Northrip v. Federal National Mortgage Association, Civ. A. No. 40074.

• Citation: 372 F. Supp. 594
• Decision Date: 28 February 1974
• Docket Number: Civ. A. No. 40074.
• Parties: Brenda Joyce NORTHRIP, Plaintiff, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, a corporation organized and existing under the laws of the United States, Defendant.
• Court: U.S. District Court — Western District of Michigan

372 F. Supp. 594

Brenda Joyce NORTHRIP, Plaintiff, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, a corporation organized and existing under the laws of the United States, Defendant.

Civ. A. No. 40074.

United States District Court, E. D. Michigan, S. D.

February 28, 1974.

George L. Corsetti, Michigan Legal Services Assistance Program, Wayne State Law School, Fred S. Findling, Paul Rosen, Detroit, Mich., Hoyt P. Spicer, II, Wayne County Neighborhood Legal Service, Detroit, Mich., for plaintiff.

W. Gerald Warren and James N. Candler, Jr., of Dickinson, Wright, McKean & Cudlip, Detroit, Mich., for defendant.

MEMORANDUM OPINION AND ORDER

KEITH, District Judge.

This is a diversity action which was removed from state court pursuant to 28 U.S.C. § 1441. In the complaint, plaintiff challenges the constitutionality of Chapter 32 of the Michigan Statutes, being M.S.A. 27A.3201 et seq., M.C.L.A. § 600.3201 et seq., entitled "Foreclosure of Mortgages by Advertisement", on the ground that the statute allows the taking of property in violation of the due process of law as guaranteed by the 14th Amendment of the United States Constitution and Article I, Section 17 of the Michigan Constitution of 1963.

The facts in the case disclose that plaintiff borrowed from Auer Mortgage Company, a Michigan Corporation, the principal sum of $11,000. To secure said indebtedness, plaintiff executed and delivered to Auer a note and a mortgage on her home. Auer's interest in the mortgage was subsequently assigned to defendant in consideration of defendant's purchase of the mortgage in connection with its secondary market operations for home mortgages.¹

As stipulated by the parties, plaintiff made her last payment on the note and mortgage in question on April 6, 1972, that being the April 1972 payment. Since April 1, 1972, interest has continued to accumulate upon the principal balance of $10,857.18 at a rate of 8½% per annum. Because of plaintiff's failure to make payments, defendant foreclosed the mortgage by advertisement in strict compliance with the requirements of the state statute governing foreclosure by advertisement. The sale was held on October 19, 1972, at which time defendant was the successful bidder with a bid of $11,476.68. This amount was the aggregate of principal balance, accrued interest and cost of foreclosure to date of sale. Six months thereafter, the statutory redemption period expired and defendant became titleholder of the mortgaged premises.

Plaintiff has remained in possession continuously since that time and will not voluntarily surrender the premises to defendant. Defendant, therefore, intends to obtain possession pursuant to a summary proceedings statute.²

Plaintiff has brought this action seeking to retain possession of the mortgaged premises by attacking the procedure by which defendant foreclosed the mortgage. Specifically, plaintiff is asking this Court to set aside the foreclosure on the grounds that Chapter 32 of the Michigan Statutes is unconstitutional for failing to provide a homeowner with notice and a hearing prior to the sale of the mortgaged premises as required by the due process clauses in the Michigan and United States Constitutions. Plaintiff has also requested such other relief as is just and equitable.

The due process clause in the 14th Amendment of the United States Constitution provides that no state shall take any action which deprives a person of his property without due process of law. In order to sustain an action under this provision, plaintiff must demonstrate that there was state action involved in the alleged wrongful acts because the conduct of private individuals, however, wrongful or discriminatory, does not come within the purview of the 14th Amendment. Hall v. Garson, 430 F.2d 430, 439 (5th Cir. 1970); Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 172, 92 S.Ct. 1965, 32 L.Ed.2d 627 (1972); Shelley v. Kraemer, 334 U.S. 1, 13, 68 S.Ct. 836, 92 L.Ed. 1161 (1948); Civil Rights Cases, 109 U.S. 3, 11, 3 S. Ct. 18, 27 L.Ed. 835 (1883).

While the principles of the 14th Amendment may be easy to state, the question of what constitutes "state action" frequently causes great difficulty. In a recent decision, Moose Lodge No. 107 v. Irvis, supra, 407 U.S. at 173, 92 S. Ct. 1965, the Supreme Court provided guidance as to what constitutes state action with respect to the equal protection clause under the 14th Amendment. The Court held that state action could not be found unless the state had "significantly involved" itself with the challenged conduct. This test for state action is also applicable to the due process provision under the 14th Amendment. See Adams v. Southern California First National Bank, 492 F.2d 324 (CA9 1973). Accordingly, Michigan involvement in the taking of property under the challenged foreclosure process should be considered with this "significantly involved" concept in mind.

The Michigan statute in question provides in part:

27A.3201, M.C.L.A. § 600.3201: Every mortgage of real estate, containing therein a power of sale, upon default being made in any condition of such mortgage, may be foreclosed by advertisement, in the cases and in the manner hereinafter specified.

27A.3204, M.C.L.A. § 600.3204: To entitle any party to give a notice as hereinafter prescribed, and to make such foreclosure, it shall be requisite:

(1) That some default in a condition of such mortgage shall have occurred, by which the power to sell became operative. . . .

A review of the above statutory provisions shows that the statute does not come into operation unless a power of sale exists in a mortgage and is activated by some default in a condition of such mortgage. In essence, the sale (or taking) of the property interest does not occur as a result of a directive from the state of Michigan, but rather as a result of a directive from a contractual arrangement. The legislative mandate merely specifies minimal procedures³ to be employed once the parties have entered into such a contractual relationship.

Plaintiff contends that the statutory scheme amounts to state action for a number of reasons. First, it is alleged that there is state action because the sheriff and register of deed are involved in the foreclosure process.⁴ Plaintiff maintains that the direct involvement of a state official constitutes state action and cites a number of cases in support of the position, including Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972); Griffin v. Maryland, 378 U.S. 130, 84 S.Ct. 1770, 12 L.Ed.2d 754 (1964); Monroe v. Pape, 365 U.S. 167, 81 S.Ct. 473, 5 L.Ed.2d 492 (1961); and Shelley v. Kraemer, supra. All of the cases cited, however, are distinguishable from the present case because none of them involve a factual situation where a state has sought to establish minimal requirements with respect to a deprivation which occurs as a result of a contractual agreement entered into by the person being deprived.

State action does not necessarily result whenever a state renders any sort of benefit or service to a private entity or seeks to regulate private activity in any degree whatever. See Moose Lodge No. 107 v. Irvis, supra, 407 U.S. at 173, 92 S.Ct. 1965. As noted earlier, the state activity must be significant. Here, where the foreclosure is authorized by a power of sale in a contractual arrangement, the activity of the state officials does not appear to be significant.

In a second argument, plaintiff contends that state action exists because the statute authorizes a private party to perform a function which is governmental in nature. See Hall v. Garson, supra. Specifically, plaintiff charges that the statute vests the private party with the right, power, and authority to make a unilateral determination of default and to sell and eventually transfer title to property. The Court is unable to find state action on the basis of this claim because (1) the contract, not the statute, authorizes the foreclosure process and (2) plaintiff has presented no authority which suggests that the functions under the foreclosure process are governmental in nature in Michigan.⁵

Plaintiff also claims that state action exists because the statutory scheme pervasively governs defendant's actions. In support of this claim, plaintiff has cited Burton v. Wilmington Pkg. Auth., 365 U.S. 715, 81 S.Ct. 856, 6 L.Ed.2d 45 (1961); Palmer v. Columbia Gas of Ohio, Inc., 479 F.2d 153 (6th Cir. 1973); and Male v. Crossroads Associates, 337 F.Supp. 1190 (S.D.N.Y.1971). In these cases, state action was found where the statutory scheme was so pervasive that private activity in effect became state activity, with mutual benefit and interpendence existing between the state and the private parties. Because of this, the courts recognized the endeavors as joint adventures. There is no evidence that such a situation exists here. Foreclosure by advertisement and sale appears to be a private action which creates no mutual benefits and interdependence between the state and private parties. In view of this fact and the contractual basis for the foreclosure activity, it is the opinion of this Court that the statutory scheme is not so pervasive as to constitute state action.

Finally, plaintiff argues that state action exists because the statute encourages mortgagees to seek foreclosure by advertisement, rather than by judicial process because the former method is viewed as being less costly in time, effort, and expense. To demonstrate the degree of influence which allegedly results from the existence of the Michigan statute, plaintiff points to the fact that only 52 out of 8,604 mortgages were foreclosed judicially during 1972. The remainder were foreclosed by advertisement pursuant to Chapter 32 of the Michigan statutes.

Courts have recognized that state action can result when the challenged activity is encouraged by state statutes. See Reitman v. Mulkey, 387 U.S. 369, 87 S.Ct. 1627, 18 L.Ed.2d 830 (1967); and Bond v....