Last week, the Sixth Circuit in Hargrow v. Wells Fargo Bank, NA, et al. (6th Cir. Case No. 11-1806) (PDF), held that banks are permitted to foreclose on homes in Michigan via advertisement under Michigan Compiled Laws § 600.3204 even if they do not own the underlying debt.
The plaintiffs in Hargrow filed suit to challenge the foreclosure of their home under Michigan law by the Mortgage Electronic Registration Service (“MERS”), which was the mortgagee under a mortgage security instrument (the “Mortgage”) signed by the plaintiffs for their property. MERS had subsequently assigned the Mortgage to Wells Fargo Bank, NA, which initiated statutory foreclosure proceedings against the plaintiffs by advertising a notice of intent to foreclose and subsequently purchasing the property at a sheriff’s sale in August 2010.
In a unanimous panel opinion written by Judge Moore, the Sixth Circuit in Hargrow followed the reasoning set forth by the Michigan Supreme Court in Residential Funding Co. v. Saurman, 805 N.W.2d 183 (Mich. 2011), which held that MERS, as a record holder of a mortgage, owned a debt interest that authorized MERS to foreclose by advertisement under Michigan statutory law despite not owning the underlying debt. The Sixth Circuit in Hargrow concluded that “MERS indisputably had the power to foreclose by advertisement as the record-holder of the [plaintiffs’] Mortgage.” Moreover, if MERS’s interest was validly assigned to another bank (in this case, Wells Fargo), then “Wells Fargo as the record-holder of the Mortgage would also have the right to foreclose by advertisement under § 600.2304(1)(d) and Saurman.” The Sixth Circuit ultimately held that under Michigan law, “it is lawful for the holder of the mortgage to be different from the holder of the debt.”
Interestingly, the Michigan Supreme Court’s decision in Saurman had been filed a week after the plaintiffs submitted their opening Sixth Circuit brief in this case. The defendants discussed the effect of the Saurman decision in their appellee brief, and the plaintiffs were forced to devote their reply brief to addressing the impact of Saurman (which ultimately foreclosed their arguments in this case). The briefing in this case highlights the need for appellate practitioners to continually monitor the law for relevant opinions that may impact (and, indeed, ultimately may decide) their appeal.
