Kim v. JPMorgan Chase Bank, N.A.: A Complete Victory for Mortgage Servicers? Maybe not…

In 2012, the Supreme Court of Michigan issued an opinion in Kim v. JPMorgan Chase Bank, N.A. (“Kim”). The primary focus of the decision at that time was the Court’s analysis which stated that in order to set aside a foreclosure sale when a mortgagee or servicer violates the Michigan foreclosure by advertisement statute, the borrower must show actual prejudice caused by the violation. At the time, it was deemed to be a positive ruling for mortgage holders and servicers.

Now, four years later, we are facing anew complication due to the ruling. On September 25, 2008, the Federal Deposit Insurance Corporation (“FDIC”) took receivership over the assets of Washington Mutual, Inc. (“WaMu”). As receiver for WaMu, the FDIC had both the power to merge WaMu into another entity pursuant to 12 USC §1821(d)(2)(G)(i)(I), or also to sell the assets of WaMu to another entity pursuant to 12 USC §1821(d)(2)(G)(i)(II). It is well established that when one entity acquires the assets of another company through a merger, the assets transfer as a matter of law. In its analysis in Kim, the Supreme Court of Michigan determined that the FDIC clearly chose to rely on 12 USC §1821(d)(2)(G)(i)(II) when it transferred WAMU’s assets to JPMorgan Chase Bank (“Chase”), and therefore, the assets did not transfer by operation of law.

Following the logic of the Court, an assignment of the mortgage out of the FDIC as receiver for WaMu, and into Chase, would be needed to comply with the foreclosure by advertisement statutes. Specifically, MCL §600.3204 requires a record chain of title for the mortgage, “if the party foreclosing the mortgage by advertisement is not the original mortgagee,” in order to foreclose by advertisement. Chase has taken the position that they are able to assign these mortgages as “successor in interest by purchase from the FDIC as Receiver of Washington Mutual,” and that an assignment to Chase is unnecessary. This may be sufficient to comply with the laws of other states, but under the ruling in Kim, the proposed assignment is not sufficient under Michigan law.

So, what is the solution for a servicer who has now acquired a loan that was at one point transferred from the FDIC, as receiver for WaMu, to Chase? It will have to be an internal business decision made by each servicer. If a servicer holds enough loans from this pool, which would all fall under the same Federal District Court, then one Federal Court action may be possible to address the assignment issue for several loans in one case. Another potential option is to file individual judicial foreclosure actions, in the appropriate state Circuit Court, which would address the assignment issue on a loan by loan basis.

As we have seen before, entities that acquire a nationwide pool of loans may want to implement a nationwide practice as to how to address these loans, though this is may be difficult with the varying laws in each state. Unfortunately, the Supreme Court of Michigan has ruled that the approach taken on these loans acquired through the FDIC, as receiver for WaMu, does not comply with Michigan’s foreclosure by advertisement statutes. Only time will tell how the FDIC, and Chase, will address this issue once servicers are forced to file lawsuits to address this matter. In the mean time, servicers will have to make a business decision as to what approach is in their best interest.

Citation: Kim v JPMorgan Chase Bank, N.A. 493 Mich. 98 (2012)

If you have any questions, please contact Mary K. Atallah, Associate Attorney, at (248) 853-4400 ext. 1239 / matallah@potestivolaw.com.