Foreclosure Cannot Be Advertised Prior to Recording Mortgage Assignment In Davenport v. HSBC Bank USA, the Michigan Court of Appeals held that a lender must have an interest in a loan prior to beginning to advertise a foreclosure sale. The first insertion of the HSBC’s foreclosure notice was made four days prior to the assignment of the mortgage to HSBC Bank. The Court held that it was not sufficient that HSBC Bank was in the chain of title prior to the sale. A lender cannot begin to foreclose a loan until the lender has an interest in the loan. The Court stated:

Defendant admits that it did not own the mortgage at the time of publication on October 27, 2005, but appears to argue that having fulfilled the requirements of MCL 600.3204(3), it was not obliged to follow MCL 600.3204(1)(d). We disagree. “To the extent possible, each provision of a statute should be given effect, and each should be read to harmonize with all others.” Michigan Basic Property Ins Ass’n v Ware, 230 Mich App 44, 49; 583 NW2d 240 (1998). We do not read subsection (3) as allowing a successor mortgagee to disregard the requirements of subsection (1) for foreclosing by advertisement simply because he or she expects to have achieved a perfect chain of title by the time of sale. Subsection (1)(d) plainly requires that a party own the indebtedness or an interest in the indebtedness before undertaking to foreclose a mortgage by advertisement. Accordingly, defendant was not eligible to commence the foreclosure when it did so because it did not yet own the indebtedness. MCL 600.3204(1)(d).

We recognize that a defect in fulfilling the statutory notice requirements attendant to a foreclosure by advertisement renders the resulting sale voidable rather than absolutely void. Jackson Investment Corp v Pittsfield Products, Inc, 162 Mich App 750, 755-756; 413 NW2d 99 (1987).

However, what is at issue in the present case is not a mere notice defect. Instead, it is a structural defect that goes to the very heart of defendant’s ability to foreclose by advertisement in the first instance. Our Supreme Court has explicitly held that “[o]nly the record holder of the mortgage has the power to foreclose” under MCL 600.3204. Arnold v DMR Financial Services, Inc, 448 Mich 671, 678; 532 NW2d 852 (1995). It naturally follows from this pronouncement that one who is not the record holder of a mortgage may not foreclose the mortgage under MCL 600.3204. Id.; see also Fox v Jacobs, 289 Mich 619, 623-624; 286 NW 854 (1939) (holding that despite a notice defect in the foreclosure proceedings, the defendants “possessed the right to foreclose” because “there is no question but that the [defendants] at the time foreclosure was instituted owned all of the interest in the mortgage”).

We do not know why the loan was not foreclosed by the servicer (which is permitted under Michigan law), or whether a foreclosure by the servicer will be prohibited by the decision if all of the mortgage assignments are not recorded. This decision certainly muddies the water a bit, and will cause foreclosure counsel to be extremely conservative before beginning the foreclosure process.

One Response

  1. how does this case impact a mortgage of which the assignment was never recorded with the county clerk’s office? Can the new servicer still foreclose?

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