Court Opinion

ID: 2785446
Source: CourtListenerOpinion
Date Created: 2015-03-11 18:05:50.681526+00
Date Added: 2024-06-11T11:26:57.403926
License: Public Domain

STATE OF MICHIGAN

                       COURT OF APPEALS

FIFTH THIRD MORTGAGE-MI, L.L.C., FIFTH            UNPUBLISHED
THIRD MORTGAGE COMPANY, and FIFTH                 March 10, 2015
THIRD BANK,

           Plaintiffs/Counter-Defendants-
           Appellants,

v                                                 No. 318037
                                                  Oakland Circuit Court
FIRST AMERICAN TITLE INSURANCE                    LC No. 2005-070592-CZ
COMPANY,

           Defendant-Appellee,

and

ROBERT M. HANCE, ANTHONY REED,
ROCKRIDGE HOLDINGS, INC., TYRONE A.
HOGAN, MATTHEW A. FLYNN, FLYNN
FINANCIAL SERVICES, INC., ROBERT S.
SHUMAKE, MEEK QUARTON, L.L.C., MEEK
OVER LEA, L.C., JULIA GLASS, SCOTT P.
LUCIA, MICHAEL BOSSENBERY,
MERCEDES TURON, FELIPE RUIZ TURON,
FLOYD ANDERSON III, STEPHANIE P.
GLOVER, CHENZIRA MAPLES, DIRECT
FINANCIAL SERVICES CORPORATION, and
ALAN J. LUCIA,

           Defendants/Cross-Defendants,

and

STEPHANIE HANCE, EXECUTIVE ESTATE
BUILDERS, L.L.C., RANJIT VERGHESE,
INVESTMENT PROPERTY, L.L.C., NICOLETTI
& ASSOCIATES, P.C., JAMES C. BOUDREAU,
BOJAM PROPERTIES, INC., INHERITANCE
AUTOMOTIVE GROUP, L.L.C., MICHAEL T.
KAHN, TESSLER INVESTMENTS, L.L.C.,

                                            -1-
THOMPSON FINANCIAL GROUP, STATE
APPRAISALS, INC., PAMELA S. SIIRA, THE
APPRAISAL PLACE, INC., NATHAN HOGAN,
GREYHOUND APPRAISALS AND
INVESTMENTS, L.L.C., CHRISTINE D. MAYS,
C.J. APPRAISALS, LTD., TERRI GILLUM,
ROBERT L. WALSTON, SHAMIL E. HALABU,
SHAMIL E. HALABU, P.C., CLEAR TITLE
AGENCY, INC., VISTAL LAND & HOME
DEVELOPMENT, CYRUS DEVELOPMENT
PROPERTIES, L.L.C., a/k/a CYRUS
DEVELOPMENT, L.L.C., INTER-LAKES
DEVELOPMENT CORPORATION, and
LANDAMERICA TRANSNATION,

           Defendants,

and

CONTINENTAL TITLE INSURANCE
AGENCY, INC., PAUL J. NICOLETTI, and
MARY ANN NICOLETTI,

           Defendants/Third-Party
           Plaintiffs/Counter-Plaintiffs/Cross-
           Plaintiffs,

and

ROSELENE LANGHORNE,

           Defendant/Third-Party Defendant,

and

JACK RILEY, PAT FEHRING, PHIL COOPER,
ANTHONY WEEKLY, BRUCE BAXTER,
ELIZABETH HOLSBEKE, ROBIN
VANDENBERG, CAROL CRAW, ANN MARIE
ST. CLAIR, NEYSA FRENCH, KATHERINE ST.
CHARLES, BRIAN LITWIN, and HEATHER
MAIER,

           Third-Party Defendants.

                                            -2-
Before: SERVITO, P.J., and STEPHENS and M. J. KELLY, JJ.

PER CURIAM.

        In this indemnification dispute, plaintiffs, Fifth Third Mortgage-MI, LLC (Fifth Third
LLC), Fifth Third Mortgage Company and Fifth Third Bank (collectively the Fifth Third
Entities), appeal by right the trial court’s order granting the motion for summary disposition
under MCR 2.116(C)(8) and (10) by defendant, First American Title Insurance Company, and
denying their cross-motion for summary disposition under MCR 2.116(C)(10). We affirm in
part, reverse in part, and remand for further proceedings.

                                       I. BASIC FACTS

        In 2005, the Fifth Third Entities sued five defendants for damages arising from a scheme
to defraud them by using “straw borrowers” to procure loans secured by residential mortgages
for the purpose of acquiring and developing real property, and then defaulting on the loans. The
Fifth Third Entities later amended their complaint to add numerous defendants, including First
American. The Fifth Third Entities alleged that First American had a contractual obligation to
indemnify them for losses sustained with regard to seven loans under the terms of a closing
protection letter (the protection letter), which was addressed to Fifth Third Mortgage Company
and dated November 17, 2005. The protection letter, which was issued by Continental Title
Insurance Agency, Inc., provided that First American would indemnify Fifth Third Mortgage
Company for losses, in relevant part, occasioned by an improper closing:

               When title insurance of First American Title Insurance Company is
       specified for your protection or the protection of a purchase from you in
       connection with closings of real estate transactions on land located in the state of
       Michigan in which you are to be the seller or purchaser of an interest in the land
       or a lender secured by a mortgage (including any other security instrument) of an
       interest in land, the Company, subject to the Conditions and Exclusions set forth
       below, hereby agrees to reimburse you for actual loss incurred by you in
       connection with such closings when conducted by the Issuing Agent (an Agent
       authorized to issue title insurance for the Company), referenced herein . . . .

       The Fifth Third Entities dropped their claim for indemnification with respect to one loan,
which was repaid, but continued to seek indemnification for losses associated with loans made to
six borrowers: Mercedes Turin, Floyd Anderson, Roselene Langhorne, Stephanie Glover,
Chenzira Maples, and Scott Lucia. The closings for those loans took place between May and
October 2005. First American issued the protection letter after the closing for these loans.
Continental Title handled each closing and each mortgage listed Fifth Third LLC as the lender
and mortgagee.

                                               -3-
       In 2008, the trial court dismissed the Fifth Third Entities’ indemnification claims after
determining that the protection letter could not be applied retroactively. This Court, however,
reversed that decision and remanded for further proceedings.1

       On remand, First American again moved for summary disposition under MCR
2.116(C)(8) and (10). First American conceded for purposes of its motion that Continental Title,
and Continental’s principal, Paul Nicoletti, were active participants in the fraudulent scheme.
Instead, First American argued that, under the undisputed facts, Fifth Third Mortgage Company
was not entitled to indemnification. Specifically, it argued that Fifth Third Mortgage Company
was not the mortgage holder and was not named as the insured under the title insurance for the
loans at issue, as required under the protection letter. It further argued that the protection letter
did not apply to Continental Title’s alleged misconduct. First American also sought to bar the
indemnification claim on the basis of the Firth Third Entities’ receipt of deeds in lieu of
foreclosure for the properties at issue, or to reduce any amount that it owed on the ground that
Fifth Third Mortgage Company impaired its subrogation rights. The Fifth Third Entities also
moved for summary disposition under MCR 2.116(C)(10).

        The trial court determined that the protection letter did not apply under the undisputed
facts and, for that reason, granted First American’s motion and denied the Fifth Third Entities’
motion. After the trial court denied their motion for reconsideration, the Fifth Third Entities
appealed in this Court.

                                 II. STANDARDS OF REVIEW

       This Court reviews de novo a trial court’s decision on a motion for summary disposition.
Barnard Mfg Co, Inc v Gates Performance Engineering, Inc, 285 Mich. App. 362, 369; 775
NW2d 618 (2009). This Court also reviews de novo the proper interpretation and application of
a contract for indemnification. Miller-Davis Co v Ahrens Constr, Inc, 495 Mich. 161, 172; 848
NW2d 95 (2014). This Court similarly reviews de novo the proper application of an equitable
doctrine, such as estoppel. Tenneco Inc v Amerisure Mut Ins Co, 281 Mich. App. 429, 444; 761
NW2d 846 (2008). We review a trial court’s decision on a motion for reconsideration for an
abuse of discretion. Yoost v Caspari, 295 Mich. App. 209, 219; 813 NW2d 783 (2012).

       In this case, it is evident that the trial court considered the parties’ evidentiary
submissions in deciding the motions. Therefore, we shall review its decision under the standards
applicable to a motion under MCR 2.116(C)(10). See Hughes v Region VII Area Agency on
Aging, 277 Mich. App. 268, 273; 744 NW2d 10 (2007).

       A motion under MCR 2.116(C)(10) tests the factual sufficiency of the complaint. Lear
Corp v Dep’t of Treasury, 299 Mich. App. 533, 536; 831 NW2d 255 (2013). The moving party
has the initial burden of presenting affidavits, depositions, admissions, or other documentary
evidence in support of its position. Barnard Mfg, 285 Mich. App. at 369-370. If the moving party

1
 Fifth Third Mortgage-MI, LLC v Hance, unpublished opinion per curiam of the Court of
Appeals, issued September 29, 2011 (Docket Nos. 294633 and 294698).

                                                -4-
properly supports its motion, the burden shifts to the nonmoving party to present evidence
showing that a genuine issue of material fact exists. Id. at 374. “ ‘A genuine issue of material
fact exists when, viewing the evidence in a light most favorable to the nonmoving party, the
record which might be developed . . . would leave open an issue upon which reasonable minds
might differ.’ ” Bonner v City of Brighton, 495 Mich. 209, 220; 848 NW2d 380 (2014), quoting
Debano-Griffin v Lake Co, 493 Mich. 167, 175; 828 NW2d 634 (2013).

                   III. INDEMNITEE UNDER THE PROTECTION LETTER

        The Fifth Third Entities first argue that the trial court erred when it determined that Fifth
Third Mortgage Company was not entitled to indemnification under the terms of the protection
letter. They maintain there was at least an issue of fact regarding whether Fifth Third Mortgage
Company could satisfy the requirements.

        A closing protection letter, such as the one at issue, is an indemnification agreement that
provides protection for risks other than that provided under a title insurance policy. JPMorgan
Chase Bank, NA v First American Title Ins Co, 750 F3d 573, 579 (CA 6, 2014). A title
insurance policy insures that the title for the property is not subject to unknown encumbrances.
Id. A closing protection letter, by contrast, is issued by the title insurance underwriter to verify
its agent’s authority to issue title insurance and to indemnify the purchaser for its agent’s errors
or dishonesty. New Freedom Mtg Corp v Globe Mtg Corp, 281 Mich. App. 63, 80; 761 NW2d
832 (2008). Although the consideration for the closing protection letter is the purchase of the
underlying title insurance policy, the protection letter can support a breach of contract claim
independent of the title insurance policy. Id.

       As with any contract, the primary goal in construing an indemnification agreement is to
give effect to the parties’ intent. Miller-Davis Co, 495 Mich. at 174. The parties’ intent is
determined by examining the contractual language according to its plain and ordinary meaning.
Id. The applicability of an indemnification clause is determined by making a straightforward
analysis of the facts and contract terms. Id. If contractual language is unambiguous, it must be
enforced as written. Badiee v Brighton Area Sch, 265 Mich. App. 343, 351; 695 NW2d 521
(2005). If the language is ambiguous, summary disposition is inappropriate because factual
development is necessary to determine the parties’ intent. SSC Assoc Ltd Partnership v Gen
Retirement Sys, 192 Mich. App. 360, 363; 480 NW2d 275 (1991). A contract is ambiguous when
two provisions irreconcilably conflict or a term is equally susceptible to more than one meaning.
Holland v Trinity Health Care Corp, 287 Mich. App. 524, 527; 791 NW2d 724 (2010).

        The protection letter at issue contains two dependent clauses. The first dependent clause
states that the named indemnitee is entitled to protection when “title insurance of First American
Title Insurance Company is specified for your protection or the protection of a purchase from
you in connection with closings of real estate transactions on land located in the state of
Michigan . . . .”

        In its motion for summary disposition, First American argued—almost as an
afterthought—that Fifth Third Mortgage Company could not establish a claim for
indemnification under this clause because it was not named under the title insurance policies for
the closings at issue. It did not, however, cite any record evidence for this proposition and there

                                                -5-
is no indication in the record that the trial court properly considered other evidence to establish
this fact. See Barnard Mfg, 285 Mich. App. at 380-381, 380 n 8. Because it failed to properly
support its motion with evidence tending to show that Fifth Third Mortgage Company was not
insured under the title insurance policies, the Fifth Third Entities had no obligation to present
evidence to establish a question of fact on this issue and the trial court should have denied First
America’s motion to the extent that it relied on this argument. Id. at 370 (“If the moving party
fails to properly support its motion for summary disposition, the nonmoving party has no duty to
respond and the trial court should deny the motion.”).

        The Fifth Third Entities did submit the title insurance documents on appeal, but we
cannot discern whether those documents were submitted to the trial court on the original motions
for summary disposition. This Court’s review of a motion for summary disposition is limited to
review of the arguments and evidence actually presented to the trial court. Id. at 380-381.
Therefore, because there is no indication that these documents were properly submitted to the
trial court on the motions for summary disposition, we decline to consider them. See Amorello v
Monsanto Corp, 186 Mich. App. 324, 330; 463 NW2d 487 (1990). Nevertheless, as the Fifth
Third Entities point out on appeal, the term “insured” in the policy is not limited to the named
insured, but rather may include the owner of the indebtedness secured by the insured mortgage
and each successor. See, e.g., Prime Fin Servs, LLC v Vinton, 279 Mich. App. 245, 256-257; 761
NW2d 694 (2008) (explaining that a note is personal property that may be transferred or pledged
to third parties). Because First American has apparently conceded this point and it does not
appear that there was record evidence to support the trial court’s determination regarding who
was insured under the title insurance policies, we conclude that the trial court erred in its
application of MCR 2.116(C)(10) to this factual issue.

         Under the circumstances of this case, however, we reject the Fifth Third Entities’
argument that First American’s apparent concession on appeal should be dispositive of whether
Fifth Third Mortgage Company was insured under the title policies. Whether the undisputed
evidence established that Fifth Third Mortgage Company was an insured within the meaning of
the title insurance policies at issue should be decided in the first instance by the trial court after a
properly supported motion for summary disposition. Because the Fifth Third Entities did not
establish that the title insurance was specified for Fifth Third Mortgage Company’s protection
before the trial court on their cross-motion, they necessarily failed to establish that they were
entitled to summary disposition in their favor. MCR 2.116(C)(10).

        The Fifth Third Entities also argue that the trial court erred to the extent that it
determined that the protection letter did not apply because Fifth Third Mortgage Company was
not a lender secured by a mortgage on the real property at issue. Specifically, the Fifth Third
Entities argue that the automatic assignment agreement between Fifth Third LLC and Fifth Third
Mortgage Company established, at the very least, a question of fact as to whether Fifth Third
Mortgage Company was a lender secured by the relevant mortgages.

        Where a consumer executes a promissory note and a mortgage in favor of a party, that
party generally owns the promissory note as personal property. Prime Fin Servs, 279 Mich. App.
at 256-257. The mortgage itself is a lien on real property intended to secure payment of the
obligation. Id. at 257. Although a mortgage and promissory note are construed together, the
choice of a mortgagee is a matter of convenience. Residential Funding Co, LLC v Saurman, 490

                                                  -6-
Mich 909; 805 NW2d 183 (2011). Therefore, a record-holder of a mortgage may acquire an
interest in the indebtedness through ownership of the legal title to the security lien, even though
the beneficial interest of the mortgage rests with another party. Id. at 910.

         The record reflects that the promissory notes were first presented to the trial court by
First American in opposition to the Fifth Third Entities’ motion for reconsideration, and not as
documentary evidence to support the motions for summary disposition. But the identity of Fifth
Third LLC as the lender in the promissory notes was consistent with the evidence, including the
mortgages themselves, that was previously submitted to the trial court for purposes of deciding
the motions for summary disposition. We are not persuaded that the evidence, which the Fifth
Third Entities first offered in support of their motion for reconsideration, including certain
construction loan agreements that referred to Fifth Third Mortgage Company as the lender and a
construction loan note addendum that designated Fifth Third Mortgage Company as a mere
recipient for payment, established a genuine issue of material fact sufficient to demonstrate that
the trial court abused its discretion by denying the motion for reconsideration.

       Turning to the assignment agreement between Fifth Third LLC and Fifth Third Mortgage
Company, the trial court considered this argument in its summary disposition ruling and
determined that the parties may have intended to assign the mortgages from Fifth Third LLC to
Fifth Third Mortgage Company, but that there was no evidence that the assignment ever
occurred. We conclude that there is an issue of fact as to whether the assignments occurred.

        The assignment agreement, which was dated October 22, 2001, provides that it is
governed by Ohio law. Under either Michigan or Ohio law, the general rule is that an assignee
stands in the shoes of the assignor. See Ford Motor Credit Co v Ryan, 189 Ohio App 3d 560,
598; 939 NE2d 891 (2010); First of America Bank v Thompson, 217 Mich. App. 581, 587; 552
NW2d 516 (1996). The assignment agreement provided that Fifth Third LLC, as the seller,
assigned to Fifth Third Mortgage Company, as the buyer, its existing notes and mortgages. The
agreement also provided that Fifth Third LLC assigned any future notes and mortgages that it
subsequently made:

                Buyer agrees to purchase and Seller agrees to and does herby sell without
       recourse, assign and transfer to Buyer all of Seller’s right, title and interest in and
       to all loans that close in the name of the Seller subsequent to the date hereof, so
       that immediately upon the closing of each such loan the ownership of the Loan
       Documents evidencing same shall be irrevocably deemed to be held by Buyer and
       not Seller.

        On the basis of this agreement, Fifth Third Mortgage Company stood in the shoes of Fifth
Third LLC with respect to both the indebtedness and the mortgage immediately upon the closing
of future loan transactions. Because the assignment agreement did not require any special steps
for the assignment to take effect, the trial court erred when it determined that there was no
evidence that an assignments actually occurred. Nonetheless, parties may mutually assent to
modify their agreements. See Hanly v Riverside Methodist Hosp, 78 Ohio App 3d 73, 79; 603
NE2d 1126 (1991); Quality Prod & Concepts Co v Nagel Precision, Inc, 469 Mich. 362, 370-
371; 666 NW2d 251 (2003). And, considering that there was evidence to support an inference
that Fifth Third Mortgage Company was not functioning as an assignee, including the mortgage

                                                -7-
discharges executed by Fifth Third LLC for the loan transactions after this case began, we
conclude that there is a genuine issue of material fact regarding whether the October 22, 2001
agreement was in effect at the relevant times.

       We also reject the Fifth Third Entities’ argument that First American lacks standing to
challenge the existence or effect of the assignment agreement. Although a third-party to an
assignment generally does not have standing to challenge the assignment, see Bowles v Oakman,
246 Mich. 674, 678; 225 N.W. 613 (1929), there are limited circumstances where a debtor may
challenge an assignment, such as to avoid having to pay the same debt twice. See 6A CJS
Assignments § 132, pp 524–525 (2013). Accordingly, a third party may challenge an assignment
on the ground that it absolutely invalid, ineffective, or void. Conlin v Mtg Electronic
Registration Sys, Inc, 714 F3d 355, 361 (CA 6, 2013). Because of the nature of the dispute, we
conclude that First American has standing to contest the validity of the assignment. Lansing Sch
Ed Ass’n v Lansing Bd of Ed, 487 Mich. 349, 372; 792 NW2d 686 (2010).

        The trial court erred to the extent that it determined that Fifth Third Mortgage Company
was not an insured within the meaning of the title insurance policies at issue because the parties
failed to properly address that issue in their motions for summary disposition. The trial court
also erred when it granted summary disposition in First America’s favor on the ground that the
Fifth Third Entities failed to establish a question of fact as to whether Fifth Third Mortgage
Company was a lender secured by the relevant mortgages. The Fifth Third Entities presented
evidence sufficient to establish a question of fact as to whether Fifth Third LLC assigned the
notes and mortgages at issue to Fifth Third Mortgage Company.

                    IV. LIABILITY UNDER THE PROTECTION LETTER

       The Fifth Third Entities also argue that the trial court erred in determining that there was
no factual basis for liability under ¶¶ (1)(b) and (2) of the protection letter. For purposes of our
review, we shall assume that Fifth Third Mortgage Company is entitled to seek indemnification
under the protection letter, which identifies Continental Title as the issuing agent.2

       Paragraph 1(b) provides for indemnification where the losses arise from the insuring
agent’s failure to comply with “your written instructions to the extent that they relate to . . . the
obtaining of any other document, specifically required by you, but not to the extent that said
instruments require a determination of the validity, enforceability or effectiveness of such other
document.”3 Under the “closing documents” section of its written instructions for the loan

2
  Although the Fifth Third Entities’ argument focuses on the actions of Paul Nicoletti, it is
apparent that Continental Title is the insuring agent. Nicoletti’s actions are, nevertheless,
relevant because Continental Title acted through its officers and agents. Barclae v Zarb, 300
Mich. App. 455, 472; 834 NW2d 100 (2013).
3
 Although First American points out that the closing instructions are addressed to Continental
Title from “Fifth Third Mortgage” and not “Fifth Third Mortgage Company,” factual
development would be necessary to determine the identity of this entity. Because neither party
has shown that this issue was presented to the trial court or that it could be resolved as a matter

                                                -8-
transactions, Continental Title was “responsible for ensuring that all closing documents are
properly executed and acknowledged.” The instructions also required Continental Title to certify
that it complied with the instructions and provided that “[a]ll executed documents, conditions
required at closing or other documents required at closing must be returned as part of the closed
loan package.”

        Having considered the list of closing package documents sent to Fifth Third Bank, the
HUD-1 settlement statement, the borrower’s statement, and the affidavit of occupancy for the
loan transaction involving borrower Lucia, we conclude that the Fifth Third Entities failed to
establish any error in the trial court’s determination that the requirements for liability were not
established. The list of closing package documents sent to Fifth Third Bank does not impose any
closing requirements on Continental Title. Further, a HUD-1 settlement statement is basically a
comprehensive list of incoming and outgoing funds upon closing of a mortgage transaction.
United States v Woods, 554 F3d 611, 612 n 3 (CA 6, 2009). There is no evidence that it was
specifically required by Fifth Third Mortgage Company. Even if the list of closing package
documents supports an inference that listed documents, including the HUD-1 settlement
statement, were required, Lucia attested to the accuracy of the HUD-1 settlement statement, not
Continental Title. And even if Continental Title had a role in preparing inaccurate information in
the HUD-1 settlement statement, as claimed by the Fifth Third Entities, the protection letter does
not provide for indemnification to the extent that the written closing instructions “require a
determination of the validity, enforceability or effectiveness” of the document. This exception
applies to inaccurate HUD-1 settlement statements. New Freedom Mtg Corp, 281 Mich. App. at
82. Therefore, the trial court correctly determined that the HUD-1 settlement statements did not
trigger liability under the protection letter.

       Although the trial court did not address the borrower’s statement and affidavit of
occupancy, the borrower’s statement indicates that it was approved by Lucia. Also, the affidavit
of occupancy indicates that it was signed by Lucia, with Nicoletti acting as the notary. There is
no evidence that Continental Title was instructed that its agent must serve as the notary. Further,
Nicoletti’s role as the notary would not include attesting to the accuracy of the affidavit. See
Sherry v E Suburban Football League, 292 Mich. App. 23, 31; 807 NW2d 859 (2011). In any
event, considering that the gravamen of the Fifth Third Entities’ claim concerning these
documents, like the HUD-1 settlement statement, is that they are inaccurate, they fall within the
exception in ¶ 1(b) for determinations of the validity, enforceability, or effectiveness of the
document. Thus, there is no basis for disturbing the trial court’s determination that ¶ 1(b) does
not apply.

        With respect to ¶ 2 of the protection letter, we conclude that the trial court erred when it
determined that there was no factual support for the Fifth Third Entities’ claim. This provision
establishes liability for losses arising out of “[f]raud or dishonesty of the Issuing Agent handling
your funds or documents in connection with such closings.” The phrase “handling your funds or
documents” modifies the phrase limiting the conduct that will give rise to liability: fraud or
dishonesty by the issuing agent. The phrase does not, however, limit the nature of the fraud or

of law, we shall assume for purposes of our review that the closing instructions were Fifth Third
Mortgage Company’s instructions.

                                                -9-
dishonesty that can give rise to liability, such as fraud in handling funds or documents, compare
New Freedom, 281 Mich. App. at 83 (noting that the clause at issue referred to fraud or dishonesty
in handling the funds or documents as opposed to fraud or dishonesty by the agent “handling”
the funds or documents), but limits whose fraud or dishonesty can give rise to liability.
Consequently, any fraud or dishonesty by the issuing agent who handles “your funds or
documents” will give rise to liability as long as the issuing agent handles the funds or documents
in “connection with” the closing. It is, nevertheless, apparent that any liability under the
protection letter must be predicated on an association between actual losses incurred by Fifth
Third Mortgage Company and the closings on the real estate transactions conducted by
Continental Title. A lender suffers a loss where it does not receive what it bargained for, which
could include “a bona fide mortgagor with the financial capacity to make the mortgage
payments; a first lien on the property subject to foreclosure, if necessary; and the right to seek
recovery of a deficiency after foreclosure from the mortgagor.” First American Title Ins Co v
Vision Mtg Corp, Inc, 298 N J Super 138, 143-144; 689 A2d 154 (1997).

        In this case, First American conceded for purposes of its motion for summary disposition
that Continental Title, through Nicoletti, actively participated in the fraudulent scheme pertaining
to the loan transactions.4 Given this concession, there is merit to the Fifth Third Entities’
argument that the trial court erred in granting First American’s motion for summary disposition.
An issuing agent may fraudulently or dishonestly handle a lender’s funds, even when there are
no technical shortages of funds or unpaid lienholders at closing. Where an issuing agent
possesses knowledge of, or is actively involved in, a fraudulent scheme involving the handling of
the lender’s funds or falsities in loan documents, liability may be predicated on ¶ 2 of the
protection letter.

        In sum, we affirm the trial court’s determination that there was no liability under ¶ 1(b) of
the protection letter, but reverse its determination that ¶ 2 of the protection letter does not apply
to Fifth Third Mortgage Company’s claimed losses. Consequently, the trial court erred when it
granted summary disposition under MCR 2.116(C)(10) on the grounds that the activities at issue
could not trigger liability under ¶ 2 of the protection letter.

                                       V. SUBROGATION

        Lastly, the Fifth Third entities argue the trial court erred in determining that settlements
reached in this case with respect to the six loan transactions precluded any liability under the
protection letter. The protection letter contained the following subrogation clause:

4
  Although First American challenges the factual basis for the Fifth Third Entities’ claim that
Continental Title had an active role in disbursing escrowed loan funds to use as the down
payment for the loans, First American first raised this issue in response to their motion for
reconsideration. We have held First American to its concession for purposes of reviewing the
trial court’s s ruling. But, on the basis of our review of evidence regarding borrowers Lucia,
Glover, and Maples, we reject First American’s argument that the evidence does not support an
inference that escrowed loan funds were used to fund the down payments.

                                                -10-
       [w]hen the Company shall have reimbursed you pursuant to this letter, it shall be
       subrogated to all rights and remedies which you would have had against any
       person or property had you not been so reimbursed. Liability of the Company for
       such reimbursement shall be reduced to the extent that you have knowingly and
       voluntarily impaired the value of such rights of subrogation.

The trial court determined that the Fifth Third Entities’ acceptance of deeds in lieu of foreclosure
and full releases impaired First American’s subrogation rights. Because First American’s
liability to Fifth Third Mortgage Company has not yet been determined, we shall limit our
review to whether there is any basis to reduce liability. As set forth in the subrogation provision,
this requires proof that Fifth Third Mortgage Company knowingly and voluntarily impaired the
value of First American’s subrogation rights.

        We reject First American’s argument that the “full credit bid” rule is relevant to whether
the value of its subrogation rights were impaired. Under this rule, when a lender acquires
property at a foreclosure sale by making a full credit bid, that is, a bid equal to the unpaid
principal and interest on the mortgage plus foreclosure costs, the mortgage debt is satisfied. New
Freedom Mtg Corp, 281 Mich. App. at 68. Consequently, the lender has no recoverable damages
under a closing protection letter. Id. at 69-70, 75-76. In this case, the amount of Fifth Third
Mortgage Company’s damages has not yet been determined, but the protection letter requires
proof of the actual loss incurred in connection with the closings conducted by Continental Title,
as the issuing agent. In addition, there was no evidence of any foreclosure sales, but rather five
deeds in lieu of foreclosure naming Fifth Third LLC as the grantee, which were executed by a
borrower or other defendants, and one deed in lieu of foreclosure naming Fifth Third Bank as the
grantee, which was executed by borrower Langhorne.

        It is common for a mortgagee to take a conveyance in full or partial satisfaction of the
mortgage obligation and as a substitution for foreclosure. Restatement Property, 3d, Mortgages,
§ 8.5, comment b. But a deed in lieu of foreclosure may also be intended as an additional
security for a mortgage obligation. Id. The fundamental inquiry in construing a deed is to
determine the parties’ intent. Dep’t of Natural Resources v Carmody-Lahti Real Estate, Inc, 472
Mich. 359, 370; 699 NW2d 272 (2005). Therefore, the mere fact that deeds in lieu of foreclosure
were executed in connection with each of the six loan transactions does not establish that the
mortgage debt was satisfied, let alone that Fifth Third Mortgage Company knowingly and
voluntarily impaired the value of First American’s subrogation rights.

        Nonetheless, the Fifth Third Entities do not challenge the trial court’s determination that
Turon, Langhorne, and Lucia where fully released from liability, but only whether there was
evidence that Maples, Glover, and Anderson were fully released from liability. Each deed in lieu
of foreclosure was executed by an entity in which defendant Robert Shumake was a managing
member. Although each deed specified that the grantor was waiving all right to title and the
right of redemption from a foreclosure of the mortgage, the deeds do not extinguish any debt.
Rather, the April 14, 2008 mutual release and settlement agreement that was entered into by all
three Fifth Third Entities, and several defendants, governs the terms of their release.

                                               -11-
        Under ¶ 1 of the mutual release and settlement agreement, Shumake was required to pay
$200,000 immediately and $550,000 by August 1, 2009. Paragraph 2 provides for entry of a
consent judgment against Shumake in the amount of $1 million if Shumake fails to timely make
the $550,000 payment. Paragraph 6 contains a broad mutual release that, in part, is conditioned
on “payment in full by Shumake in the amounts set forth above.” Considering the consent
judgment entered in August 2009, which the Fifth Third Entities filed with their reply to First
American’s response to their motion for summary disposition, we conclude that the trial court
erred in determining that the releases impaired First American’s subrogation rights with respect
to Glover, Maples and Anderson. The evidence, viewed in a light most favorable to the Fifth
Third Entities, indicates that a condition for the full release of Glover, Maples, and Anderson
was not satisfied. Therefore, we modify the trial court’s decision to reflect that First American
was only entitled to partial summary disposition under MCR 2.116(C)(10) with respect to its
impaired-subrogation claim, because a genuine issue of material fact exists with respect to those
three borrowers.

        We also disagree with the Fifth Third Entities’ argument that they established that First
American waived or should be estopped from enforcing the impaired-subrogation provision with
respect to all six loan transactions. Under Michigan law, a valid waiver consists of an intentional
relinquishment of a known right. Sweebe v Sweebe, 474 Mich. 151, 156-157; 712 NW2d 708
(2006). “[A] waiver may be shown by express declarations or by declarations that manifest the
parties’ intent and purpose.” Id. at 157. Contracting parties are free to design their own
guidelines to waive contractual rights, but even absent such a provision, a waiver may be
established by clear and convincing evidence that the parties mutually agreed to the waiver.
Quality Prod & Concepts Co, 469 Mich. at 372.

        In this case, the Fifth Third Entities failed to present evidence to support a waiver.
Substantively, their claim rests on the doctrine of equitable estoppel, but there is no factual
support for applying this doctrine. The doctrine of equitable estoppel may assist a party in a
lawsuit by precluding the opposing party from asserting or denying the existence of a particular
fact. Lakeside Oakland Dev, LC v H & J Beef Co, 249 Mich. App. 517, 527; 644 NW2d 765
(2002). It may also prevent a contracting party from enforcing a specific provision in a contract.
City of Grosse Pointe Park v Mich Muni Liability & Prop Pool, 473 Mich. 188, 204-205; 702
NW2d 106 (2005) (opinion by CAVANAGH, J.) Equitable estoppel arises “where (1) a party, by
representations, admissions, or silence intentionally or negligently induces another party to
believe facts, (2) the other party justifiably relies and acts on that belief, and (3) the other party is
prejudiced if the first party is allowed to deny the existence of those facts.” Conagra, Inc v
Farmers State Bank, 237 Mich. App. 109, 141; 602 NW2d 390 (1999).

         Because there has not yet been any determination that First American breached the
protection letter, and there are genuine issues of material fact regarding First American’s liability
to Fifth Third Mortgage Company, we reject the argument that First American’s denial of
liability supports the application of estoppel. The more important factor is First American’s
knowledge. See Flanary v Reserve Ins Co, 364 Mich. 73, 74-77; 110 NW2d 670 (1961). And
while the evidence presented to the trial court indicates that First American knew about the
litigation involving the borrowers, the Fifth Third Entities have not established any error in the
trial court’s determination that First American knew whether the borrowers would be fully
released from liability.

                                                  -12-
        In a letter dated December 1, 2005, Fifth Third LLC’s lawyer indicated to First American
that Fifth Third LLC had concluded that Continental Title was involved in fraudulent activity
and that it would be seeking indemnification under the protection letter. The lawyer also stated
that Fifth Third LLC intended to mitigate its losses through foreclosures or deeds in lieu of
foreclosure, but provided no notice that it or any other entity would fully release the borrowers
from liability. Standing alone, the letter is insufficient to raise a genuine issue of material fact
regarding whether First American should be estopped from enforcing the subrogation provision
of the protection letter. We are further unpersuaded that the Fifth Third Entities’ intent to
mitigate damages would otherwise provide a basis for estoppel. The failure to mitigate damages
is an affirmative defense to a contract action. Fothergill v McKay Press, 374 Mich. 138, 140; 132
NW2d 144 (1965). And the issue here does not involve such a defense.

       In sum, the Fifth Third Entities failed to factually support their claim that First American
should be estopped from enforcing the impaired-subrogation provision of the protection letter.
Although there has not yet been any determination of the amount of reimbursement, if any, that
would be subject to a reduction for Fifth Third Mortgage Company’s impairment of the value of
First American’s subrogation rights, we modify the trial court’s determination that First
American’s subrogation rights were impaired with respect to the loan transactions involving all
six borrowers. Because the Fifth Third Entities established a genuine issue of material fact
regarding whether the payment condition for the release of borrowers Glover, Maples, and
Anderson was satisfied, the trial court erred in granting summary disposition under MCR
2.116(C)(10) with respect to this issue.

        Affirmed in part, reversed in part, and remanded for further proceedings consistent with
this opinion. We do not retain jurisdiction. None of the parties having prevailed in full, we
order that none may tax costs. MCR 7.219(A).

                                                             /s/ Deborah A. Servitto
                                                             /s/ Cynthia Diane Stephens
                                                             /s/ Michael J. Kelly

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