Northrip v. Federal Nat. Mortg. Ass'n
| Decision Date | 11 December 1975 |
| Docket Number | 74--1501,Nos. 74--1500,s. 74--1500 |
| Citation | 527 F.2d 23 |
| Parties | Brenda Joyce NORTHRIP, Plaintiff-Appellee, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
James N. Candler, Jr., Dickinson, Wright, McKean & Cudlip, W. Gerald Warren, Detroit, Mich., for defendant-appellant cross-appellee.
Piroska E. Soos, Vincent Harrington, Robert J. Hobbs, Peter Neufeld, Boston, Mass., for amicus curiae, National Consumer Law Center, Inc.
George Corsetti, Michigan Legal Services Assistance Program, Wayne State University Law Annex, Paul A. Rosen, Fred S. Findling, Detroit, Mich., for Northrip.
Roger K. Timm, Dykema, Gossett, Spender, Goodnow & Trigg, James W. Draper, Detroit, Mich., for amicus curiae, Mich. Savings & Loan League and Mich. Bankers Assn. and Mich. Mortgage Bankers Assn.
Hoyt P. Spicer, Grosse Pointe, Mich., for appellee.
Before PHILLIPS, Chief Judge, and CELEBREZZE and McCREE, Circuit Judges.
This is an appeal and cross-appeal from a judgment of the district court setting aside a mortgage foreclosure made pursuant to a Michigan statute regulating foreclosure of mortgages by advertisement. The district court held the foreclosure proceeding violative of the due process clause of the Fourteenth Amendment of the United States Constitution and Article I, Section 17 of the Michigan Constitution of 1963. Because we find no significant state involvement in the foreclosure proceedings assailed here, we reverse the judgment of the district court.
Northrip brought this action in Michigan Circuit Court and defendant Federal National Mortgage Association MA removed it to the U.S. District Court for the Eastern District of Michigan. Jurisdiction was asserted on diversity of citizenship and the existence of a question arising under the Constitution and laws of the United States. 28 U.S.C. §§ 1331 and 1332. Northrip sought injunctive relief to set aside the mortgage foreclosure proceedings taken pursuant to the Michigan statute regulating the foreclosure of mortgages by advertisement, Mich.Comp.Laws Ann. § 600.3201 et seq., on the grounds that the procedure deprived her of property without notice and a prior hearing as required by the Fourteenth Amendment.
On July 28, 1970, Northrip signed a mortgage note and mortgage acknowledging a debt in the principal amount of $11,000 owed to Auer Mortgage Company. The funds acquired by Northrip in the transaction were paid to a home repair company for work performed on Northrip's home. Auer later assigned the mortgage to FNMA.
The parties stipulated that Northrip made her last payment on the mortgage on April 6, 1972, because of her dissatisfaction with the home repairs. FNMA began foreclosure proceedings shortly Chapter 32 of the Revised Judicature Act of the Compiled Laws of Michigan sets forth the requirements necessary to foreclose a real estate mortgage by advertisement: the mortgage must contain a power of sale; a default must have occurred in a condition of the mortgage by which the power to sell becomes operative; no suit or proceeding to recover the debt secured by the mortgage can have been instituted and remained pending; and the mortgage itself and its assignments must have been recorded. A notice that the mortgage will be foreclosed by sale must be printed in a newspaper published in the county where the property is located for at least four successive weeks at least once in each week. Within 15 days after the first publication, a true copy of the notice must be posted in a conspicuous place on the premises. The notice must specify the mortgage, the mortgagee, the assignees, the date of execution and recording of the mortgage, the amount claimed to be due at the date of notice, a description of the property, the date, time, and place of the sale and the length of the redemption period. The mortgagee may appoint a person to conduct the sale or the sheriff of a county may conduct it. A deed by the officer or person conducting the sale must be prepared and recorded. The mortgagor or persons claiming under him have six months after the sale within which to redeem residential property not exceeding four (housing) units if less than one-third of the debt has been paid, and one year for such redemption if more than one-third of the debt has been paid. 1 The record indicates that FNMA foreclosed in strict compliance with the requirements of the statute.
after the default, and, on October 19, 1972, purchased the property at a sheriff's sale for $11,476.68, the accelerated balance due on the mortgage note. Six months later, the statutory period for redemption expired and appellant's title to the property became final.
The district court, in its opinion reported at 372 F.Supp. 594 (1974), correctly observed that a predicate to finding a due process violation is a finding of state action. The district court considered several theories advanced by Northrip upon which a finding of state action might be based and expressly rejected all but one. The court held that the involvement of the sheriff and register of deeds in the foreclosure proceedings did not constitute state action; that the statute authorizing mortgage foreclosure by advertisement did not authorize a private party to perform a government function and therefore did not constitute state action; and that the statutory scheme regulating mortgage foreclosure did not so pervasively govern FNMA's conduct that private action became state action. The court, however, accepted plaintiff's theory 'that state action exists because the statute encourages mortgagees to seek foreclosure by advertisement, rather than by judicial process,' relying on Reitman v. Mulkey, 387 U.S. 369, 87 S.Ct. 1627, 18 L.Ed.2d 830 (1967), and Bond v. Dentzer, 362 F.Supp. 1373 (N.D.N.Y.1973), rev'd, 494 F.2d 302 (2d Cir. 1974). Proceeding then to the question whether the foreclosure procedures followed by FNMA complied with the requirements of due process, the district court determined that they did not because Northrip was not afforded a hearing prior to foreclosure.
Appellant FNMA challenges the district court's determination that state action exists and cross-appellant Northrip contends that state action is present, not only under the theory accepted by the district court, but also under the other We consider first the conclusion of the district court that the existence of the statute regulating foreclosure of mortgages by advertisement constitutes state encouragement of this method of foreclosure and is therefore state action for the purposes of the Fourteenth Amendment. In Reitman,supra, the Supreme Court upheld the California Supreme Court's holding invalidating an initiative amendment to the state constitution that had the effect of overturning state statutes prohibiting racial discrimination in disposing of real property. The amendment not only overturned the statutes but created a constitutional right to discriminate on the basis of race. The United States Supreme Court held that this constituted state action that encouraged racial discrimination. Justice White, speaking for the Court, observed:
theories it asserted. Amicus National Consumer Law Center contends that FNMA is an instrumentality of the federal government and that its actions are those of the state and are subject to the due process requirements of the Fifth Amendment.
Private discriminations in housing were now not only free from (the regulatory statutes) but they also enjoyed a far different status than was true before the passage of those statutes. The right to discriminate, including the right to discriminate on racial grounds, was now embodied in the State's basic charter, immune from legislative, executive, or judicial regulation at any level of the state government. Those practicing racial discrimination need no longer rely solely on their personal choice. They could now invoke express constitutional authority, free from censure or interference of any kind from official sources. 387 U.S. at 377, 87 S.Ct. at 1632.
This case differs materially from Reitman. Judge Peck, writing for this court in Turner v. Impala Motors, 503 F.2d 607 (6th Cir. 1974), said that Reitman 503 F.2d at 611. In Turner and in Gary v. Darnell, 505 F.2d 741 (6th Cir. 1974), we upheld the Tennessee and Kentucky legislatures' implementation of § 9--503 of the Uniform Commercial Code, which authorizes a secured creditor to peacefully repossess collateral.
In this, case, as in Turner and Gary, we are not concerned with questions of racial discrimination or state use of indirect means to accomplish illegal ends. Like Turner and Gary, this case concerns a remedy privately created by contract. 2
Michigan recognizes that the power of sale is an incident of the private right to to enlarge and not to cut down the rights of mortgagors. Before such statutes were passed, sales made under a power of sale contained in a mortgage were governed by the same rules applicable to sales under any other power, and courts in the absence of statutes have never applied to such powers in any such technical rules as would impair the security of purchasers. The power is part of the contract, and should be construed on principles applicable to contracts, and not as a hostile process.
contract. Equitable Trust Co. v. Barlum Realty Co., 294 Mich. 167, 292 N.W. 691 (1940). A power of sale remedy in a mortgage was recognized by Michigan courts as a part of common law even before the first statute dealing with the subject was enacted. Hoffman v. Harrington, 33 Mich. 392 (1876). In fact, the statute permitting foreclosure upon advertisement was enacted
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