At some
point, repayment on the mortgage loan stopped. Trustee therefore accelerated the loan,
and Trustee subsequently initiated foreclosure-by-advertisement proceedings. At the
foreclosure sale, the Property was sold to Trustee. Plaintiff failed to redeem the Property
during the redemption period.
In the present action, Plaintiff alleges that the sale was invalid because Trustee
failed to provide adequate notice of foreclosure. Under Michigan’s foreclosure-byadvertisement statute, a notice of foreclosure must include, inter alia, the name of the
“mortgagor.” Mich. Comp. Laws § 600.3212(a). Trustee gave notice, and the notice
included Rena’s and Kenneth’s names, but the notice did not include Plaintiff’s name.

1

The facts are set forth in greater detail in the Court’s order granting the
defendants’ motions to dismiss (Doc. 19).
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Plaintiff contends that she, as Rena’s heir, is a “mortgagor” within the meaning of the
statute and that therefore the notice was invalid.
In the order granting defendants’ motions to dismiss under Federal Rule of Civil
Procedure 12(b)(6), the Court held that Plaintiff was not a “mortgagor” within the meaning
of the foreclosure-by-advertisement statute. The Court also held, based on the facts
alleged in the complaint, that even if Plaintiff were a “mortgagor” and even if the notice
were therefore deficient, the improper notice would not have rendered the foreclosure sale
voidable because Plaintiff was not prejudiced by the allegedly improper notice. Plaintiff, in
her motion for reconsideration, contends that the Court was mistaken on both of these
points.
II. LEGAL STANDARD
The Local Rules of the Eastern District of Michigan provide that a court “will not grant
motions for rehearing or reconsideration that merely present the same issues ruled upon
by the court, either expressly or by reasonable implication.” E.D. Mich. LR 7.1(h)(3). To
obtain reconsideration, “the movant must not only demonstrate a palpable defect by which
the court and the parties and other persons entitled to be heard on the motion have been
misled but also show that correcting the defect will result in a different disposition of the
case.” Id. A palpable defect “is a defect which is obvious, clear, unmistakable, manifest,
or plain.” Ososki v. St. Paul Surplus Lines Ins. Co., 162 F. Supp. 2d 714, 718 (E.D. Mich.
2001).
III. DISCUSSION
A.

Plaintiff was not a “mortgagor” entitled to notice under the foreclosure-byadvertisement statute.

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In her motion for reconsideration, Plaintiff claims that “this Court erred in ruling that
Plaintiff did not have a right to notice of the foreclosure.” As noted above, under Michigan’s
foreclosure-by-advertisement statute, an advertisement giving notice of foreclosure must
contain the mortgagor’s name. Mich. Comp. Laws § 600.3212. Plaintiff contends that even
though she never signed or was personally bound by the mortgage agreement, she was
a “mortgagor” within the meaning of the statute. Plaintiff therefore claims that the notice of
foreclosure should have contained her name.
Plaintiff relies, as she did in her brief opposing the defendants’ motions to dismiss
(Doc. 9), on Oades v. Standard Savings & Loan Ass’n, 257 Mich. 469, 241 N.W. 262
(1932). In Oades, the plaintiffs, a married couple, executed a mortgage on a property
owned by the husband. Id. at 471, 241 N.W. at 263. The wife’s only interest in the property
was her “inchoate dower interest.” Id. The couple subsequently defaulted on the loan, and
the defendant-mortgagee initiated foreclosure-by-advertisement proceedings. Id. The notice
of foreclosure contained only the husband’s name as a mortgagor even though both
spouses had executed the mortgage agreement. Id. at 472, 241 N.W. at 263. The Michigan
Supreme Court held that the resulting foreclosure sale was void because the notice of
foreclosure failed to name the wife as a mortgagor. Id. at 475, 241 N.W. at 264. The reason
the wife was a mortgagor was that “in executing a mortgage of land belonging to the
husband, the wife g[ave] a lien on her contingent estate of dower.” Id. at 474, 241 N.W. at
264.
Plaintiff argues that because she was Rena’s heir, she had the same sort of
“contingent” and “inchoate” interest in the Property that the wife in Oades had in her
husband’s property. Thus, Plaintiff contends, she was a mortgagor just as the wife in

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Oades was a mortgagor. Plaintiff’s argument lacks merit, as the Court already explained
in its order granting the defendants’ motions to dismiss.
The first reason Plaintiff’s argument lacks merit is that an heir’s expectation of
inheritance is not analogous to a spouse’s dower interest. An expectant heir has no interest
in her ancestor’s property. See United States v. 477 Firearms, 697 F. Supp. 2d 894, 900
(E.D. Mich. 2010) (“Michigan adheres to the black letter rule, nemo est haeres viventis,
meaning ‘no one can be an heir during the life of an ancestor.’” (quoting In re Estate of
Finlay, 430 Mich. 590, 601 n.12, 424 N.W.2d 272, 277 n.12 (1988))). An expectant heir has
“a mere expectancy interest.” In re Estate of Finlay, 430 Mich. 590, 600, 424 N.W.2d 272,
277 (1988). “An expectancy or chance is a mere hope, unfounded in any limitation,
provision, trust or legal act whatever . . . . This is sometimes said to be a bare or mere
possibility, and, at other times, less than a possibility. . . . [I]t is no right at all . . . .” Id. at
600-01, 424 N.W.2d at 277 (internal quotation marks and citations omitted).2
A dowery interest, by contrast, is a true interest, even though it is contingent or
inchoate. A wife’s dowery interest is contingent or inchoate in two senses: First, the dowery
interest only vests if the wife survives her husband, and second, it is not decided which
portion of the husband’s estate will be used to satisfy the wife’s dowery interest until the

2

In her motion for reconsideration, Plaintiff quotes the following language from
Michigan Trust Co. v. City of Grand Rapids, 262 Mich. 547, 550; 247 N.W. 744, 745
(1933): “The title to personal property of decedent at his death passes to his executor or
administrator upon appointment, and rests in them absolutely; but the title to real estate
descends immediately to his heirs, subject to be divested for the payment of decedent's
debts.” This language simply explains how personal and real property are handled
during the probate process. It says nothing about any interest that an expectant legatee
or heir has in either real or personal property prior to the decedent’s death. Thus, this
case is irrelevant.
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husband dies and the wife files a petition in court. Zaher v. Miotke, 300 Mich. App. 132,
142-43, 832 N.W.2d 266, 271 (2013). But even though the interest is contingent, it “is to
be protected before . . . vesting.” Thomas v. Dutkavich, 290 Mich. App. 393, 406, 803
N.W.2d 352, 359 (2010). A wife’s dowery interest attaches to all real property that her
husband obtains during the marriage, and “[n]o sole act of a husband can prejudice his
wife’s right to dower.” Id. Thus, a husband cannot, for example, deprive his wife of her
dowery interest by selling property prior to his death. Id.; see also Zaher, 300 Mich. App.
at 151, 832 N.W.2d at 275 (“The [dowery] interest can be valued and recompensed so that
[a husband’s] improper transfer of a property interest without a wife's waiver of her inchoate
dower interest can be enforced.”).A wife can waive her dowery right in a piece of real
property by acquiescing in a sale of the property. Thomas, 290 Mich. App. at 407, 803
N.W.2d at 359. But other than her own voluntary waiver, only an act of the state can
deprive her of her dowery interest. Id.
It is clear, therefore, that Oades is distinguishable from the present case. The wife
in Oades had a dowery interest in her husband’s property, and when she executed the
mortgage document with her husband, she mortgaged her dowery interest. Plaintiff, by
contrast, had no interest in the Property until almost a decade after Rena and Kenneth
mortgaged it. At the time the mortgage was signed, Plaintiff had (at most) a mere
expectation of inheriting the Property. Any number of possibilities could have prevented
Plaintiff from inheriting the Property. For example, Rena could have executed a will
devising the Property to someone other than Plaintiff or she could have sold the Property
or otherwise disposed of it prior to her death. Therefore, Plaintiff’s expectancy of
inheritance was not at all akin to the dowery interest in Oades.

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The second reason that Oades is distinguishable from the present case is that
Plaintiff, unlike the wife in Oades, never executed a mortgage agreement. The wife in
Oades executed the mortgage agreement, and the court consequently held that the wife
had mortgaged her own interest (the dowery interest) in her husband’s property. Therefore,
she was a proper mortgagor. Plaintiff, by contrast, never executed the mortgage
agreement. Thus, even if she had some interest in the Property at the time it was
mortgaged, Plaintiff would not have been a mortgagor.
B.

Plaintiff’s new prejudice argument is unavailing because Plaintiff forfeited the
argument by failing to raise it earlier and because the disposition of the case
would be the same even if the Court accepted Plaintiff’s new argument.

In order for a mortgagor to obtain relief for a violation of the foreclosure-byadvertisement statute, the mortgagor must show that she was prejudiced by the violation.
See Kim v. JPMorgan Chase Bank, N.A., 493 Mich. 98, 115, 825 N.W.2d 329, 337 (2012).
To establish prejudice, a mortgagor “must show that [she] would have been in a better
position to preserve [her] interest in the property absent defendant’s noncompliance with
the statute.” Id. at 116, 825 N.W.2d at 337. In her motion for reconsideration, Plaintiff
argues that the Court erred in its determination that Plaintiff failed to make a sufficient claim
of prejudice to survive the defendants’ Rule 12(b)(6) motions. Plaintiff also asserts new
allegations of prejudice, supported by several exhibits to her motion. Plaintiff’s contentions
are unavailing.
Plaintiff did not make any allegation of prejudice in her complaint, but rather
claimed—incorrectly—that a foreclosure that fails to comply with the foreclosure-byadvertisement statute is void ab initio. See Compl. ¶¶ 36-37, Doc. 1-2. Even after Trustee
filed its motion to dismiss, arguing that dismissal was appropriate under Rule 12(b)(6)

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because, inter alia, Plaintiff had failed to allege prejudice, Plaintiff declined to amend her
complaint to add an allegation of prejudice. See Fed. R. Civ. P. 15(a)(1)(B) (allowing
amendment as a matter of course within 21 days after service of a motion under Rule
12(b)). Instead of amending her complaint to add an allegation of prejudice, Plaintiff simply
argued in her brief opposing the motions to dismiss that she was prejudiced. Specifically,
Plaintiff argued that she was prejudiced by the purportedly improper notice because she
would have been able to exercise her right to redeem “by paying monthly installments” had
she received notice of the foreclosure. Although Plaintiff never pleaded this allegation of
prejudice in her complaint, the Court addressed it, holding that the alleged harm was
insufficient as a matter of law to constitute prejudice. Once a mortgagee has exercised the
acceleration clause, the mortgagor cannot redeem a property by paying monthly
installments. Since Plaintiff’s only allegation of prejudice was that she was not able to
redeem the Property by resuming the monthly payments, Plaintiff was not prejudiced. The
Court now reaffirms that determination.3

3

Plaintiff mischaracterizes the Court’s reasoning when she states that the Court
erred by “conclud[ing] that Plaintiff could only show prejudice if she could establish that
she was able to pay the entire indebtedness on the loan during the redemption period”
(emphasis added). There are many ways in which Plaintiff could have shown prejudice,
as the Court acknowledged by citing the Kim standard. But Plaintiff’s only allegation of
prejudice was that she was deprived of her right to redeem. And the only stated basis
for her allegation that she was deprived of her right to redeem was that she would have
been able to redeem by paying monthly payments had she been aware of the
foreclosure. The Court rightly rejected this allegation of prejudice as facially deficient,
because it is not possible to redeem an accelerated mortgage by resuming monthly
payments. Had Plaintiff alleged some other form of prejudice, as she now does, then
the Court would have addressed that allegation, as appropriate.
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Plaintiff now alleges a new form of prejudice. Specifically, Plaintiff alleges now that
she “lost [an] opportunit[y]” to “obtain a mortgage modification” or cash settlement because
of the purportedly deficient notice. Plaintiff attaches various exhibits as evidence that she
could have received a mortgage modification.4 Plaintiff’s new allegations of prejudice may
well be sufficient under the Kim standard. But Plaintiff could have made these arguments
in her brief opposing the defendants’ motions to dismiss and failed to do so, and thus these
arguments are forfeited. See In re Greektown Holdings, LLC, 728 F.3d 567 (6th Cir. 2013)
(“[A]bsent a legitimate excuse, an argument raised for the first time in a motion for
reconsideration at the district court generally will be forfeited.” (quoting United States v.
Huntington Nat’l Bank, 574 F.3d 329, 331-32 (6th Cir. 2009)) (internal quotation marks
omitted) (alteration in original)). More importantly, the Court will not entertain Plaintiff’s
contentions because she is not entitled to reconsideration unless she can “show that
correcting the defect will result in a different disposition of the case.” E.D. Mich. LR
7.1(h)(3). As explained in the section above, Plaintiff was not a “mortgagor” within the
meaning of the foreclosure-by-advertisement statute and therefore her allegations fail to
state a claim. Thus, even if the Court were to find that Plaintiff sufficiently alleged prejudice,
the result would be the same: dismissal for failure to state a claim.

4

These exhibits are irrelevant for the purpose of evaluating a Rule 12(b)(6)
motion. Cf. Greenberg v. Life Ins. Co. of Va., 177 F.3d 507, 514 (6th Cir. 1999)
(explaining that in ruling on a Rule 12(b)(6) motion, a court should only consider
documents that “part of the pleadings,” which are usually “document[s] . . . referred to in
the complaint and . . . central to the plaintiff’s claim” (internal quotation marks and
citation omitted)); see also Fed. R. Civ. P. 12(d) (“If, on a motion under Rule 12(b)(6) . .
. matters outside the pleadings are presented to and not excluded by the court, the
motion must be treated as one for summary judgment under Rule 56. All parties must
be given a reasonable opportunity to present all the material that is pertinent to the
motion.”).
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Therefore, Plaintiff’s motion for reconsideration is denied.
IT IS SO ORDERED.
Dated: March 24, 2016
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE
CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
March 24, 2016, by electronic and/or ordinary mail.
s/Barbara Radke
Deputy Clerk

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