First things first. Real estate law is state law. That means that the laws that set up the rules for mortgages and foreclosures are different in every state. Yes, some federal laws (Truth in Lending Act or “TILA” for example) can govern the rules for the actual loan documents, but it is state law that allows a bank to take a mortgage (or lien) against land and, upon a default, repossess that land through foreclosure. So the important thing to remember is that the rules of foreclosure may be different in your state than in other states. I have been seeing all sorts of nationally-publicized cases outside of Michigan on the issue of foreclosure, but these cases do not necessarily create case law for Michigan judges to follow. Foreclosure in Michigan is a function of Michigan law. In Michigan, a bank can foreclose through two routes: (1) foreclosure by advertisement and (2) judicial foreclosure.
Second, with the real estate industry still smoldering from its crash and burn in Michigan over the last several years, we are seeing all sorts of new industries cropping up related to foreclosure avoidance, alternatives to foreclosure and foreclosure defense. Since most Michigan foreclosures are by advertisement, that means that when a house goes into foreclosure a listing is posted in the legal notices section of the local newspaper. Many predatory groups subscribe to these legal news publications and actively solicit business from homeowners who are facing foreclosure. This is legal in Michigan, despite being very deceptive in many cases.
Third, since many people try to find help online, there has been an explosion of foreclosure defense websites. You should be wary of trusting everything you read online no matter what, but I also encourage you not to rely on the advice of a non-attorney, an anonymous blog site, or an out-of-state site. For example, I received a phone call last night. The caller explained that his home was in foreclosure and that he wanted me to argue “the Veal case.” I had not heard of this case, and so immediately he doubted my knowledge of foreclosure law. He stressed to me that he had done a lot of research online, and this was being cited as good case law, holding that an institution cannot foreclose unless it both (1) owns the mortgage (or lien on the land) and (2) owns the “note” (the promissory note or contract for the debt).
So I looked up the case. The case name is Veal v. American Home Mortgage Servicing (aka Veal v. AHMS or In Re Veal). It is a US Bankruptcy Appeals Panel decision out of the 9th Circuit. Now, Michigan is in the 6th Circuit, so 9th Circuit cases are not binding case law here. But more importantly, Veal merely held that the Bankruptcy Court in Arizona made an error by not holding an evidentiary hearing (or mini trial) when a Debtor in a Chapter 13 repayment plan bankruptcy disputed a claim that was filed by a servicing agent of a mortgage company requesting payment under the Chapter 13 plan. The BAP simply remanded the case back to the Arizona Bankruptcy Court and did not rule on the validity of the mortgage or its right to foreclose. So I next looked up the bankruptcy case. It was filed in 2009 but it is still pending at the end of 2012. The Debtors have switched attorneys during the case, and it appears the case is about to be dismissed. A dismissal means their debts would not go away, and the mortgage would not be avoided. In short, Veal is not the great homeowners’ rights opinion it is being trumped up to be in the blogosphere.
That argument, about whether a company can foreclose if it does not both own the lien and the note, was made a few years ago in Michigan. For a while, it was accepted here. I even made the argument in court for my clients in the past. The Michigan Court of Appeals case was Residential Funding v. Saurman (more commonly called “the MERS decision”). However, that decision has been overturned by a final decision from the Michigan Supreme Court. (Often referred to as “the Residential Funding decision”). If you attempt this argument in 2012 in Michigan, you will fail. Fair or unfair, the Supreme Court has spoken on its interpretation of Michigan foreclosure law.
There are other defenses to foreclosure, but I cannot stress enough that each case is unique and that relying on random blogs is not a solid legal argument. That caller had used this argument while trying to represent himself in a lawsuit against his mortgage company. The case was dismissed – with prejudice. That means any claim he might have had is gone. He is permanently barred from suing the mortgage company over this dispute again. This is your home. This is probably your largest investment. Do not rely on urban legends and anonymous internet posts. If you believe you have a valid mortgage foreclosure defense, consult with a local attorney. And do it quickly. The law limits the time you have to act.