Written by Prof. Adam Levitin, Esq., Georgetown Univ School of Law

Foreclosure Help:

Soured on Saurman

Elected justice moves swiftly. The Michigan Supreme Court handed down its opinion in Residential Funding Co. v. Saurman on Wednesday, a couple of weeks after oral argument. They were in a rush to get the opinion out, it seems. Unfortunately, it's a terrible opinion. The Michigan Supreme Court reversed the appellate court to hold that MERS has the power to conduct non-judicial foreclosures (foreclosure by advertisement) in Michigan.

To reach this conclusion, the Michigan Supreme Court had to conclude that MERS had an interest in the indebtedness--that is an interest in the note.  MERS, however, expressly disclaims any interest in the note. So it took some acrobatics and legerdemain and outright tautology to get no to mean yes.

Here's how they did it:

The Michigan Supreme Court argued that MERS had an interest in the indebtedness not via an ownership interest in the note, but because as record holder of the mortgage MERS owned a lien that it could foreclosue on if there was a default on the mortgage.

We clarify, however, that MERS’ status as an “owner of an interest in the indebtedness” does not equate to an ownership interest in the note. Rather, as record- holder of the mortgage, MERS owned a security lien on the properties, the continued existence of which was contingent upon the satisfaction of the indebtedness. This interest in the indebtedness — i.e., the ownership of legal title to a security lien whose existence is wholly contingent on the satisfaction of the indebtedness — authorized MERS to foreclose by advertisement under MCL 600.3204(1)(d).

Note the tautology of the reasoning. MERS can only foreclose on the mortgage because the Michigan Supreme Court says it can:  MERS can foreclose because it has an interest in the indebtedness because it is the record holder of the mortgage which gives it a right to foreclose on the mortgage when there is a default---but only because the Michigan Supreme Court says MERS has a right to foreclose on the mortgage.  The Michigan Supreme Court's conclusion depends on the Michigan Supreme Court's conclusion.  If the Michigan Supreme Court said that MERS didn't have a right to foreclose in its own name--that MERS could be the record holder of the mortgage, but not actually foreclose in its own name--then MERS wouldn't have an interest of any sort in the note, which would, well, mean that it couldn't foreclose by advertisement.

Well, as Holmes noted, "[t]he life of the law has not been logic: it has been experience." And maybe Michiganders experience with foreclosures will be reflected in the next judicial election cycle.