Court Opinion

ID: 2979259
Source: CourtListenerOpinion
Date Created: 2015-09-22 18:46:35.409689+00
Date Added: 2024-06-11T11:44:16.343923
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 10a0662n.06

                                            No. 10-1782                                   FILED
                                                                                      Oct 28, 2010
                          UNITED STATES COURT OF APPEALS                        LEONARD GREEN, Clerk
                               FOR THE SIXTH CIRCUIT

LIVONIA PROPERTIES HOLDINGS, LLC,                         )
                                                          )
       Plaintiff-Appellant,                               )         ON APPEAL FROM THE
                                                          )         UNITED STATES DISTRICT
               v.                                         )         COURT FOR THE EASTERN
                                                          )         DISTRICT OF MICHIGAN
12840-12976 FARMINGTON ROAD HOLDINGS,                     )
LLC,                                                      )
                                                          )
       Defendant-Appellee.                                )

BEFORE: MERRITT, ROGERS, and SUTTON, Circuit Judges.

       ROGERS, Circuit Judge. Plaintiff Livonia Properties Holdings, L.L.C. appeals the district

court’s denial of a request for a preliminary injunction of the foreclosure by advertisement of four

properties for which Livonia had defaulted on its mortgage obligations. The district court denied

the request for a preliminary injunction after determining that Livonia did not have a strong

likelihood of success on the merits, Livonia was not likely to suffer irreparable harm without the

injunction, any harm caused to Livonia by refusing to enjoin the foreclosure did not clearly outweigh

the harm to others that would be caused by enjoining the foreclosure, and an injunction would not

serve the interests of public policy. An evaluation of the preliminary injunction factors shows that

the court did not abuse its discretion in denying the injunction.
No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

       Livonia owns (or recently owned) four commercial properties in Livonia, Michigan. In

December 2004, Livonia used these properties to secure a $16,300,000 commercial mortgage loan

with Lehman Brothers Bank, FSB. Lehman Brothers executed an assignment of the loan on or

around January 6, 2005, effective January 11, 2005 (the “First Assignment”). The assignment

documents show that the loan was transferred from Lehman Brothers to LaSalle Bank National

Association as Trustee for the registered holders of LB-UBS Commercial Mortgage Trust 2005-C-1,

Commercial Mortgage Pass-Through Certificates, Series 2005-C1 (the “Trust”).                 The First

Assignment was recorded with the Wayne County Register of Deeds on November 17, 2005.

       The public record shows only an assignment from Lehman Brothers to the Trust. However,

Livonia has provided evidence that the First Assignment was actually accomplished through a series

of interim, short-term transfers rather than a direct transfer between the parties. These transfers have

been acknowledged by defendant, Farmington Road Holdings, and are as follows:

       1.      On or about January 6, 2005, effective January 11, 2005, Lehman Brothers sold the
               loan to Lehman Brothers Holdings Inc. (“LBHI”);

       2.      On or about January 31, 2005, LBHI transferred the loan to Structured Asset
               Securities Corporation II (“SASCII”);

       3.      On or about February 10, 2005, SASCII deposited the loan into the Trust.

       Livonia discovered these interim assignments through an Internet search that revealed a

Pooling and Servicing Agreement (“PSA”) describing the interim transfers that were used to

establish the Trust. Farmington acknowledged at oral argument that the First Assignment was

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No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

executed “in blank” (to be completed later) and was later completed to identify the Trust as Lehman

Brothers’ assignee.

       On February 17, 2010, the Trust created the defendant entity, Farmington, for the purpose

of foreclosing on the mortgaged properties. The trustee assigned the loan to Farmington on or about

March 3, 2010 (the “Second Assignment”). The Second Assignment was recorded with the Wayne

County Register of Deeds on March 4, 2010. Farmington then began the process of foreclosure by

advertisement, a method of non-judicial foreclosure permitted under Michigan law. Mich. Comp.

Laws Ann. § 600.3204. Livonia contested the foreclosure in Michigan state court, and Farmington

removed the matter to federal court. The district court extended the state court’s grant of a

temporary restraining order while considering Livonia’s motion for a preliminary injunction.

       On appeal, Livonia contends that Farmington is not in compliance with the statute’s

requirement that a foreclosing mortgagee who is not the original mortgagee must hold record chain

of title to the property in question. The basic assertion is that because the interim transfers of

January 2005 were never recorded, the record chain of title is defective and Farmington cannot

foreclose on the properties by advertisement. The district court correctly determined that Livonia

did not have a strong likelihood of success on the merits of its record-chain-of-title claim and

dissolved the TRO. Livonia next filed a motion for reconsideration, which the district court denied.

Farmington has sold three of the four properties pursuant to the foreclosure by advertisement statute.

Livonia now appeals.

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No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

        As an initial matter, Farmington contends that Livonia’s request that the sales that have

already occurred be set aside is not properly before this court. Farmington argues that the request

was not before the district court on the motion for preliminary injunction, but Farmington does not

acknowledge that the TRO barred foreclosure, so there were no sales for the district court to set

aside. All of the relevant issues of law required to award either form of relief, an injunction or

voiding of the sales, were presented below, and Livonia has not modified those claims on appeal.

Livonia is not attempting to introduce a new claim on appeal, but has merely adjusted the form of

relief requested to conform to the current circumstances. The request has been properly presented

to this court.

        Farmington also contends that Livonia’s petition is partially moot because three of the four

mortgaged properties have already been sold through the foreclosure by advertisement process, but

this argument is also without merit. Farmington’s sole support of its position is a quote taken out

of context from Wright’s Federal Practice and Procedure treatise, which states that “[i]f the district

court has denied an injunction and there has been no stay, defendant is free to take the action sought

to be enjoined, and if the event sought to be enjoined transpires before the appeal is heard, the appeal

will be dismissed as moot.” 11 Charles Alan Wright et al., Federal Practice and Procedure § 2904.

We have found no additional support for this proposition, and Farmington has not argued that we

would be unable to provide Livonia any relief in this appeal. See Coalition for Gov’t Procurement

v. Fed. Prison Indus., 365 F.3d 435, 460 (6th Cir. 2004) (“the determinative factor in the mootness

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No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

inquiry is whether the court possesses the authority to afford [the party seeking reversal] any

effectual relief”).

        The key issue on appeal is the meaning of “record chain of title” under Michigan’s

foreclosure by advertisement statute. Mich. Comp. Laws Ann. § 600.3204. The relevant statutory

language states: “[i]f the party foreclosing a mortgage by advertisement is not the original mortgagee,

a record chain of title shall exist prior to the date of sale . . . evidencing the assignment of the

mortgage to the party foreclosing the mortgage.” Mich. Comp. Laws Ann. § 600.3204(3). Livonia

contends that because the PSA was never recorded and two parties to the PSA are not reflected in

the recorded documents, the record-chain-of-title requirement is not satisfied. Livonia’s basic

assertion is that a Michigan mortgage may only be foreclosed by advertisement if every interim

assignment between the original lender and the foreclosing party is revealed by the public record.

Livonia’s interpretation, however, is not in accordance with the case law.

        Livonia offers no definition of the term “record chain of title” and interchanges the phrase

with “chain of title” throughout its brief. A search of Michigan case law and property treatises has

not revealed a definition of either term, but the phrase is plain on its face and was reasonably defined

by the district court in its opinion denying Livonia’s motion to reconsider: “record chain of title is

comprised of documents that were filed in the County Register of Deeds’ office.”1

        1
          Farmington’s appellate brief refers to an affidavit of Dennis W. Hagerty, a 23-year member
of the Land Title Standards Committee of the Real Property Law Section of the State Bar of
Michigan in which Mr. Hagerty explains the meaning of the term “record chain of title.” Livonia
contends that this affidavit is not properly considered by this court because it was not before the
district court at the time that court ruled on the preliminary injunction. There is no need to examine

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No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

        In this case, the recorded documents show a transfer from Lehman Brothers to the Trust and

another from the Trust to Farmington. These transfers were found in Livonia’s own title search,

which Livonia offered as an exhibit in its original brief to the district court. This record shows a

clear chain of title from the original mortgagee to Farmington. Although Livonia has not articulated

any alternative definition of “record chain of title,” its argument clearly rests on the position that the

term includes any and all interests in the property ever held by any individual or entity. This position

is not supported by the case law.

        The most recent Michigan case in which a plaintiff has attempted to challenge a foreclosure

by advertisement based on unrecorded assignments is Arnold v. DMR Financial Services, Inc., 532
N.W.2d 852 (Mich. 1995). In that case, DMR, the financial institution foreclosing on the mortgage,

had granted a security interest in the mortgage to another entity, which did not record its interest.

The foreclosed party argued that the foreclosure was not carried out in accordance with the statute

because the security assignment was not within the chain of title. The Michigan Supreme Court

disagreed, restating its long-held position that “the presence of an unrecorded security assignment

was irrelevant.” Id. at 856. Arnold actually involved a prior version of the foreclosure-by-

advertisement statute that said that all assignments must be recorded. Id. at 855. Even under that

stronger language, which is clearly more favorable to Livonia’s position than the current requirement

Livonia’s claim on this point because the Hagerty affidavit is not necessary to a determination of the
meaning of “record chain of title” and was not relied on by this court in determining the meaning of
the phrase.

                                                  -6-
No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

that the foreclosing party have “record chain of title,” the Michigan Supreme Court was clear that

the lack of recordation did not invalidate the foreclosure.

       One point of distinction between Arnold and the present matter is that the foreclosing party

in Arnold had assigned only a security interest in the mortgage rather than all of its rights. In

contrast, the mortgage between Livonia and Lehman Brothers appears to have passed in its entirety

through two entities associated with the PSA before being titled to the Trust. However, this

distinction does not undermine Arnold’s relevance to the case at hand. The Arnold court emphasized

that unrecorded interests “did not create a valid objection on behalf of the mortgagor if the mortgagor

was unaffected by those interests.” 532 N.W.2d at 856. Livonia has not argued that the intermediate

transfers related to the PSA have in any way affected Livonia’s rights or responsibilities related to

the mortgage. In fact, it appears that the only interests impaired by the lack of recordation were those

of LBHI and SASCII during the brief time those entities held the loan. Had either attempted to

foreclose, Livonia would have had a valid record-chain-of-title objection.

        The district court opinion emphasizes that Farmington at least substantially complied with

the statutory requirements for record chain of title and that substantial compliance is all that is

required under the statute. Livonia Prop. Holdings, LLC v. 12840-12976 Farmington Rd. Holdings,

LLC, No. 10-11589, 2010 WL 1956867, at *16-18 (E.D. Mich. May 13, 2010). Livonia argues that

the district court misinterpreted the law because the statute actually requires strict compliance. The

case law supports the district court’s position that substantial compliance is sufficient. Peterson v.

Jacobs, 6 N.W.2d 533, 536 (Mich. 1932). However, the issue does not require further discussion

                                                 -7-
No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

because Farmington appears to be in full compliance with the statute. Both Farmington and Livonia

have produced documents revealing that the public records show the mortgage passing from Lehman

Brothers to the Trust to Farmington, and the plain language of the statute appears to require nothing

more.

        Livonia also asserts that Farmington must prove that the assignment between Lehman

Brothers and the Trust is legally valid in order for Farmington’s chain of title to be valid. Livonia

contends that the assignment from Lehman Brothers to the Trust may be invalid because the Trust

did not actually exist as of January 6, 2005, the date entered on the transfer instrument. Livonia

bases this claim on the PSA, which created the Trust but was not executed until February 8, 2005.

The argument, as articulated on appeal, is that the Trust could not have actually received the

mortgage on January 6, 2005, and as a result, the assignment was invalid, making the record chain

of title invalid. As a preliminary matter, Livonia has presented no authority for the proposition that

the record chain of title is destroyed by an irregularity affecting the validity of a transfer. Even if the

transfer were invalidated, the public record would remain as it is, and the record chain of title would

not be disturbed.

        Regardless of this point, even if there were a flaw in the assignment, Livonia does not have

standing to raise that flaw to challenge Farmington’s chain of title. As recognized by the district

court, there is ample authority to support the proposition that “a litigant who is not a party to an

assignment lacks standing to challenge that assignment.” 2010 WL 1956867, at *9. An obligor

“may assert as a defense any matter which renders the assignment absolutely invalid or ineffective,

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No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

or void.” 6A C.J.S. Assignments § 132 (2010). These defenses include nonassignability of the

instrument, assignee’s lack of title, and a prior revocation of the assignment, none of which are

available in the current matter. Id. Obligors have standing to raise these claims because they cannot

otherwise protect themselves from having to pay the same debt twice. Id. In this case, Livonia is

not at risk of paying the debt twice, because Farmington has established that it holds the original

note. Farmington has produced ample documentation that it was in possession of the note and had

been assigned all rights therein prior to the initiation of foreclosure proceedings. The district court

reviewed the copies in exhibits and the originals produced by Farmington and was satisfied that they

were authentic. Without a genuine claim that Farmington is not the rightful owner of the loan and

that Livonia might therefore be subject to double liability on its debt, Livonia cannot credibly claim

to have standing to challenge the First Assignment.

       Michigan case law provides further support for the district court’s conclusion that Livonia

lacks standing to challenge the assignment. In Bowles v. Oakman, 225 N.W. 613 (Mich. 1929), the

Michigan Supreme Court held that the maker of a promissory note could not challenge his

obligations under the note by asserting that an invalid assignment had occurred. Id. at 614. The

court emphasized that the challenge to the transfer was inappropriate where the maker “had no

defense of his own to the note.” Id. The Bowles decision then quotes Gamel v. Hynds, 125 P. 1115

(Okla. 1912), for the point that “the maker cannot defend or set up matters of defense which only

exist between the indorser and indorsee.” 225 N.W. at 614. More recently, the Michigan Court of

Appeals determined that a lessee of property did not have standing to challenge the lessor’s

                                                 -9-
No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

assignment of certain rights in the lease to a subsequent purchaser because “the parties to the

assignment . . . [did] not contest its validity.” Pashak v. Interstate Highway Constr., No. 189886,

1998 WL 2001203, at *1 (Mich. App. Mar. 20, 1998). In the instant case, if the assignment were

in fact irregular, that would be an issue between the assignor and assignee, not between Livonia and

Farmington.

       Livonia has attempted to distinguish itself from the unsuccessful obligors described above

by emphasizing that its challenge of the First Assignment is not meant to “challenge the underlying

obligation,” but rather to challenge the record chain of title. That is, Livonia contends that a

defective assignment corrupts the record chain of title and that Livonia’s challenge is only of

Farmington’s standing to foreclose under the statute. Livonia’s brief cites several cases in which

obligors have raised chain of title challenges (often unsuccessfully) for the proposition that Livonia

has standing to assert this claim. Livonia further argues that because the statute requires the

foreclosing party to hold record chain of title, a debtor must be able to challenge the record chain of

title as a means of avoiding foreclosure. Livonia is correct that a party subject to foreclosure has

standing to challenge whether a lender holds record chain of title, but that determination is limited

to an examination of the public records. In its opinion on Livonia’s motion to reconsider, the district

court clarified this difference, pointing out that Livonia “acknowledges that a record chain of title

exists” but is “unsatisfied with the record chain of title.” 2010 WL 1956867, at *18. Because

Livonia finds no claim in the public records, it is seeking to “go beyond the statutory requirements

to inspect each and every aspect of every contract or agreement” in the history of the loan. Id. at *16.

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No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

        As noted by the district court, even if Livonia did have standing to contest the First

Assignment and the assignment were in fact invalid, Livonia would still be unlikely to succeed on

the merits. 2010 WL 1956867, at *10. Any claim by Livonia that Farmington or the Trust before

it was not a valid assignee of the mortgage rings hollow, as Livonia made mortgage payments

directly to the Trust for years without questioning the Trust’s right to receive payment. Further,

when Livonia first encountered difficulties in repayment, it entered into a prenegotiation agreement

with the Trust. Standing alone, the existence of that agreement makes Livonia’s current questioning

of the mortgage’s ownership or assignments appear disingenuous, but the agreement’s specific terms

further weaken the claim. In the agreement, Livonia expressly acknowledged that “[t]he Loan

Documents are in full force and effect and are binding on the Borrower in accordance with their

terms.” R.16-19 at 3. Even if Livonia had standing, therefore, Farmington would likely have valid

equitable defenses of estoppel and laches based on Livonia’s prior actions.

        Livonia also alleges that the district court relied on a clearly erroneous finding of fact in

denying the injunction. Livonia places great emphasis on the fact that the original district court

opinion identified SASC as a party to the PSA, 2010 WL 1956867, at *1, when the actual party was

in fact SASCII, a separate entity. Livonia “submits that this error by the District Court warrants

reversal of its denial of [Livonia’s] request for a Preliminary Injunction because there is no evidence

that exists that demonstrates the actual chain of title.” But, as already discussed, there is evidence

of the record chain of title, some of which Livonia itself provided in the form of the title report. The

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No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

district court properly relied on this evidence in considering Livonia’s likelihood of success on the

merits.

          Livonia does not assert, and there is no evidence in the district court opinion, that the court

relied in any way on the identity of SASC or SASCII in its decision to deny the injunction. Livonia

brought the error to the district court’s attention in its motion for reconsideration, and the district

court acknowledged and disposed of the point in its opinion on that motion. The district court

restated its position that Livonia lacked standing to challenge the interim transfers, recorded or

unrecorded, regardless of what entities were involved. The district court’s interpretation of the

statute supports the conclusion that the court did not rely on the identities of specific interim parties

in determining that an injunction was unwarranted. The district court correctly rejected all of

Livonia’s claims regarding “record chain of title,” and properly concluded that Livonia had little

likelihood of success on the merits.

          Further, the district court’s weighing of the other three preliminary injunction factors did not

constitute an abuse of discretion. Livonia has limited its specific assertions on appeal to claims

related to its likelihood of success on the merits and has not alleged any error in the district court’s

analysis of the other three factors. Review of the opinion reveals no such error, much less the clear

error required to find an abuse of discretion.

          The district court found that Livonia was unlikely to suffer irreparable harm as a result of the

denial of the preliminary injunction. It specifically identified two bases for its conclusion, neither

of which is clearly erroneous. First, it concluded that the alleged harms Livonia would suffer from

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No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

foreclosure were the direct result of Livonia’s default on the loan and emphasized that self-inflicted

harm is not the type that injunctions are meant to prevent. 2010 WL 1956867, at *12 (citing 11A

Charles Alan Wright et al., Federal Practice and Procedure § 2948.1). Second, the court noted

Michigan’s statutory right of redemption, which allows a borrower subject to foreclosure to satisfy

the debt and reclaim the property for six months after the sale. Because Livonia would still have the

redemption right, any harm it might suffer from foreclosure was not irreparable. 2010 WL 1956867,

at *13.

          With regard to whether an injunction would cause harm to others, the district court

determined that Livonia had not shown that any harm it would suffer if the injunction were denied

would decidedly outweigh any harm that granting the injunction would cause to Farmington. Id.

The district court did not put substantial weight on this factor because the court considered the first

and second factors to be “critical” in the injunction determination and had found that both factors

pointed against granting an injunction. Livonia has not referred to any evidence of harm that the

district court failed to consider, and there is no clear error in its conclusion regarding the relative

harms or its weighing of this factor.

          The district court concluded that the public policy factor weighed against granting an

injunction because Livonia had contractually agreed to foreclosure by advertisement in the event of

default. Id. The court’s conclusion that public policy does not favor allowing a borrower to avoid

its contractual obligations, particularly “where it cannot satisfy the other [preliminary injunction]

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No. 10-1782
Livonia Properties Holdings, LLC. v. 12840-12976 Farmington Road Holdings, LLC

factors,” id. at *13, did not rely on any erroneous findings of fact or misapplication of law and does

not constitute an abuse of discretion.

       We therefore affirm the district court’s order denying a preliminary injunction.

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