Many mortgages changed hands after several major lenders collapsed in during the mortgage crisis. Vincent Howard and our Riverside County foreclosure defense lawyers frequently read about resulting problems, but these problems are often attributable to bad underwriting when the loan was originally made. In Kim v. JP Morgan Chase, a Michigan couple alleges that the acquisition of their mortgage via bank takeover was not "by operation of law" under Michigan law, which means Chase was not permitted to foreclose by advertisement. Euihyung and In Sook Kim argued that the sheriff's sale resulting from their foreclosure should be set aside because the foreclosure was void ab initio for lack of an assignment. The trial court disagreed, saying their mortgage was acquired by operation of law instead of by assignment. The Michigan high court reversed, saying Chase's failure to record an assignment made the sale voidable but not void.
The Kims refinanced with Washington Mutual about 15 months before WaMu collapsed in 2008. The FDIC became the bank's receiver and sold all of its assets to Chase. In 2009, the Kims sought a loan modification; they went into default on Chase's advice and believed they had a loan modification right up until Chase foreclosed. A bank representative advised them not to worry about it, a month before the sheriff's sale. A few months after the sale, the Kims sued to set it aside, arguing that they had a loan modification and the bank hadn't bid fair market value at the sale, as required by law for foreclosure by advertisement. The trial court granted summary disposition to the bank, finding the mortgage was acquired by operation of law. On appeal, the Court of Appeals reversed, ruling that the FDIC acquired the asset by law, but Chase was required to record an assignment before foreclosing.
To foreclose by advertisement, Michigan law requires a clear chain of assignments showing that a foreclosing entity that is not the original lender has the right to do so. The FDIC takeover was an operation of law, the Michigan high court found; federal law expressly says so. However, the court said, the subsequent sale to Chase was not by operation of law, because transfers by operation of law take place involuntarily or with no affirmative action by the transferee. That's true under Michigan caselaw as well as in Black's Law Dictionary. The purchase by Chase was voluntary, the court noted, and required affirmative action. It was not analogous to a merger, as Chase argued; the FDIC had the power to perform a merger and did not. However, the high court found that the foreclosure was not void ab initio, as the Court of Appeals ruled. Rather, it said the foreclosure is voidable under Michigan caselaw, and sent the case back to trial court for determination of whether the Kims were prejudiced by Chase's failure.
At Howard Law, P.C., our Costa Mesa foreclosure defense attorneys frequently hear from families with stories similar to the Kims'. In fact, it was extremely common a few years ago to read about homeowners who were told to go into default before they got a loan modification--something that was never true and hurt many people's credit. It was also very common to hear about people who were granted loan modifications by lenders that were foreclosing at the same time, a process called "dual-track foreclosure" that is now illegal in California. Vincent Howard and our Ontario foreclosure defense lawyers help people who have been hurt by relying on dishonest lender behavior sue for wrongful foreclosure and predatory lending.
If you believe your foreclosure can be--or could have been--avoided if your lender had been fairer or more responsive, call Vincent Howard and the team at Howard Law to discuss a legal case. You can send us a message online or call 1-800-872-5925.