Court Opinion

ID: 2982335
Source: CourtListenerOpinion
Date Created: 2015-09-22 20:13:29.555653+00
Date Added: 2024-06-11T15:46:53.685183
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                          File Name: 14a0309n.06

                                          No. 13-1812
                                                                                       FILED
                                                                                  Apr 23, 2014
                          UNITED STATES COURT OF APPEALS                     DEBORAH S. HUNT, Clerk
                               FOR THE SIXTH CIRCUIT

CHARLES L. SPADAFORE and MARY                           )
SPADAFORE,                                              )
                                                        )
       Plaintiffs-Appellants,                           )
                                                                ON APPEAL FROM THE
                                                        )
                                                                UNITED STATES DISTRICT
v.                                                      )
                                                                COURT FOR THE
                                                        )
                                                                EASTERN DISTRICT OF
AURORA LOAN SERVICES, LLC,                              )
                                                                MICHIGAN
                                                        )
       Defendant-Appellee.                              )
                                                        )

BEFORE:        GUY, GIBBONS, and GRIFFIN, Circuit Judges.

       JULIA SMITH GIBBONS, Circuit Judge. Charles and Mary Spadafore lost their

home to foreclosure. They sued Aurora Loan Services, the foreclosing mortgagee, to set aside

the foreclosure sale due to Aurora’s alleged failure to comply with various Michigan statutes

governing the foreclosure process.1 The district court dismissed the Spadafores’ complaint.

Because the Spadafores have not alleged any prejudice arising from a defect or irregularity in the

foreclosure process, we affirm.

                                                I.

       This case relates to a home that the Spadafores owned in Clarkston, Michigan. In

September 2004 the Spadafores borrowed $875,000 from First National Bank of Arizona

       1
        The Spadafores also pled a claim for breach of contract, but their appellate brief does
not mention that claim, and therefore it is forfeited. See United States v. Johnson, 440 F.3d 832,
845–46 (6th Cir. 2006).
No. 13-1812
Spadafore v. Aurora Loan Services, LLC

(FNBA), and the loan was secured by a mortgage on their home. The mortgage listed Mortgage

Electronic Registration Services, Inc. (MERS) as the mortgagee, acting as nominee for FNBA

and its successors and assigns. In June 2008 FNBA merged with First National Bank of Nevada

(FNBNV). The union was short-lived. The next month the Office of the Comptroller of the

Currency, an agency within the United States Department of the Treasury, declared FNBNV

insolvent and shuttered the bank. The Federal Deposit Insurance Corporation (FDIC) assumed

control of FNBNV and sold all of its assets to Mutual of Omaha Bank.

       The Spadafores subsequently defaulted on the loan. In May 2010 they sent a letter to

Aurora Loan Services, the mortgage servicer, requesting a loan modification. According to the

letter, the Spadafores owned two businesses that were experiencing a severe decline in revenue.

The Spadafores insisted that they wanted to keep their home, but they said the value of the house

had plummeted to $331,000, while the outstanding balance on the loan remained $875,000. The

Spadafores attached to their loan modification request a “financial package” from a third-party

loan modification company demonstrating that the Spadafores had $8,000 cash to allocate to the

loan if Aurora agreed to a modification.

       Aurora confirmed to the Spadafores’ counsel that it had received the modification

request, but it initiated foreclosure proceedings nevertheless. MERS assigned the mortgage to

Aurora on March 31, 2011, and the assignment was recorded on April 13, 2011. Around that

same time, Aurora sent a mediation notice to the Spadafores, as required by statute. But the

Spadafores never received the notice; they learned of the foreclosure several weeks later when

Aurora posted a notice on their front door. In late April 2011 Aurora published notice of the

foreclosure in a newspaper, in accordance with Michigan’s foreclosure-by-advertisement statute.

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No. 13-1812
Spadafore v. Aurora Loan Services, LLC

       The sheriff’s sale of the Spadafores’ house occurred on July 26, 2011, and Aurora won

the auction. The Spadafores made another request for a loan modification, which Aurora denied.

The Spadafores also presented a short-sale offer, but Aurora denied that as well. The redemption

period was set to expire on January 26, 2012.

       The Spadafores sued Aurora in Michigan state court on January 26—the last day of the

redemption period. Their complaint sought to toll the redemption period until the court held a

show-cause hearing to determine whether Aurora had standing to initiate the foreclosure

proceedings. The state court issued a temporary restraining order that same day and scheduled a

show-cause hearing for the following week. The day before the hearing, Aurora invoked the

federal district court’s diversity jurisdiction and removed the case to that court.

       Aurora filed a motion for judgment on the pleadings or for summary judgment in

September 2012. The district court granted the motion in December 2012 and dismissed the

case. Because the Spadafores did not redeem their property during the six-month redemption

period, the district court held that they lacked standing to challenge the foreclosure unless they

could show fraud or irregularity in connection with the foreclosure process. Finding no fraud or

irregularity, the district court held that the Spadafores could not “challenge the foreclosure sale

or make any other claims with respect to the property, as their rights have been extinguished.”

                                                 II.

       When a mortgagee exercises its right of foreclosure and triggers a sheriff’s sale,

Michigan law permits the mortgagor to file suit to set aside the sale based on defects or

irregularities in the foreclosure process. Kim v. JPMorgan Chase Bank, N.A., 825 N.W.2d 329,

337 (Mich. 2012). But the presence of defects or irregularities renders the foreclosure sale

voidable rather than void ab initio and thus is not itself sufficient to set aside the sale. Id. “[T]o

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No. 13-1812
Spadafore v. Aurora Loan Services, LLC

set aside the foreclosure sale, plaintiffs must show that they were prejudiced by defendant’s

failure to comply with [Mich. Comp. Laws § 600.3204]. To demonstrate such prejudice, they

must show that they would have been in a better position to preserve their interest in the property

absent defendant’s noncompliance with the statute.” Id.

       The Spadafores allege numerous defects and irregularities, but each allegation fails on its

face, without needing to resort to the evidence submitted by both parties. They first allege that

the foreclosure sale was invalid because they never received the notice required by Mich. Comp.

Laws. § 600.3205a. But that statute requires the foreclosing party to send the notice; it says

nothing about receipt of the notice. In their complaint the Spadafores do not deny that Aurora

sent the notice, and accordingly they have not alleged a violation of the statute.

       The Spadafores next allege that Aurora lacked standing to initiate the foreclosure

proceedings because Aurora did not hold the promissory note that the Spadafores executed in

favor of FNBA. The Spadafores cite various cases and treatises stating that an agent cannot

enforce a promissory note unless the agent possesses the note. But Aurora is not enforcing the

promissory note; it is enforcing the mortgage. There is no dispute that MERS assigned the

mortgage to Aurora, and Michigan law is clear that the foreclosing party need not possess the

note. Residential Funding Co. v. Saurman, 805 N.W.2d 183, 184 (Mich. 2011). The record

holder of the mortgage is entitled to foreclose even if that entity does not possess the beneficial

interest. Id. (citing Arnold v. DMR Fin., 532 N.W.2d 852 (Mich. 1995); Feldman v. Equitable

Trust Co., 270 N.W. 809 (Mich. 1937); Adams v. Niemann, 8 N.W. 719 (Mich. 1881)). It is

therefore immaterial whether Aurora held the promissory note.

       The Spadafores also contend that the foreclosure proceedings were invalid because the

mortgage was not assigned to Aurora until after Aurora sent the mediation notice. This, too, is

                                                 -4-
No. 13-1812
Spadafore v. Aurora Loan Services, LLC

not a violation of Michigan law. Although Michigan law requires the foreclosing party to record

all assignments of the mortgage before commencing the foreclosure, see Kim, 825 N.W.2d at 337

(citing Feldman, 270 N.W. 809), the mediation notice is not considered part of the foreclosure.

Mich. Comp. Laws § 600.3205a(1) specifically states that the mediation notice must be sent

before the foreclosure proceedings are commenced, and section 600.3204 uses the same

language. See Mich. Comp. Laws § 600.3204(4) (“A party shall not commence proceedings

under this chapter to foreclose a mortgage . . . if . . . [n]otice has not been mailed to the

mortgagor as required by section 3205a.”). The statute thus makes clear that the mediation

notice is not part of the foreclosure proceedings; it is a condition precedent to those proceedings.

Michigan law therefore does not require the foreclosing party to register assignments of the

mortgage before sending the mediation notice.

       In their penultimate claim, the Spadafores allege that “the MERS mortgage was

transferred as part of the FDIC takeover of [FNBNV] and no assignment was in record prior to

the Sheriff Sale.”   This allegation confuses the promissory note with the mortgage.           The

Spadafores allege that the FDIC assumed control of FNBNV and sold its assets, including the

promissory note connected to their home loan, to Mutual of Omaha Bank. But their complaint

does not allege that the FDIC ever became mortgagee; it alleges that MERS was the mortgagee

and that “[l]egal ownership of the Note and Mortgage were split at the Closing” of the September

2004 home loan. The complaint thus alleges that MERS remained the mortgagee until the

assignment to Aurora. The FDIC never became mortgagee, and accordingly neither MERS nor

any other entity was required to record an assignment of the mortgage to the FDIC.

       Finally, the Spadafores allege that Aurora violated Mich. Comp. Laws § 600.3220

because Aurora adjourned the foreclosure sale for more than one week without republishing

                                                -5-
No. 13-1812
Spadafore v. Aurora Loan Services, LLC

notice of the sale. Yet the Spadafores have not alleged any prejudice as a result of Aurora’s

alleged failure to republish.     The Spadafores had timely notice of both the foreclosure

proceedings and the sheriff’s sale, yet they made no effort to block the sale or to redeem the

property. They do not explain what they would have done differently if Aurora had republished

notice of the sale after the alleged adjournment. Aurora’s alleged failure to republish notice of

the sale after adjourning the sale for more than one week thus did not prejudice the Spadafores,

and the foreclosure sale cannot be set aside.

                                                III.

       The district court’s judgment is affirmed.

                                                -6-