Lead Opinion
Thеse consolidated appeals each involve a foreclosure instituted by Mortgage Electronic Registration Systems, Inc. (MERS), the mortgagee in both cases. The sole question presented is whether MERS is an entity that qualifies under MCL 600.3204(l)(d) to foreclose by advertisement on the subject properties, or if it must instead seek to foreclose by judicial process. We hold that MERS does not meet the requirements of MCL 600.3204(l)(d) and, therefore, may not foreclose by advertisement.
I. BASIC FACTS AND PROCEDURAL HISTORY
In these cases, each defendant purchased property and obtained financing for their respective properties from a financial institution. The financing transactions involved loan documentation (“the note”) and a mortgage security instrument (the “mortgage instrument”). The original lender in both cases was Homecomings Financial, LLC.
Each note stated, in part, the amount of the loan, the interest rate, methods and requirements of repayment, and the identity of the lender and the borrower. Each mortgage instrument provided the mortgagee the right to foreclosure on the property in the event of default on the loan. The lender, though named as the lender in the mortgage instrument, was not designated therein as the mortgagee. Instead, the mortgage instrument stated that MERS “is the mortgagee under this Security-Instrument” and it contained several provisions addressing the relationship between MERS and the lender, including:
“MERS” is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the mortgagee under this Security Instrument.
This Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower’s covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower does hereby mortgage, warrant, grant and convey to MERS (solely as nominee for Lender and Lender’s successors and assigns) and to the successors and assigns of MERS, with power of sale, the following described property ....
... Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.
Defendants defaulted on their respective notes. Thereafter, MERS began nonjudicial foreclosures by advertisement as allegedly permitted under MCL 600.3201 et seq., purchased the property at the subsequent sheriffs sales, and then quitclaimed the property to plaintiffs as respective successor lenders. When plaintiffs subsequently
II. ANALYSIS
A. STANDARD OF REVIEW
We review de novo decisions made on motions for summary disposition,
We also review de novo questions of statutory interpretation and the proper application of statutes. Id. at 567.
The primary goal of statutory interpretation is to give effect to the intent of the Legislature. This determination is accomplished by examining the plain language of the statute. Although a statute may contain separate provisions, it should be read as a consistent whole, if possible, with effect given to each provision. If the statutory language is unambiguous, appellate courts presume that the Legislature intended the meaning plainly expressed and further judicial cоnstruction is neither permitted nor required. Statutory language should be reasonably construed, keeping in mind the purpose of the statute. If reasonable minds could differ regarding the meaning of a statute, judicial construction is appropriate. When construing a statute, a court must look at the object of the statute in light of the harm it is designed to remedy and apply a reasonable construction that will best accomplish the purpose of the Legislature. [ISB Sales Co v Dave’s Cakes,258 Mich App 520 , 526-527;672 NW2d 181 (2003) (citations omitted).]
B. MERS BACKGROUND
The parties, in their briefs and at oral argument, explained that MERS was developed as a mechanism to provide for the faster and lower-cost buying and selling of mortgage debt. Apparently, over the last two decades, the buying and selling of loans backed by mortgages after their initial issuance had accelerated to the point that those operating in that market concluded that the stаtutory requirement that
As described by the New York Court of Appeals in MERSCORP, Inc v Romaine,
In 1993, the MERS system was created by several large participants in the real estate mortgage industry to track ownership interests in residential mortgages. Mortgage lendеrs and other entities, known as MERS members, subscribe to the MERS system and pay annual fees for the electronic processing and tracking of ownership and transfers of mortgages. Members contractually agree to appoint MERS to act as their common agent on all mortgages they register in the MERS system.
The initial MERS mortgage is recorded in the County Clerk’s office with “Mortgage Electronic Registration Systems, Inc.” named as the lender’s nominee or mortgagee of record on the instrument. During the lifetime of the mortgage, the beneficial ownership interest or servicing rights may be transferred among MERS members (MERS assignments), but these assignments are not publicly recorded; instead they are tracked electronically in MERS’s private system. In the MERS system, the mortgagor is notified of transfers of servicing rights pursuant to the Truth in Lending Act, but not necessarily of assignments of the beneficial interest in the mortgage.
The sоle issue in this case is whether MERS, as a mortgagee, but not a noteholder, could exercise its contractual right to foreclose by means of advertisement.
C. MCL 600.3204(l)(d)
Foreclosure by advertisement is governed by MCL 6Q0.3204(l)(d), which provides, in pertinent part:
[A] party may foreclose a mortgage by advertisement if all of the following circumstances exist:
(d) The party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.
The parties agree that MERS was neither the owner of the indebtedness nor the servicing agent of the mortgage. Therefore, MERS lacked the authority to foreclose by advertisement on defendants’ properties unless it was “the owner ... of an interest in the indebtedness secured by the mortgage . . . .” MCL 600.3204(l)(d).
The question, then, is what is required to be the “owner ... of an interеst in the indebtedness secured by the mortgage.” According to Black’s Law Dictionary, to “own” means “[t]o have a good legal title; to hold as property; to have a legal or rightful title to . . . .” Black’s Law Dictionary (6th ed), p 1105. The dictionary defines an “interest” as “[t]he most general term that can be employed to denote a right, claim, title, or legal share in something.” Id., p 812. “Indebtedness” is defined as “[t]he state of being in debt. . . [t]he owing of a sum of money upon a
In each of these cases, a promissory note was exchanged for a loan. Thus, reasonably construing the statute according to its common legal meaning, ISB Sales Co,
Plaintiffs’ suggestion thаt an “interest in the mortgage” is sufficient under MCL 600.3204(l)(d) is without merit. This is necessarily so, because the indebtedness, i.e., the note, and the mortgage are two different legal transactions providing two different sets of rights, even though they are typically employed together. A “mortgage” is “[a] conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms.” Black’s Law Dictionary (7th ed), p 1026. The mortgagee has an interest in the property. See Capital Mtg Corp v Mich Basic Prop Ins Ass’n,
Applying these considerations to the present cases, it becomes obvious that MERS did not have the authority to foreclose by advertisement on defendants’ properties. Pursuant to the mortgages, defendants were the mortgagors and MERS was the mortgagee. However, it was the plaintiff lenders that lent defendants money pursuant to the terms of the notes. In each case, MERS, as mortgagee, only held an interest in the property as security for the note, not an interest in the note itself. MERS could not attempt to enforce the note nor could it obtain any payment on the loan on its own behalf or on behalf of the lender. Moreover, each mоrtgage specifically clarified that, although MERS was the mortgagee, MERS held “only legal title to the interests granted” by the relevant defendant in the mortgage.
Moreover, plaintiffs’ analysis ignores the fact that the statute does not merely require an “interest” in the debt, but rather it requires that the foreсlosing party own that interest. As already noted, to own
The dissent relies on the language in the mortgage instruments to suggest a contractual basis to find that MERS had an ownership interest in the loans. However, the fact that Homecomings gave MERS authority to take “any action required of the Lender” did not transform MERS into an owner of an interest in the notes. Trustees have the authority to take action on behalf of a trust; they can even be authorized to take “any” action. Nevertheless, such authority does not give them an ownership interest in the trust. Moreover, the provision on which the dissent relies (but does not fully quote) contains language limiting MERS to taking action on behalf of the lenders’ equitable interest in the mortgage instruments.
Finally, even assuming that the contract language did create such a right, Homecomings cannot grant MERS the authority to take action when the statute prohibits it. Regardless of whether Homecomings would like MERS to be able to take such action, it can only grant MERS the authority to take actions that our Legislature has statutorily permitted. Where the Legislature has limited the availability to take action to a specified group of individuals, parties cannot grant an entity that falls outside that group the authority to take such action. Here, the Legislature specifically requires ownership of an interest in the note before permitting foreclosure by advertisement.
The dissent’s conclusion that MERS owns an interest in each note because whether it ultimately receives the property depends on whether the note is paid, similarly distorts the term “interest” from a legal term of art to a generalized popular understanding of the word. It maybe that MERS is concerned with (i.e., interested in) whether the loans are paid because that will define its actions vis-a-vis the properties, but being concerned about whether someone pays his or her loan is not the same as having a legal right, or even a contingent legal right, to those payments.
Plaintiffs are mistaken in their suggestion that our conclusion that MERS does not have “an interest in the indebtedness” renders that category in the statute nugatory. We need not determine the precise scope of that category, but, by way of example, any party to whom a note has been pledged as security by the lender has “an interest in the indebtedness” because, under appropriate circumstances, it owns the right to the repayment of that loan.
Plaintiffs also argue that MERS had the authority to foreclose by advertisement as the agent or nominee of Homecomings, who held the notes and an equitable interest in the mortgages. However, this argument must also fail under the statute because the statute explicitly requires that, in order to foreclose by advertisement, the foreclosing party must possess an interest in the indebtedness. MCL 600.3204(l)(d). It simply does not permit foreclоsure by advertisement in the name of an agent or a nominee. If the Legislature intended to permit such actions, it could have easily included “agents or nominees of the noteholder” as parties that could foreclose by advertisement. Indeed, had the Legislature intended the result suggested by plaintiffs, it would have merely had to delete the word “servicing.” The law is clear that this Court must “avoid a construction that would render any part of the statute surplus-age or nugatory.” Wickens v Oakwood Healthcare Sys,
Similarly, we reject plaintiffs’ reliance on
D. analysis beyond the language of the statute
Plaintiffs suggest that, despite the plain language of the statute, the Legislature did not create three discrete categories of entities that could foreclose by advertisement. Instead, plaintiffs assert that the Legislature envisioned a continuum of entities: those that actually own the loan, those that service the loan, and some ill-defined category that might be called “everything in between.” However, courts may not “rewrite the plain statutory language and substitute our own policy decisions for those already made by the Legislature.” DiBenedetto v West Shore Hosp,
Plaintiffs also raise a straw man argument by citing this Court’s decision in Davenport v HSBC Bank USA,
“To entitle any party to give a notice as hereinafter prescribed, and to makе such a foreclosure, it shall be requisite:
“(3) That the mortgage containing such power of sale has been duly recorded; and if it shall have been assigned that all the assignments thereof shall have been recorded.” [Arnold,448 Mich at 676 , quoting MCL 600.3204(3).]
This requirement, that a noteholder could only foreclose by advertisement if the mortgage it holds is duly recorded, is no longer part of the statute and does not apply in this case. The version of the statute interpreted in Arnold also lacked the language, later adopted, and operative in this case, specifically permitting foreclosure by advertisement by the owner of the note. Moreover, the language that the Legislature chose to adopt in the amended statute appears to reflect an intent to protect borrowers from having their mortgages foreclosed on by advertisement by those who did not own the notе because it would put the borrowers at risk of being foreclosed but still owing the noteholder the full amount of the loan.
Under MCL 440.3602(l)(ii), an instrument is only discharged when payment is made “to a person entitled to enforce the instrument.” Those parties listed in MCL 600.3204(l)(d) — the servicer, the owner of the debt, or someone owning an interest in the debt — would all be persons entitled to enforce the instrument that reflects the indebtedness. As previously noted, MERS is not entitled to enforce the notes. Thus, if MERS were permitted to foreclose on the properties, the borrowers obligated under each note would potentially be subject to a double recovery for the debt. That is, having lost their property to MERS, they could still be sued by the noteholder for the amount of the debt because MERS does not have the authority to discharge the note. MERS members may agree to relinquish the right of collection once foreclosure occurs, but even if they were to do so within MERS, that would not necessarily protect the borrower in the event a lender violated that policy or the note was subsequently transferred to someone other than the lender.
These risks are, however, not present in a judicial foreclosure. MCL 600.3105(2) provides:
After a complaint has been filed to foreclose a mortgage on real estate or land contract, while it is pending, and after a judgment has been rendered upon it, no separate proceeding shall be had for the recovery of the debt secured by the mortgage, or any part of it, unless authorized by the court.
Thus, once a judicial foreclosure proceeding on the mortgage has begun, a subsequent action on the note is prohibited, absent court authorization, thereby protecting
Given that this risk of a double recovery only occurs when the mortgage holder and the noteholder are separate, the Legislature limited foreclosure by advertisement to those parties that were entitled to enforce the debt instrument, resulting in an automatic credit toward payment on the instrument in the event of foreclosure.
While MERS seeks to blur the lines between itself and the lenders in this case in order to position itself as a party that may take advantage of the restricted tool of foreclosure by advertisement, it has, in other cases, sought to clearly define those lines in order to avoid the responsibilities that come with being a lender. For example, in Mtg Electronic Registration Sys, Inc v Nebraska Dep’t of Banking & Fin, 270 Neb 529;
The separation of the note from the mortgage in order to speed the sale of mortgage debt without having to deal with all the “paper work” of mortgage transfers appears to be the sole reason for MERS’s existence. The flip side of separating the note from the mortgage is that it can slow the mechanism of foreclosure by requiring
III. CONCLUSION
Defendants were entitled to judgment as a matter of law because, pursuant to MCL 600.3204(l)(d), MERS did not own the indebtedness, own an interest in the indebtedness secured by the mortgage, or service the mortgage. MERS’s inability to comply with the statutory requirements rendered the foreclosure proceedings in both cases void ah initio. Thus, the circuit courts improperly affirmed the district courts’ decisions to proceed with eviction on the basis of the foreclosures of defendants’ properties.
In both Docket Nos. 290248 and 291443, we rеverse the circuit courts’ affirmance of the district courts’ orders, vacate the foreclosure proceedings, and remand for further proceedings consistent with this opinion. We do not retain jurisdiction. Defendants, as the prevailing parties, may tax costs. MCR 7.219(A).
Notes
Residential Funding Co LLC v Saurman, unpublished order of the Court of Appeals, entered May 15, 2009 (Docket No. 290248); Bank of New York Trust Co v Messner, unpublished order of the Court of Appeals, entered July 29, 2009 (Docket No. 291443).
In Docket No. 290248, the district court granted summary disposition under MCR 2.116(0(10). In Docket No. 291443, the district court granted summary disposition under MCR 2.116(I)(2) (“If it appears to the court that the opposing party, rather than the moving party, is entitled to judgment, the court may render judgment in favor of the opposing party.”).
We note that, in these eases, MERS disclaims any interest in the properties other than the legal right to foreclose and immediately quitclaim each property to the true owner, i.e., the appropriate lender.
Though the lenders do not hold legal title to the mortgage instruments, they do have an equitable interest therein. See Aiton v Slater,
The dissent’s analogy between MERS’s ability to “own an interest” in the notes and an easement-holder’s ownership of an interest in land without owning the land is unavailing. An easement holder owns rights to the land that even the landholder cannot infringe upon or divest him or her of, see Dobie v Morrison,
In addition, while we reject plaintiffs’ overly broad reading of Davenport for the reasons just stated, we note that even under their reading, plaintiffs would merely have to obtain an assignment of the mortgage from MERS before initiating foreclosure proceedings.
The dissent’s observation that, had Homecomings remained the mortgagee, it would have had the right to foreclose by advertisement does not change the outcome because the statutory language provides that it is Homecomings’ additional status as the noteholder that would give it that right. The question before us is whether a mortgagee that is not a noteholder has the right to foreclose by advertisement.
The dissent’s assertion that MCL 600.3105(2) provides for an election of remedies that prevents this double recovery is erroneous, because that statute governs only judicial foreclosures, not foreclosures by advertisement. MCL 600.3105(2) requires the filing of a complaint, something that does not occur in foreclosure by advertisement. Absent a complaint, there would be neither a time during which a complaint would be “pending” nor any judgment that could be “rendered upon it” that would prohibit the filing of any “separate proceeding... for the recovery of the debt secured by the mortgage . ...” See also Cheff v Edwards,
Dissenting Opinion
(dissenting). Because I conclude that, pursuant to MCL 600.3204(l)(d), Mortgage Electronic Registration Systems, Inc. (MERS), was “the owner ... of an interest in the indebtedness secured by the mortgage” at issue in each of these consolidated appeals, I respectfully dissent.
i
Defеndant Gerald Saurman (Saurman) and defendant Corey Messner (Messner) executed promissory notes in exchange for loans from Homecomings Financial, LLC (Homecomings). To secure the repayment of the loans, Saurman and Messner executed mortgage agreements that encumbered the properties purchased with the money loaned to them by Homecomings. The mortgage agreements provided that MERS, “solely as a nominee for [Homecomings] and [Homecomings’] successors and assigns,” was the mortgagee under each security instrument and held the legal interests to the properties, and that MERS’s interests under each security instrument, as nominee for Homecomings, included the right to foreclose and sell the properties. The mortgage agreements also provided that MERS had the obligation “to take any action required of [Homecomings], including, but not limited to, releasing and canceling” the security instruments. Though it was not the mortgagee, as the lender, Homecomings retained an equitable interest in the mortgages.
Both Saurman and Messner defaulted on their payments, and MERS initiated nonjudicial foreclosure by advertisement under MCL 600.3201 et seq. MERS purchased the properties in sheriffs sales, and subsequently, quitclaimed Saurman’s property to Residential Funding Co, LLC (RFC), and Messner’s property to Bank of New York Trust Company (BNYT). After the redemption periods expired, RFC and BNYT each sought to obtain possession of the respective properties. During eviction proceedings, Saurman and Messner each challenged the foreclosure by MERS, asserting that MERS was not the servicing agent, did not own the indebtedness secured by the mortgage, and did not own an
ii
This Court reviews de novo rulings made on a motion for summary disposition including a circuit court’s affirmance of a district court’s ruling on a motion for summary disposition. Thorn v Mercy Mem Hosp Corp,
“The interpretation of a contract is also a question of law this Court reviews de novo . . . .” DaimlerChrysler Corp v G-Tech Prof Staffing, Inc,
Under ordinary contract principles, if contractual language is clear, construction of the contract is a question of law for the court. If the contract is subject to two reasonable interpretations [or the provisions irreconcilably conflict with each other], factual development is necessary to determine the intent of the parties and summary disposition is therefore inappropriate. If the contract, although inartfully worded or clumsily arranged, fairly admits of but one interpretation, it is not ambiguous. [Meagher v Wayne State Univ,222 Mich App 700 , 721-722;565 NW2d 401 (1997) (citations omitted).]
See also Shaw v Ecorse,
hi
MCL 600.3204 provides, in relevant part:
(1) [A] party may foreclose a mortgage by advertisement if all of the following circumstances exist:
(a) A default in a condition of the mortgage has occurred, by which the power to sell became operative.
(b) An action or proceeding has not been instituted, at law, to recover the debt secured by the mortgage or anypart of the mortgage; or, if an action or proceeding has been instituted, the action or proceeding has been discontinued; or an execution on a judgment rendered in an action or proceeding has been returned unsatisfied, in whole or in part.
(c) The mortgage containing the power of sale has been рroperly recorded.
(d) The party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.
There are three categories of parties who may foreclose by advertisement under MCL 600.3204(l)(d): (1) the owner of the indebtedness secured by the mortgage; (2) the servicing agent of the mortgage; and (3) the owner of an interest in the indebtedness secured by the mortgage. Because we must give meaning to each of these phrases and each word in the phrases in order to give effect to the Legislature’s intent, Bush,
The signature questions presented in these cases are what it means to own “an interest” in the indebtedness secured by the mortgage, i.e., to own an interest in the debt or the note, as opposed to owning the debt or the note, and what entity or person the Legislature meant to refer to when it permitted “the owner... of an interest in the indebtedness secured by the mortgage” to have the same ability as the owner of the indebtedness and the servicer of the mortgage to foreclose by advertisement. In general,
[t]he right to foreclosure by advertisement is statutory. Calaveras Timber Co v Michigan Trust Co,278 Mich 445 , 450;270 NW 743 (1936). Such foreclosures are a matter of contract, authorized by the mortgagor, and ought not be hampered by an unreasonably strict construction of the law. Cramer v Metro S & L Ass’n,401 Mich 252 , 261;258 NW2d 20 (1977). Harsh results may and often do occur because of mortgage foreclosure sales, “but we have nevеr held that because thereof, such sale should be enjoined, when no showing of fraud or irregularity is made.” Calaveras Timber Co, [278 Mich] at 454. [Church & Church, Inc v A-1 Carpentry,281 Mich App 330 , 339-340;766 NW2d 30 (2008), aff'd in part and vacated in part on other grounds483 Mich 885 (2009).]
“Interest” is
I would conclude that, as mortgagee, MERS owned a contractual interest in the indebtednesss. If the indebtedness is paid in conjunction with the note, MERS has the contractual obligation to cancel the security agreement because its title is defeated. If the indebtedness is not paid, however, MERS has the contractual right and obligation to exercise the rights granted to it by the mortgagors, including the right to foreclose by advertisement under the statute. In other words, MERS’s interest in the indebtedness is derived from the fact that its contractual obligations as mortgagee were dependent on whether the mortgagor met the obligation to pay the indebtedness that the mortgage secured.
According to the security instruments, MERS was the nominee of Homecomings and held its status as mortgagee only in that capacity. “Nominee” is defined as “[a] person designated to act in plaсe of another, usu. in a very limited way... [a] party who holds bare legal title for the benefit of others ....” Black’s Law Dictionary (9th ed), p 1149. Although Saurman and Messner each agreed that MERS held “only legal title to the interests granted” in the respective security instruments, the security interest was specifically created to secure performance by Saurman and Messner of the obligation each undertook in a note, namely, to repay the debt. In other words, the security interest created was specifically linked to the debt and specifically created to ensure payment of the debt. Saurman and Messner each agreed that “if necessary to comply with law or custom, MERS (as nominee for [Homecomings]..., ha[d] the right... to take any action required of [Homecomings] including, but not limited to, releasing and canceling” the security instruments.
By conveying the right to take any action required of it, Homecomings gave, and MERS received, a greater interest than just an interest in the property as security for the note, namely it gave the contractual right to act for the benefit of Homecomings. MERS’s interest in the debt reflected by the note is inextricably linked to its obligations under the mortgage. For example, if Saurman and Messner had satisfied their notes, MERS would have been obligated to cancel the security instruments on behalf of Homecomings. Alternatively, if Saurman and Messner had elected to sell their properties without Homecomings’ prior written consent, MERS would have had the right to exercise on behalf of Homecomings the option to require immediate payment in full of all sums secured by the security instruments. Failure to pay in full would have then given MERS the right to invoke remedies such as foreclosure of the properties, as provided in the security instruments. In short, MERS was the contractual owner of an interest in the notes, which were secured by the mortgages.
Finally, it bears noting that, contrary to the majority’s contention that permitting MERS to foreclose by advertisement could potentially subject the mortgagors to a double recovery for the same debt, MCL 600.3105(2) forces an election of remedies, so that Homecomings would be precluded from the recovery of any debt secured by the mortgage if a foreclosure proceeding had already been initiated by MERS.
I would conclude that MERS did have the authority to foreclose on defendants’ properties by advertisement. I would affirm in each case.
In this regard, MERS’s interest in the indebtedness is similar to the interest held by one who possesses an easement right. “[A]n easement is a [sic] not a possessory right.” Terlecki v Stewart,