New Freedom Mtg. v. Globe Mtg. Corp.

Decision Date05 August 2008
Docket NumberDocket No. 274864.
Citation761 N.W.2d 832,281 Mich. App. 63
CourtCourt of Appeal of Michigan — District of US

Jaffe, Raitt, Heuer & Weiss, P.C. (by Brian G. Shannon and Patrice S. Arend), Southfield, for New Freedom Mortgage Corporation.

Thomas M. Keranen & Associates, P.C. (by Mark B. Dickow), Southfield, for Globe Mortgage Corporation.

Geoffrey S. Walker, P.C. (by Geoffrey S. Walker), Southfield, for Gerrald Chastain.

May, Simpson & Strote (by Thomas C. Simpson and Beth I. deBaptiste), Bloomfield Hills, for Commonwealth Land Title Insurance Company.

Before: KELLY, P.J., and OWENS and SCHUETTE, JJ.


Plaintiff, New Freedom Mortgage Corporation, appeals as of right the trial court's order dismissing its claims against defendant/cross-defendant Crystal Solomon. Plaintiff also challenges the order denying its motion for summary disposition and granting summary disposition in favor of defendant/cross-plaintiff, Globe Mortgage Corporation (Globe), and defendants Commonwealth Land Title Insurance Company (Commonwealth) and Gerald J. Chastain, and the order granting Commonwealth, Globe, and Chastain case evaluation sanctions. We affirm.


Plaintiff, who is in the business of originating and purchasing residential mortgage loans, entered into a loan purchase agreement with Globe, who is in the business of originating and brokering residential mortgage loans. Globe originated a loan to Solomon regarding a residential property located on Burns Street in Detroit, and plaintiff funded the loan. Globe also originated a loan to defendant/cross-defendant Douglas Bowers regarding a residential property on Runyon Street in Detroit, and plaintiff funded this loan as well. The issues presented in this appeal arise from these two transactions. Commonwealth, a company that provides title insurance, issued closing protection letters to plaintiff in connection with title insurance it issued regarding the Solomon and Bowers loans. Defendant Scott W. Kissner Title & Escrow Services, Inc. (Kissner), was the issuing agent. The title insurance policies were issued to Impac Funding Corporation (IFC), to whom plaintiff assigned both loans.

Defendant/cross-defendant Marco Welch worked for Globe as a loan officer, and defendant/cross-defendant Napolean Howard is Solomon's stepbrother. Howard contacted Welch on Solomon's behalf for the purpose of obtaining financing for an investment property for Solomon. At Welch's request, Chastain conducted an appraisal of the Burns Street property and estimated that it was worth $411,000. The purchase price for the Burns Street property was $407,000. At the closing, rather than providing funds, Solomon received a check for $44,612.30 as part of a rehabilitation agreement with the sellers. Solomon indicated that she intended to occupy the home, but Welch entered into a land contract with her to purchase the property, and he occupied the home. Solomon defaulted on her loan, and IFC foreclosed on the property. IFC then purchased the Burns Street property, and an appraisal estimated the property's value at $175,000. IFC paid $199,300 for repairs and sold the property for $420,000. IFC notified plaintiff of its obligation to repurchase the Solomon loan, and plaintiff paid IFC.

Bowers indicated that he intended to occupy the home on the Runyon Street property as his primary residence, but he actually purchased the property for his son, who would not have qualified for financing. The purchase price for the Runyon Street property was $80,000. Bowers defaulted on his loan, and Bankers Trust, a trustee related to IFC, foreclosed on the property. IFC purchased the property, and it was sold for $20,000. Plaintiff indemnified IFC for $47,333.98.

In its complaint, plaintiff sought reimbursement for the amounts it paid IFC, alleging that Globe violated the loan purchase agreement and Commonwealth violated its closing protection letters. Plaintiff also asserted fraud claims against Globe, Chastain, and several other defendants and claimed that its loss resulted from the fraudulent or dishonest acts or omissions of Kissner. Chastain, plaintiff, Globe, and Commonwealth sought summary disposition. The trial court granted Chastain, Commonwealth, and Globe summary disposition. The trial court held that an indemnity provision in the loan purchase agreement between plaintiff and Globe applied and Commonwealth, through Kissner, had violated the closing protection letter regarding the Solomon loan. The trial court held that there was a genuine issue of material fact regarding whether Chastain was negligent in performing his appraisal. However, with respect to Globe and Commonwealth, the trial court reasoned that plaintiff had suffered no damages because IFC had tendered a "full credit bid," which satisfied the debt. With regard to Chastain, the trial court held that the full credit bid rule barred the action because there was no evidence that Chastain had committed fraud.


We review de novo a trial court's decision on a motion for summary disposition. Zsigo v. Hurley Medical Ctr., 475 Mich. 215, 220, 716 N.W.2d 220 (2006). When reviewing a decision on a motion for summary disposition pursuant to MCR 2.116(C)(10), this Court considers the affidavits, pleadings, depositions, admissions, and other evidence in the light most favorable to the party opposing the motion. Zsigo, supra at 220, 716 N.W.2d 220. Summary disposition is appropriately granted if, except for the amount of damages, there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law. Id. This Court reviews de novo questions of law, including issues regarding the existence and interpretation of a contract. Kloian v. Domino's Pizza, LLC, 273 Mich. App. 449, 452, 733 N.W.2d 766 (2006).


Plaintiff argues that the trial court erred in granting Globe, Commonwealth, and Chastain summary disposition in reliance on the full credit bid rule, which dictated that plaintiff had suffered no damages. We disagree.

When a lender bids at a foreclosure sale, it is not required to pay cash, but rather is permitted to make a credit bid because any cash tendered would be returned to it. Alliance Mortgage Co. v. Rothwell, 10 Cal.4th 1226, 1238-1239, 44 Cal.Rptr.2d 352, 900 P.2d 601 (1995). If this credit bid is equal to the unpaid principal and interest on the mortgage plus the costs of foreclosure, this is known as a "full credit bid." Id. at 1238, 44 Cal.Rptr.2d 352, 900 P.2d 601. When a mortgagee makes a full credit bid, the mortgage debt is satisfied, and the mortgage is extinguished. Bank of Three Oaks v. Lakefront Properties, 178 Mich.App. 551, 555, 444 N.W.2d 217 (1989). MCL 600.3280, which addresses deficiencies, provides, in pertinent part, as follows:

When, in the foreclosure of a mortgage by advertisement, any sale of real property has been made after February 11, 1933, or shall be hereafter made by a mortgagee, trustee, or other person authorized to make the same pursuant to the power of sale contained therein, at which the mortgagee, payee or other holder of the obligation thereby secured has become or becomes the purchaser, or takes or has taken title thereto at such sale either directly or indirectly, and thereafter such mortgagee, payee or other holder of the secured obligation, as aforesaid, shall sue for and undertake to recover a deficiency judgment against the mortgagor, trustor or other maker of any such obligation, or any other person liable thereon, it shall be competent and lawful for the defendant against whom such deficiency judgment is sought to allege and show as matter of defense and set-off to the extent only of the amount of the plaintiff's claim, that the property sold was fairly worth the amount of the debt secured by it at the time and place of sale or that the amount bid was substantially less than its true value, and such showing shall constitute a defense to such action and shall defeat the deficiency judgment against him, either in whole or in part to such extent.

In its complaint, plaintiff alleged fraud, misrepresentation, and breach of contract, and in its response to Chastain's motion for summary disposition, it asserted that Chastain had been negligent. Fraud and misrepresentation are similar and require proof that

"(1) defendants made a material representation; (2) it was false; (3) when defendants made it, defendants knew that it was false or made recklessly without knowledge of its truth or falsity; (4) defendants made it with the intent that plaintiffs would act upon it; (5) plaintiffs acted in reliance upon it; and (6) plaintiffs suffered damage." [Mitchell v. Dahlberg, 215 Mich.App. 718, 723, 547 N.W.2d 74 (1996), quoting Arim v. Gen. Motors Corp., 206 Mich.App. 178, 195, 520 N.W.2d 695 (1994).] Damages are an element of a breach of contract action. Alan Custom Homes, Inc. v. Krol, 256 Mich.App. 505, 512, 667 N.W.2d 379 (2003); Shippey v. Madison Dist. Pub. Schools, 55 Mich.App. 663, 668, 223 N.W.2d 116 (1974). The elements of a negligence claim are "duty, breach of that duty, causation, and damages." Brown v. Brown, 478 Mich. 545, 552, 739 N.W.2d 313 (2007). Therefore, if there are no damages, it is appropriate to grant summary disposition on fraud, misrepresentation, breach of contract, and negligence claims.

The trial court relied on Smith v. Gen. Mortgage Corp., 402 Mich. 125, 126-127, 261 N.W.2d 710 (1978), in which the mortgagors were in default and the property was totally destroyed by a fire. After the fire, the mortgagee's assignee bid the full amount of the outstanding debt plus costs and fees. Id. at 127, 261 N.W.2d 710. The Court relied on Whitestone S & L Ass'n. v. Allstate Ins. Co., 28 N.Y.2d 332, 336, 321...

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