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Facts and the Court’s Ruling

Plaintiffs, husband and wife, obtained a $615,000.00 loan from Washington Mutual Bank to refinance their home. and granted the bank a mortgage on their property.  The U.S. Department of Treasury closed Washington Mutual Bank and appointed the FDIC as receiver.  Defendant J P Morgan Chase Bank purchased all of Washington Mutual’s loans, includig Plaintiff’s mortgage, from the FDIC.  When plaintiffs defaulted on their loan, Chase Bank sought to foreclose by advertisement and published a Notice of Foreclosure pursuant to MCL 600.3204.  Chase Bank purchased the property at the foreclosure sale.  The plaintiffs sought to set aside the sheriff’s deed because Chase Bank had not recorded its mortgage interest prior to the sheriff’s sale as required by MCL 600.3204(3).  The Court of Appeals agreed with the plaintiffs.  The Court noted that the statute specifically states that if the foreclosing party is not the original mortgagee, a record chain of title showing its interest must be recorded prior to the foreclosure sale.  The Court of Appeals disagreed with Chase Bank’s argument that it had acquired its interest in the property by “operation of law.”  Rather, Chase Bank had acquired the interest through purchase and assignment, making MCL 600.3204(3) applicable as written.

What This Means For Banks

Banks which are not the original mortgagee and which foreclose by advertisement risk having their foreclosure purchase set aside if they have not recorded the documents by which they acquired the mortgage.  Banks must be sure they have all their i’s dotted and their t’s crossed when proceeding to foreclose by advertisement.

What This Means For Homeowners

Homeowners who are savvy and who keep apprised of the status of their mortgaged property after they default on the loan can potentially stop or set aside the foreclosure sale.