Alert April 16, 2013

Sixth Circuit Upholds Dismissal of Suit to Set Aside Foreclosure Sale

The United States Court of Appeals for the Sixth Circuit affirmed a lower court’s decision dismissing plaintiff’s action to set aside a foreclosure sale based on alleged violations of the non-judicial foreclosure process in Michigan. After plaintiff defaulted on his mortgage loan, his property was foreclosed upon and sold at a sheriff’s sale through Michigan’s non-judicial foreclosure process, which provides for a six-month redemption period. Plaintiff subsequently initiated an action seeking to set aside the non-judicial foreclosure asserting that the mortgagee could not foreclose on him because the mortgagee was not the note-holder, mortgage holder, or servicer as required by Michigan law. Plaintiff’s claim was based on the assertions that the mortgage assignment was either forged or "robo-signed" and MERS had no authority to assign the mortgage to the foreclosing mortgagee.

Since the six-month redemption period had expired, under Michigan law, plaintiff was required to meet a heightened standard by making a "‘clear showing of fraud, or irregularly’ . . . ‘related to the foreclosure procedure itself.’" Relying on Kim v. JP Morgan Chase Bank, NA, 825 N.W.2d 329 (Mich. 2012) and Davenport v. HSBC Bank USA, U739 N.W.2d 383 (Mich. Ct. App. 2007), the Court determined that any violation of the foreclosure law is only actionable when there is a showing of prejudice. Since plaintiff would not be subject to additional liability, would not have been in a better position if defendant was the owner of the indebtedness or the owner an interest in the indebtedness, and did not show he was prejudiced in any other way, the Court determined plaintiff’s claim was not actionable and affirmed the lower court’s dismissal. Such theories are commonly advanced by defaulted borrower plaintiffs in an effort to invalidate the foreclosure. Numerous state and federal courts around the country have rejected such claims on a host of grounds and this case presents yet another example that contributes to this weight of authority.