Kim v. JPMorgan Chase Bank, N.A.
| Decision Date | 21 December 2012 |
| Docket Number | Calendar No. 9.,Docket No. 144690. |
| Citation | 493 Mich. 98,825 N.W.2d 329 |
| Parties | KIM v. JPMORGAN CHASE BANK, N.A. |
| Court | Michigan Supreme Court |
Christenson & Fiederlein, P.C. (by Bernhardt D. Christenson), for In Sook Kim.
Dykema Gossett, PLLC (by Joseph H. Hickey, Joseph A. Doerr, and Jill M. Wheaton), for JP Morgan Chase Bank, N.A.
Warner Norcross & Judd LLP (by Nicole L. Mazzocco and James H. Breay), for the Michigan Bankers Association.
McClelland & Anderson, LLP (by Gregory L. McClelland and Melissa A. Hagen), for the Michigan Association of Realtors.
Miller Canfield Paddock and Stone, PLC (by James L. Allen and Scott R. Lesser), for the Real Property Law Section of the State Bar of Michigan.
At issue in this case is the manner in which defendant JPMorgan Chase Bank, N.A. (Chase), the successor in interest to Washington Mutual Bank (WaMu), acquired plaintiffs' mortgage. Plaintiffs' mortgage was among the assets held by WaMu when it collapsed in 2008 in the largest bank failure in American history.1 Specifically, we must determine whether defendant acquired plaintiffs' mortgage by “operation of law” and, if so, whether MCL 600.3204(3), which sets forth requirements for foreclosing by advertisement, applies to the acquisition of a mortgage by operation of law. We asked the parties to address whether, if the foreclosure proceedings that defendant initiated were flawed, the subsequent foreclosure is void ab initio or merely voidable.2
We hold that defendant did not acquire plaintiffs' mortgage by operation of law. Rather, defendant acquired that mortgage through a voluntary purchase agreement. Accordingly, defendant was required to comply with the provisions of MCL 600.3204. We further hold, differently than did the Court of Appeals, that the foreclosure sale in this case was voidable rather than void ab initio. Accordingly, we affirm in part and reverse in part the judgment of the Court of Appeals and remand the case to the trial court for further proceedings.
On July 11, 2007, plaintiffs obtained a loan from WaMu in the amount of $615,000 to refinance their residence. As security for the loan, plaintiffs granted a mortgage on the property to WaMu, which properly recorded it later that month.
When WaMu collapsed on September 25, 2008, the federal Office of Thrift Management closed the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for its holdings. That same day, the FDIC, acting as WaMu's receiver, transferred virtually all of WaMu's assets to defendant under authority set forth in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.3 Under 12 U.S.C. § 1821, the FDIC is empowered to transfer the assets of a failed bank “without any approval, assignment, or consent....” 4 However, in this case, it did not avail itself of that authority. Instead, the FDIC sold WaMu's assets to defendant pursuant to a purchase and assumption (P & A) agreement.
Plaintiffs sought a loan modification in 2009 because they were having difficulty making their mortgage payments. They assert that a WaMu representative advised them that they were ineligible for a loan modification because they were not at least three months in arrears on their payments. Plaintiffs claim that on the basis of this information, they deliberately allowed their mortgage to become delinquent to qualify for a loan modification. They further allege that they signed documents to complete the modification and that their attorney assured them that their loan modification had been approved.
Defendant notified plaintiffs in May 2009 that it was foreclosing on their property. Plaintiffs contend that they attempted to ascertain whether the foreclosure notice had been sent in error in light of the purported loan modification and were advised by a WaMu representative “not to worry.” Defendant published the required notice of foreclosure in May and June 2009. The property was sold to defendant at a sheriff's sale on June 26, 2009.
Plaintiffs filed suit on November 30, 2009, seeking to set aside the sale on the ground that they had received a loan modification and that defendant had not bid fair market value for the property at the sale. Defendant responded with a motion for summary disposition. The trial court granted summary disposition to defendant. It ruled that defendant had acquired plaintiffs' mortgage by operation of law. As a consequence, MCL 600.3204(3), which requires that a mortgage assignment be recorded before initiation of a foreclosure by advertisement, was inapplicable.
Plaintiffs appealed, pursuing only their claim that defendant had failed to comply with MCL 600.3204(3) and that, as a result, the foreclosure sale was void ab initio. The Court of Appeals agreed. It held that MCL 600.3204(3) applied to defendant because defendant was not the original mortgagee and acquired the loan by assignment rather than by operation of law.5 It reasoned that the FDIC, as receiver of WaMu's assets, had acquired those assets by operation of law, but not defendant, which had purchased them from the FDIC.6 Hence, the Court of Appeals held that defendant had a statutory obligation to record the assignment of plaintiffs' mortgage to it before foreclosing by advertisement.7 Moreover, the Court of Appeals held that defendant's failure to record the assignment rendered the sheriff's sale void ab initio.8 Accordingly, it remanded the case to the trial court for entry of judgment in favor of plaintiffs.
Defendant filed an application for leave to appeal in this Court. We granted its application.9
We review de novo the grant or denial of a motion for summary disposition.10 We use the same standard to review questions of statutory interpretation.11
At the heart of this dispute are the statutory provisions governing the foreclosure of mortgages by advertisement.12MCL 600.3204 sets forth the requirements, providing in relevant part:
(1) Subject to subsection (4) [], a party may foreclose a mortgage by advertisement if all of the following circumstances exist:
(a) A default in a condition of the mortgage has occurred, by which the power to sell became operative.
(b) An action or proceeding has not been instituted, at law, to recover the debt secured by the mortgage or any part of the mortgage; or, if an action or proceeding has been instituted, the action or proceeding has been discontinued; or an execution on a judgment rendered in an action or proceeding has been returned unsatisfied, in whole or in part.
(c) The mortgage containing the power of sale has been properly recorded.
(d) The party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.
* * *
(3) If the party foreclosing a mortgage by advertisement is not the original mortgagee, a record chain of title shall exist prior to the date of sale under [MCL 600.3216] evidencing the assignment of the mortgage to the party foreclosing the mortgage.
Thus, as a general matter, a mortgagee cannot validly foreclose a mortgage by advertisement before the mortgage and all assignments of that mortgage are duly recorded.
This common understanding of the requirement of recordation before foreclosure by advertisement was also set forth in a 2004 Attorney General opinion. Our Attorney General stated that “a mortgagee cannot validly foreclose a mortgage by advertisement unless the mortgage and all assignments of that mortgage (except those assignments effected by operation of law) are entitled to be, and have been, recorded.” 13 In 2004, the operative language now set forth in MCL 600.3204(3) was found in MCL 600.3204(1)(c).14
The general powers of the FDIC in its capacity as conservator or receiver 15 that are germane to this case are set forth in 12 U.S.C. § 1821. Specifically, 12 U.S.C. § 1821(d)(2) describes the manner in which the FDIC acquires assets. It provides, in relevant part:
(A) Successor to institution.—The [FDIC] shall, as conservator or receiver, and by operation of law, succeed to—
(i) all rights, titles, powers, and privileges of the insured depository institution, and of any stockholder, member, accountholder, depositor, officer, or director of such institution with respect to the institution and the assets of the institution; and
(ii) title to the books, records, and assets of any previous conservator or other legal custodian of such institution.
Subsection (d)(2) also sets forth the FDIC's authority to dispose of a failed bank's assets, providing in pertinent part:
(G) Merger; transfer of assets and liabilities.—
(I) merge the insured depository institution with another insured depository institution; or
(II) subject to clause (ii), transfer any asset or liability of the institution in default (including assets and liabilities associated with any trust business) without any approval, assignment, or consent with respect to such transfer.
Against this backdrop, we consider the manner in which defendant acquired plaintiffs' mortgage and whether the requirements of MCL 600.3204 apply to that acquisition.
Two transfers of plaintiffs' mortgage occurred on September 25, 2008. The first, between WaMu and the FDIC, was consummated when the Office of Thrift Management closed WaMu and appointed the FDIC as its receiver. This transfer took place pursuant to 12 U.S.C. § 1821(d)(2)(A)(i) and (ii), which provide that the...
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