In a recent opinion issued by the Michigan Court of Appeals (“the Court”) in the matter of Logan v. Grann, No. 358022, LEXIS 3927 (Ct. App. June 1, 2023), the Court addressed the ramifications caused by the expiration of a foreclosed mortgagor’s statutory redemption period and potential exceptions to these ensuing consequences.
In 1999, Plaintiff Rodney Logan (“Plaintiff”) purchased real property (“the Property”), executing a mortgage in favor of Countrywide Home Loans, Inc., in connection with his purchase. This mortgage was subsequently assigned to Wells Fargo Bank, National Association (“Wells Fargo”) and its servicer Nationstar Mortgage LLC (“Nationstar”). In July 2019, Nationstar informed Plaintiff that it intended to foreclose on the Property due to Plaintiff having become delinquent on his payments owed under the Mortgage. On August 20, 2019, Nationstar informed Plaintiff that to avoid foreclosure, he owed $8,699.52 due by September 1, 2019, as this was the amount needed “to bring [his] loan current.”
Plaintiff failed to remit any payments by the September 1, 2019 date, and a sheriff’s sale of the Property was scheduled for September 12, 2019. On the date of the sale, but prior to the sale proceedings actually commencing, Plaintiff paid Nationstar $9,583.07 via wire transfer. However, despite this payment, the sale proceeded as scheduled and Wells Fargo purchased the Property for $145,387.35, later conveying the Property to Defendant Dewayne Grann.
Plaintiff later filed suit challenging the foreclosure, alleging various causes of action including one count of fraud. While Plaintiff’s suit was filed within the statutory redemption period, and while the trial court also entered an order extending the redemption period by an additional 90 days, Plaintiff ultimately failed to redeem the Property. Accordingly, upon the expiration of the extended redemption period, the trial court dismissed Plaintiff’s Complaint, holding that Plaintiff no longer had standing to maintain his action due to the expiration of the redemption period. Plaintiff subsequently appealed the dismissal.
On appeal before the Court, Plaintiff contended that the trial court had erred by concluding he lacked standing to continue his action following the expiration of the redemption period. In addressing Plaintiff’s claims, the Court first observed that pursuant to the controlling Michigan sheriff’s sale statute, after a sale is completed, a mortgagor may redeem the sold property by paying the requisite amount owed within a six-month redemption period. The Court noted that here, the trial court had extended this six-month period by an additional 90 days, and yet even with this additional time Plaintiff had still failed to effectuate redemption.
Citing to controlling Michigan case law, the Court held that where a mortgagor “does not exercise their redemption rights,” all of that “mortgagor’s rights in and to the property are extinguished.” On this basis, the Court thus affirmed the trial court’s dismissal of Plaintiff’s Complaint, holding that the expiration of Plaintiff’s redemption period had extinguished any and all of Plaintiff’s interests in the Property, leaving him without standing to challenge the foreclosure.
Despite this, the Court proceeded to focus on Plaintiff’s count seeking to set aside the foreclosure due to alleged fraud. The Court held that this fraud claim could potentially survive Plaintiff’s lack of standing as an exception to the rule, as were this claim to be proven valid, it would nullify the extinguishment of his rights because the sale of the Property – the event setting in motion the redemption period – would be found to have improperly occurred. Thus, the “pivotal question” regarding this fraud claim was whether Plaintiff’s Complaint had pled the requisite elements of a fraud cause of action, which – in the foreclosure context – required that he demonstrate: (1) fraud in the foreclosure procedure; (2) prejudice to the mortgagor; and (3) a causal relationship between the fraud and prejudice.
Plaintiff contended that his Complaint satisfied these elements on the basis that he had alleged Nationstar engaged in prohibited so-called “dual tracking,” a practice where a lender institutes foreclosure proceedings while a borrower in default is actively seeking a loan modification. However, the Court rejected these claims, holding that even were they true, they “did not allege fraud in the foreclosure procedure” itself, and that, without his doing so, his fraud claim failed.
Accordingly, the Court affirmed the lower court’s dismissal for lack of standing.
This decision demonstrates three important concepts. First, that upon the expiration of the applicable statutory redemption period, a foreclosed mortgagor will be divested of all their rights in a given property. Second, that an exception to this rule exists in the case of alleged fraud, but that, third, the alleged fraud must relate to the actual foreclosure procedure itself and not the surrounding events.