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Michigan Ruling Restricting MERS Ability to Foreclose Given Retroactive Effect

The Michigan Court of Appeals ruled in Residential Funding Co, Inc. v Saurman, — NW2d —, 2011 WL 1516819 (Mich. App. April 21, 2011), that Mortgage Electronic Registration Systems, Inc. (MERS) could not utilize the foreclosure by advertisement statute when it did not own the underlying note. (See previous blog posting of May 4, 2011). In Richard v Schneiderman & Sherman, P.C., — N.W.2d —-, 2011 WL 3760862 (Mich.App. Aug 25, 2011), the Michigan Court of Appeals addressed whether the holding in Saurman should be applied retroactively.

Similar to Saurman, in Richard Defendant MERS had pursued a foreclosure against the Plaintiff. After MERS purchased his property at a Sherriff’s sale, Plaintiff filed suit challenging the validity of the foreclosure claiming that MERS did not hold the rights to the debt therefore, the foreclosure was invalid. The trial court ruled against the Plaintiff and granted summary disposition to the Defendants. Plaintiff appealed. The Court of Appeals published its decision in Saurman while Plaintiff’s appeal was pending. If applicable, Saurman would be dispositive of Plaintiff’s claims i.e., MERS inability to comply with the statutory requirements rendered the foreclosure void. The issue presented to the Richard court was whether Saurman should be given retroactive effect.

The Richard court began its analysis by observing the Saurman court had applied its holding to the cases before it. Thus, at a minimum, the holding had already been afforded limited retroactivity. Limited retroactivity, as the term implies, has a narrow application. It only applies to pending cases where the issue has been raised and preserved. In contrast, a grant of full retroactivity would apply to all pending cases. The Plaintiff in Richard had not raised the issue of whether MERS could utilize the foreclosure by advertisement statute in the lower court proceedings. Thus, the Plaintiff in Richard required that Saurman be given full retroactivity.

The Richard court ultimately concluded that Saurman should be given full retroactive effect. However, because it viewed proceedings under the foreclosure by advertisement statute unique in nature, the court placed restrictions on its holding. It held that Saurman did not apply to an action to recover title or possession to property if: 1) the mortgagor failed to challenge the validity of the foreclosure during any proceeding seeking an order of eviction (including before expiration of the redemption period), or 2) if the foreclosed property has already been sold to a bona fide purchaser. Because the Plaintiff had challenged the validity of the foreclosure prior to the expiration of the redemption period and the property had not been sold to a bona fide purchaser, the court reversed the trial court’s grant of summary disposition to the Defendants and remanded the case for further proceedings.