RESIDENTIAL FUNDING COMPANY LLC V GERALD SAURMAN
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STATE OF MICHIGAN
COURT OF APPEALS
RESIDENTIAL FUNDING CO, LLC, f/k/a
RESIDENTIAL FUNDING CORPORATION,
FOR PUBLICATION
April 21, 2011
Plaintiff-Appellee,
v
No. 290248
Kent Circuit Court
LC No. 08-011138-AV
GERALD SAURMAN,
Defendant-Appellant.
BANK OF NEW YORK TRUST COMPANY,
Plaintiff-Appellee,
v
No. 291443
Jackson Circuit Court
LC No. 08-003406-AV
COREY MESSNER,
Defendant-Appellant.
Before: WILDER, P.J., and SERVITTO and SHAPIRO, JJ.
WILDER, J. (dissenting).
Because I conclude that, pursuant to MCL 600.3204(1)(d), Mortgage Electronic
Registration System (MERS) was “the owner . . . of an interest in the indebtedness secured by
the mortgage” at issue in each of these consolidated cases, I respectfully dissent.
I.
Defendant Gerald Saurman (Saurman) and defendant Corey Messner (Messner) executed
promissory notes in exchange for loans from Homecomings Financial Network (Homecomings).
To secure the repayment of the loans, Saurman and Messner executed mortgage agreements that
encumbered the properties purchased with the money loaned to them by Homecomings. The
mortgage agreements provided that MERS, “solely as the nominee for [Homecomings], its
successors and assigns,” was the mortgagee under each Security Instrument, and held the legal
interests to the properties, and that MERS’ interests under each Security Instrument, as nominee
for Homecomings, included the right to foreclose and sell the properties. The mortgage
agreements also provided that MERS had the obligation “to take any action required of
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[Homecomings], including, but not limited to, releasing and canceling” the Security Instruments.
Though it was not the mortgagee, as the Lender, Homecomings retained an equitable interest in
the mortgages.
Both Saurman and Messner defaulted on their payments, and MERS initiated non-judicial
foreclosure by advertisement under MCL 600.3201 et seq. MERS purchased the properties in
sheriffs’ sales, and subsequently, quitclaimed Saurman’s property to Residential Funding Co,
LLC (RFC), and Messner’s property to Bank of New York Trust Co (BNYT). After the
redemption periods expired, RFC and BNYT each sought to obtain possession of the respective
properties. During eviction proceedings, Saurman and Messner challenged the foreclosure by
MERS, asserting that MERS was not the servicing agent, did not own the indebtedness secured
by the mortgage, and did not own an interest in the indebtedness secured by the mortgage as
required by MCL 600.3204(1)(d). These arguments were rejected by both the district courts and
the circuit courts, and this Court granted leave to appeal.
II.
This Court reviews de novo a summary disposition ruling and a circuit court’s affirmance
of a district court’s ruling on a motion for summary disposition. Thorn v Mercy Mem Hosp
Corp, 281 Mich App 644, 647; 761 NW2d 414 (2008); First of America Bank v Thompson, 217
Mich App 581, 583; 552 NW2d 516 (1996). Issues of statutory construction are questions of
law, which this Court reviews de novo on appeal. Washington v Sinai Hosp of Greater Detroit,
478 Mich 412, 417; 733 NW2d 755 (2007). Statutory construction discerns and gives effect to
the Legislature’s intent. Potter v McLeary, 484 Mich 397, 410; 774 NW2d 1 (2009). In
determining that intent, the court first looks to the language of the statute. Id. The interpretation
of the language must accord with the legislative intent. Bush v Shabahang, 484 Mich 156, 167;
772 NW2d 272 (2009). As far as possible, the court gives effect to every phrase, clause, and
word in the statute. Id. “The statutory language must be read and understood in its grammatical
context, unless it is clear that something different was intended.” Id. (quotation marks and
citations omitted). Courts read a statute as a whole, and individual words and phrases, while
important, are read in the context of the entire legislative scheme. Id.
“The interpretation of a contract is also a question of law this Court reviews de novo . . .
.” DaimlerChrysler Corp v G Tech Professional Staffing, Inc, 260 Mich App 183, 184-185; 678
NW2d 647 (2003). A contract must be interpreted according to its plain and ordinary meaning.
Holmes v Holmes, 281 Mich App 575, 593; 760 NW2d 300 (2008).
Under ordinary contract principles if contractual language is clear, construction of
the contract is a question of law for the court. If the contract is subject to two
reasonable interpretations [or the provisions irreconcilably conflict with each
other], factual development is necessary to determine the intent of the parties and
summary disposition is therefore inappropriate. If the contract, although
inartfully worded or clumsily arranged, fairly admits of but one interpretation, it is
not ambiguous. Meagher v Wayne State Univ, 222 Mich App 700, 721-722; 565
NW2d 401 (1997); see also Shaw v City of Ecorse, 283 Mich App 1, 22; 770
NW2d 31 (2009).
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A court may not rewrite clear and unambiguous language under the guise of interpretation.
Woodington v Shokoohi, 288 Mich App 352, 374; 792 NW2d 63 (2010). Rather, “courts must . .
. give effect to every word, phrase, and clause in a contract and avoid an interpretation that
would render any part of the contract surplusage or nugatory.” Klapp v United Ins Group
Agency, Inc, 468 Mich 459, 468; 663 NW2d 447 (2003).
III.
MCL 600.3204 provides, in relevant part:
(1) . . . a party may foreclose a mortgage by advertisement if all of the following
circumstances exist:
(a) A default in a condition of the mortgage has occurred, by which the power to
sell became operative.
(b) An action or proceeding has not been instituted, at law, to recover the debt
secured by the mortgage or any part of the mortgage; or, if an action or
proceeding has been instituted, the action or proceeding has been discontinued; or
an execution on a judgment rendered in an action or proceeding has been returned
unsatisfied, in whole or in part.
(c) The mortgage containing the power of sale has been properly recorded.
(d) The party foreclosing the mortgage is either the owner of the indebtedness or
of an interest in the indebtedness secured by the mortgage or the servicing agent
of the mortgage.
There are three categories of parties who may foreclose by advertisement under MCL
600.3204(1)(d): (1) the owner of the indebtedness secured by the mortgage; (2) the servicing
agent of the mortgage; and (3) the owner of an interest in the indebtedness secured by the
mortgage. Because we must give meaning to each of these phrases and each word in the phrases
in order to give effect to the Legislature’s intent, Bush v Shabahang, 484 Mich at 167, it is clear
that, the owner of an interest in the indebtedness secured by the mortgage, while accorded the
same right to foreclose by advertisement, is a different person or entity, than either the owner of
the indebtedness secured by the mortgage or the servicing agent of the mortgage. To “own”
means “[t]o have good legal title; to hold as property; to have a legal or rightful title to.” Black’s
Law Dictionary (6th ed), p 1105. “Owner” is defined as, “[the] person in whom is vested the
ownership, dominion or title of property; proprietor. He who has dominion as a thing, real or
personal, corporeal or incorporeal, which he has a right to enjoy and do with as he pleases, even
to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or
covenant which restrains his right.” Id. Indebtedness is defined as “[t]he state of being in debt”
or “the owing of a sum of money upon a certain and express agreement.” Id. at 768. The
indebtedness secured by the mortgages are, in these cases, the promissory notes signed by
Saurman and Messner. Thus, the owner of the indebtedness secured by the mortgage owns the
debt or the notes. In these cases, the owner of the indebtedness is Homecomings.
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The signature questions presented in these cases are what it means to own “an interest” in
the indebtedness secured by the mortgage, i.e., to own an interest in the debt or the note, as
opposed to owning the debt or the note, and what entity or person the Legislature meant to refer
to when it permitted “the owner of an interest in the indebtedness secured by the mortgage” to
have the same ability as the owner of the debt and the servicer of the mortgage to foreclose by
advertisement. In general,
The right to foreclosure by advertisement is statutory. Calaveras Timber Co v
Michigan Trust Co, 278 Mich 445, 450; 270 NW 743 (1936). Such foreclosures
are a matter of contract, authorized by the mortgagor, and ought not to be
hampered by an unreasonably strict construction of the law. Cramer v
Metropolitan Sav and Loan Ass’n, 401 Mich 252, 261; 258 NW2d 20 (1977).
Harsh results may and often do occur because of mortgage foreclosure sales, “but
we have never held that because thereof, such sale should be enjoined, when no
showing of fraud or irregularity is made.” Calaveras Timber Co, [278 Mich] at
454. [Church & Church Inc v A-1 Carpentry, 281 Mich App 330, 339-340
(2008), aff’d in part and vacated in part on other grounds, 483 Mich 885 (2009).]
“Interest” is defined in part as “the most general term that can be employed to denote a
right, claim, title or legal share in something. . . .The word ‘interest’ is used in the Restatement of
Property both generically to include varying aggregates of rights, privileges, powers and
immunities and distributively to mean any one of them.” Black’s Law Dictionary (6th ed), p
812. Mortgage is defined as “an interest in land created by a written instrument providing
security for the performance of a duty or the payment of a debt.” Id., p 1009. Notably, the
mortgage operates as a conveyance of the legal title to the mortgagee, but such title is subject to
defeasance on payment of the debt or performance of the duty by the mortgagor. Id at 1010. In
other words, the mortgagee’s title is defeated when the debt is paid.
I would conclude that, as mortgagee, MERS owned a contractual interest in the
indebtednesss. If the indebtedness is paid in conjunction with the note, MERS has the
contractual obligation to cancel the security agreement because its title is defeated. If the
indebtedness is not paid, however, MERS has the contractual right and obligation, to exercise the
rights granted to it by the mortgagors, including the right to foreclose by advertisement under the
statute. In other words, MERS interest in the indebtedness is derived from the fact that its
contractual obligations as mortgagee were dependent upon whether the mortgagor met the
obligation to pay the indebtedness which the mortgage secured.
According to the Security Instruments, MERS was the nominee of Homecomings, and
held its status as mortgagee only in that capacity. “Nominee” is defined as “[a] person
designated to act in place of another, usu. in a very limited way . . . [a] party who holds bare
legal title for the benefit of others.” Black’s Law Dictionary, p 1149 (9th ed). Although
Saurman and Messner agreed that MERS held “only legal title to the interest granted” in the
Security Instruments, the security interest was specifically created to secure performance by
Saurman and Messner of the obligation they undertook in the note, namely, to repay the debt. In
other words, the security interest created was specifically linked to the debt and specifically
created to ensure payment of the debt. Saurman and Messner agreed that “if necessary to
comply with law or custom, MERS (as nominee for [Homecomings] . . . ha[d] the right to take
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any action required of [Homecomings], including, but not limited to, releasing and canceling”
the Security Instruments.
By conveying the right to take any action required of it, Homecomings gave, and MERS
received, a greater interest than just an interest in the property as security for the note, namely
the contractual right to act for the benefit of Homecomings. MERS’s interest in the debt
reflected by the note is inextricably linked to its obligations under the mortgage. For example, if
Saurman or Messner had satisfied their notes, MERS would have been obligated to cancel the
Security Instruments on behalf of Homecomings. Alternatively, if Saurman and Messner had
elected to sell their properties without Homecomings’ prior written consent, MERS would have
had the right to exercise the option to require immediate payment in full of all sums secured by
the Security Instruments on behalf of Homecomings. Failure to pay in full would have then
given MERS the right to invoke remedies such as foreclosure of the properties, as provided in
the Security Instruments. In short, MERS was the contractual owner of an interest in the notes,
which were secured by the mortgages.
There is no dispute that, had Homecomings retained its status as mortgagee, it would
have been entitled to foreclose by advertisement upon the defaults by Saurman and Messner.
Nothing in MCL 600.3204 precludes a noteholder-mortgagee from delegating, by contract, some
of its rights and responsibilities under the statute and the mortgage, to a nominee which, while
not the owner of the note, and therefore, not holding the identical interest in the note as the
noteholder, nevertheless, clearly has an interest in whether the note is paid or defaulted upon.1
Finally, it bears noting that, contrary to the majority’s contention that permitting MERS
to foreclose by advertisement could potentially subject the mortgagors to a double-exposure for
the same debt, MCL 600.3105(2) forces and election of remedies, such that Homecomings would
be precluded from recovery of any debt secured by the mortgage if a foreclosure proceeding had
already been initiated by MERS.
1
In this regard, MERS’ interest in the indebtedness is similar to the interest held by one who
possesses an easement right. “[A]n easement is a not a possessory right. Terlecki v Stewart, 278
Mich App 644, 659-660; 754 NW2d 899 (2008). Rather, “[a]n easement is, by nature, a limited
property interest. It is a right to use the land burdened by the easement rather than a right to
occupy and possess the land as does an estate owner.” Mich Dep’t of Natural Res v CarmodyLahti Real Estate, Inc, 472 Mich 359, 378-379; 699 NW2d 272 (2005) (internal citations and
punctuation omitted)(emphasis added). As one can “own” an easement right and have an interest
in land without owning the land, so, too, can MERS “own” an interest in the note held by
Homecomings without actually owning the note.
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I would conclude that MERS did have the authority to foreclose on defendants’
properties by advertisement. I would affirm in each case.
/s/ Kurtis T. Wilder
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