Closings canceled on some bank-owned homes after court rules against MERS
12:23 AM, May. 5, 2011 |
Heather Boser of Warren looks on Wednesday from her parents’ house after her home was foreclosed three years ago in Warren. Boser is part of a wrongful-foreclosure suit involving her lender. “I would like some kind of compensation for everything I have gone through,” Boser said. / Photos by ANDRE J. JACKSON/Detroit Free Press
Heather Boser plays with her 1-year-old son Cody Porter while she and her family live in her parents’ house. She is part of a wrongful-foreclosure suit and says she wants damages after her ordeal. / ANDRE J. JACKSON/Detroit Free Press
Local Realtors say title companies are canceling closings on some bank-owned homes after a recent Michigan Court of Appeals decision made it more risky to insure them.
Late last month, the court ruled the Mortgage Electronic Registration System lacks authority to foreclose by advertisement in Michigan. The system is an electronic record-keeper of mortgages.
Foreclosures on two homeowners in Grandville and Jackson are on hold because of the ruling. The ruling could also impact thousands of foreclosures that have already been sold to other buyers, industry experts say.
Raymond DeBates, president of Colonial Title in St. Clair Shores, said that he has not had to cancel any closings yet, but he has put some files aside and is waiting for underwriters to indicate whether the deals can close or not.
“This invalidates every foreclosure where MERS was involved,” DeBates said. “They could set aside all these MERS transactions. It would be a catastrophe. And that’s what we have.”
Some homeowners fighting back after foreclosures
Some homeowners who were foreclosed on by the Mortgage Electronic Registration System are fighting back.
Heather Boser, 36, lost her 1,700-square-foot home in Warren in 2007 and is now living at her parents’ house with her four kids.
She had a $203,000 adjustable-rate mortgage. The payments started at $1,200 a month and then moved up to $3,000 a month.
The sheriff’s sale of her home was initiated by MERS, which the Michigan Court of Appeals ruled on April 21 lacks legal authority to do so in Michigan.
The ruling has spawned a couple of budding class-action lawsuits in metro Detroit — and threatens to undo certain foreclosures done by MERS in the past — including one filed Tuesday by Bingham Farms attorney Ken Gross. He’s representing Boser.
‘Now they are in limbo’
“We are still tabulating the numbers but it appears to us … from 2008 to 2010, there were thousands in Michigan with MERS as the foreclosing entity,” Gross said.
In Oakland County, he counted 1,400 foreclosures in 2009 involving MERS and 555 in 2010.
Gross’s client Boser, who owns a tree service company in Warren, said she doesn’t want the house back, which was sold in late 2008 for $110,000.
“I have joined the lawsuit I guess just for restitution for the fact that the paperwork was done incorrectly,” Boser said. “I would like some kind of compensation for everything I have gone through.”
Foreclosures on two homeowners in Grandville and Jackson are on hold because of the ruling.
The homeowners defaulted on their mortgages, but they have challenged their evictions saying MERS, a clearinghouse for mortgage loans, lacked the authority to foreclose by advertisement under state law.
The ruling could also impact thousands of foreclosures that have already been sold to other buyers, industry experts say.
Joan Downing, broker/owner of Re/Max in the Hills in Bloomfield Hills, said the ruling’s impact started becoming apparent late last week with panicky calls from agents saying deals were unraveling at the closing table as title companies withdrew insurance on the titles.
“Some of these people have sold their other homes and now they are in limbo,” Downing said. “What impact is it going to have on people who have already closed and have put money into the homes? Title companies are also saying they aren’t sure they want to get involved in refinances of homes that were foreclosed by MERS.”
And Marshall Mandell, a foreclosure specialist with Re/Max Classic in Farmington Hills, said many buyers will be affected including moving delays, lost fees paid for appraisals, inspections and financing as well.
“We are having closings canceled to a meaningful extent, which is scary because we’re losing essential closings and we can’t yet tell how deeply or how long this will affect us,” Mandell said. “So far it seems to be about 20% of my personal inventory, but it’s too early to know for sure.”
The state law only allows the lender or the servicer to foreclose.
MERS was formed in 1993 as an electronic record-keeper that tracks the ownership of mortgages and made it easier to sell mortgages in blocks.
The idea was to avoid the costs and time associated with recording each mortgage transfer individually as required by many state laws, including in Michigan.
Dan Elsea, president of brokerage services for Real Estate One, said he doesn’t think the ruling would affect closed sales, but time will tell. MERS was “used by pretty much everyone — Freddie (Mac), Fannie (Mae), Wells Fargo. We’ve been told that they were involved in 70% of mortgages.”
Bernard J. Youngblood, the Wayne County register of deeds, said MERS has initiated 50 foreclosures on Wayne County homes within the last six months and nearly 15,000 Wayne County properties under MERS have been foreclosed within the last five years. “I would advise people who have been in foreclosure proceedings with MERS to consult with an attorney who can review their file.”
There may be an opportunity to reverse or delay a foreclosure, he said.
Case may be appealed
Terry Cramer, a Troy attorney whose firm Orlans Associates represents Bank of New York Trust, said the lender had not made a decision about whether to appeal to the Michigan Supreme Court.
“The fact that there was a dissenting opinion indicates there is a little room there to interpret it a number of different ways,” Cramer said.
In the meantime, a MERS spokeswoman says its members have been foreclosing in their names instead of through the registration system since earlier this year.
Janis Smith, MERS spokeswoman, said the company was evaluating its options.
“This is overall a very positive decision for us. In its opinion, the court validated that MERS had an interest in the mortgage and it can exercise its interest,” Smith said. “Title companies should have no concerns about closing loans with MERS as the mortgagee.”
But the court ruled that MERS did not have an interest in the note, or the debt underlying the mortgage. It’s a fine point, but the note and mortgage are two different legal transactions with different rights, the court noted.
David Tripp, the Hastings lawyer who represented Grandville homeowner Gerald Saurman, said the ruling “has somewhat limited effect” since it applies only to foreclosures involving MERS.
But he’s hopeful that Saurman, who is not current on his mortgage, will benefit.
“We’re going to see what we can do to save his home for him,” Tripp said.