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CITIMORTGAGE, INC. v. Mortgage Electronic Registration Systems, Inc., Mich: Court of Appeals “Which Lien Is Superior?”

CITIMORTGAGE, INC. v. Mortgage Electronic Registration Systems, Inc., Mich: Court of Appeals “Which Lien Is Superior?”

The irony is that CitiMortgage & GMAC are both shareholders of MERS…Not to mention Freddie Mac is too.



No. 298004.
Court of Appeals of Michigan. 

December 15, 2011, 9:00 a.m.

Plaintiffs appeal as of right from the trial court’s order denying plaintiffs’ motion for summary disposition and granting defendants’[1] motion for summary disposition. We reverse and remand for further proceedings.

The facts of this case are not in dispute. On September 6, 2000, Sheryll D. Catton and Gregory J. Catton (“the Cattons”) purchased property in Wayne County with a mortgage granted to ABN AMRO Mortgage Group, Inc. (“ABN AMRO”). On May 4, 2001, the Cattons refinanced their loan, discharging the original mortgage in favor of a new mortgage also granted to ABN AMRO. On July 11, 2002, the Cattons obtained a home equity loan from GMAC, granting GMAC a second mortgage on the property. On November 25, 2002, the Cattons refinanced their 2001 loan, discharging the 2001 ABN AMRO mortgage in favor of another mortgage granted to ABN AMRO. There is no dispute that ABN AMRO was unaware of the GMAC mortgage at the time it took the new mortgage although GMAC’s mortgage was recorded. On August 22, 2005, the Cattons filed for bankruptcy and their property was subsequently sold at a foreclosure sale to Federal Home Loan Mortgage Corporation who sued, along with ABN AMRO’s successor-in-interest Citimortgage, Inc., to quiet title.

The issue in this matter is whether, as between the two lien holders, which of the two mortgage liens is superior. CitiMortgage holds the refinanced mortgage lien, and defendant holds the second mortgage, which would have been the junior lien but for the subsequent refinancing. More specifically, the issue is whether CitiMortgage can place its lien in first priority over defendants’ lien through application of the doctrine of equitable subrogation. The trial court concluded that CitiMortgage cannot, and this appeal followed. We review motions for summary disposition and questions of law de novo. Maiden v Rozwood, 461 Mich 109, 118; 597 NW2d 817 (1999); Chapdelaine v Sochocki, 247 Mich App 167, 169; 635 NW2d 339 (2001).

Under then-existing provisions of Michigan’s race-notice recording statute, MCL 565.25(1) and (4), a first-recorded mortgage has priority over a later-recorded mortgage, and equity—and therefore equitable subrogation—may be used by the courts contrary to the plain language of that statute only in the presence of “`”unusual circumstances”` such as fraud or mutual mistake.'” Ameriquest Mortgage v Alton, 273 Mich App 84, 93-94, 99-100; 731 NW2d 99 (2006), quoting Devillers v Auto Club Ins Ass’n, 473 Mich 562, 590; 702 NW2d 539 (2005). See also, Ameriquest Mortgage, 273 Mich App at 100 (MURPHY, J., concurring). Other “unusual circumstances” might include a “preexisting jumble of convoluted case law through which the plaintiff was forced to navigate” or some sort of misconduct by another party. Devillers, 473 Mich at 590 n 64, n 65. However, MCL 565.25(1) and (4) have been repealed by 2008 PA 357. Consequently, the bulk of Ameriquest Mortgage is no longer valid.

That being the case, we conclude that the case law on point in Michigan is consistent with the Restatement of Property (Mortgages), 3d, § 7.3 (hereafter “the Restatement”), which provides as follows:

(a) If a senior mortgage is released of record and, as part of the same transaction, is replaced with a new mortgage, the latter mortgage retains the same priority as its predecessor, except

(1) to the extent that any change in the terms of the mortgage or the obligation it secures is materially prejudicial to the holder of a junior interest in the real estate, or

(2) to the extent that one who is protected by the recording act acquires an interest in the real estate at a time that the senior mortgage is not of record.

(b) If a senior mortgage or the obligation it secures is modified by the parties, the mortgage as modified retains priority as against junior interests in the real estate, except to the extent that the modification is materially prejudicial to the holders of such interests and is not within the scope of a reservation of right to modify as provided in Subsection (c).

(c) If the mortgagor and mortgagee reserve the right in a mortgage to modify the mortgage or the obligation it secures, the mortgage as modified retains priority even if the modification is materially prejudicial to the holders of junior interests in the real estate, except as provided in Subsection (d).

(d) If a mortgage contains a reservation of the right to modify the mortgage or the obligation as described in Subsection (c), the mortgagor may issue a notice to the mortgagee terminating that right. Upon receipt of the notice by the mortgagee, the right to modify with retention of priority under Subsection (c) becomes ineffective against persons taking any subsequent interests in the mortgaged real estate, and any subsequent modifications are governed by Subsection (b). Upon receipt of the notice, the mortgagee must provide the mortgagor with a certificate in recordable form stating that the notice has been received.

Of particular note, Comment b to the Restatement provides that “[u]nder § 7.3(a) a senior mortgagee that discharges its mortgage of record and records a replacement mortgage does not lose its priority as against the holder of an intervening interest unless that holder suffers material prejudice.” The associated Reporter’s Note, voluminously citing to many cases from other jurisdictions, explains that “courts routinely adhere to the principle that a senior mortgagee who discharges its mortgage of record and takes and records a replacement mortgage, retains the predecessor’s seniority as against intervening lienors unless the mortgagee intended a subordination of its mortgage or `paramount equities’ exist.”

For the reasons we discuss infra, we conclude that the Restatement, limited to the situations described by the quoted commentary—specifically, cases in which the senior mortgagee discharges its mortgage of record and contemporaneously takes a replacement mortgage, such as often occurs in the context of refinancing—is consistent with Michigan precedent. Thus limited, because the Restatement reflects the present state of the law in Michigan, we hereby adopt it. We caution, however, that the lending mortgagee seeking subrogation and priority over an intervening interest relative to its newly recorded mortgage must be the same lender that held the original mortgage before the intervening interest arose; and furthermore, any application of equitable subrogation is subject to a careful examination of the equities of all parties and potential prejudice to the intervening lienholder.

Our Supreme Court discussed what it called the doctrine of equitable mistake in Schanhite v Plymouth United Savings Bank, 277 Mich 33, 39; 268 NW 801 (1936), stating:

It is a general rule that the cancellation of a mortgage on the record is not conclusive as to its discharge, or as to the payment of the indebtedness secured thereby. And where the holder of a senior mortgage discharges it of record, and contemporaneously therewith takes a new mortgage, he will not, in the absence of paramount equities, be held to have subordinated his security to an intervening lien unless the circumstances of the transaction indicate this to have been his intention, or such intention upon his part is shown by extrinsic evidence. [Citations omitted.]

This reflects “the well-settled rule that the acceptance by a mortgagee of a new mortgage and his cancellation of the old mortgage do not deprive the mortgagee of priority over intervening liens.” Washington Mut Bank v ShoreBank Corp, 267 Mich App 111, 126; 703 NW2d 486 (2005).

In Washington Mut Bank, this Court rejected an equitable subrogation argument made by the plaintiff bank, where that bank provided refinancing on real property that had earlier been encumbered by a first mortgage, which was paid off with the proceeds from the refinancing, and then encumbered by two intervening mortgages in favor of other banks prior to the refinancing. Importantly, and distinguishable from the facts here, the plaintiff bank that sought subrogation and made the refinancing loan was not the original lender-mortgagee.[2] After an exhaustive examination of the case law regarding equitable subrogation and citing the “well-settled rule” from Schanhite, the Court stated:

[I]n this case, we are not presented with a new mortgage being accepted by the holder of the old mortgage. That is, had the new mortgage been given to Option One Mortgage [original lender], and Option One was before us rather than plaintiff, Schanhite might provide the authority to revive the original mortgage and give the new mortgage the same priority as the one it replaced. . . .

. . .

[W]e are unaware of any authority regarding the application of the doctrine of equitable subrogation to support the general proposition that a new mortgage, granted as part of a generic refinancing transaction, can take the priority of the original mortgage, which is being paid off, giving it priority over intervening liens. . . . Such bolstering of priority may be applicable where the new mortgagee is the holder of the mortgage being paid off[.] [Washington Mut Bank, 267 Mich App at 127-128 (emphasis added); see also Van Dyk Mtg Corp v United States, 503 F Supp 2d 876 (WD Mich, 2007) (applying Washington Mut Bank and Schanhite in granting equitable subrogation under circumstances comparable to the case at bar).]

Washington Mut Bank does not permit us to extend application of the Restatement to cases in which the new mortgagee was not the holder of the original mortgage being paid off through refinancing, consequently, we cannot adopt the Restatement in its entirety. But it does fully support, along with Schanhite, applying the Restatement where, as here, the new mortgagee seeking priority and subrogation held the original mortgage, and we do so here.

We note also that the refinancing in Schanhite actually worked to the benefit of the second mortgagee, because “the property would have been lost to the tax man” otherwise, so restoring the original lien priority was the equitable outcome for all parties. See Washington Mut Bank, 267 Mich App 126-127. Our Supreme Court then clarified that “[t]he theory of equitable or conventional subrogation is that the junior lienor’s position is left unchanged by the conduct of the party seeking subrogation and that he is not wronged by any acts permitting subrogation.” Lentz v Stoflet, 280 Mich 446, 451; 273 NW 763 (1937). Consistent with the Restatement provision in the limited form in which we adopt it, a refinanced mortgage maintains the priority position of the original mortgage so long as any junior lien holder is not prejudiced as a consequence.

Finally, we find it necessary to address the “mere volunteer” rule, which provides that equitable subrogation cannot be extended to a party that is a mere volunteer. Ameriquest Mortgage, 273 Mich App at 94-95. Underlying the rejection of the plaintiff bank’s equitable subrogation argument in Washington Mut Bank was the Court’s conclusion that the plaintiff was a mere volunteer. Washington Mut Bank, 267 Mich App at 119-120. The Court observed that “the doctrine of equitable subrogation does not allow a new mortgagee to take the priority of the older mortgagee merely because the proceeds of the new mortgage were used to pay off the indebtedness secured by the old mortgage[, and] [i]t is clear to us that . . . plaintiff is a mere volunteer and, therefore, is not entitled to equitable subrogation.” Id. Importantly, Washington Mut Bank reflected that the “mere volunteer” rule has no bearing in the context of a case where the new mortgagee and the old mortgagee are one in the same, even in a standard refinancing transaction, otherwise the panel would not have suggested a different outcome had the plaintiff bank held the original mortgage. Indeed, the Schanhite Court did not indicate that the rule allowing qualifying mortgagees to retain priority could only be employed on a finding that a mortgagee was not a mere volunteer. And the Restatement contains no such restriction or limitation. We hold that the “mere volunteer” rule has no applicability where the new mortgagee was also the original mortgagee.

We conclude that equitable subrogation is available to place a new mortgage in the same priority as a discharged mortgage if the new mortgagee was the original mortgagee and the holders of any junior liens are not prejudiced as a consequence. We further conclude that the Restatement, in the limited form in which we have adopted it, sets forth a reasonable and proper framework for determining whether junior lienholders have been prejudiced and whether the equities ultimately favor equitable subrogation. Because the trial court is the forum best suited to evaluating any prejudice and the competing equities, including making any relevant factual determinations, we remand this matter to the trial court to do so.

Reversed and remanded to the trial court for further proceedings consistent with this opinion. We direct that no taxable costs shall be awarded to any party under MCR 7.219. We do not retain jurisdiction.

[1] Defendants, Sheryll D. Catton and Gregory J. Catton, defaulted in this case and are not part of this appeal. References herein to “defendants” are to defendants-appellants, Mortgage Electronic Registration Systems, Inc. (“MERS”), as nominee for GMAC Mortgage, L.L.C. (“GMAC”), and GMAC itself.

[2] The descriptor of “original mortgagee” is amenable to confusion and therefore requires clarification. By that, we mean not only the originating mortgagee, but also any bona fide successor in interest. Here, CitiMortgage was not the original mortgagee, nor was it the new mortgagee at the time of the refinancing transaction. However, ABN AMRO was the original and new mortgagee, and CitiMortgage is ABN AMRO’s successor in interest, so CitiMortgage stands in the shoes of ABN AMRO for purposes of the analysis.

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© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

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Mortgage Fraud | Freddie Mac and Marshal C. Watson Law Firm

Mortgage Fraud | Freddie Mac and Marshal C. Watson Law Firm

Mortgage Fraud

Freddie Mac
Marshall C. Watson Law Firm

Action Date: March 12, 2011
Location: Ft. Lauderdale, FL

The Federal Home Loan Mortgage Corporation (“Freddie Mac”) announced on March 11, 2011, that it is taking its foreclosure cases away from the Marshall C. Watson Law Firm. The Watson firm, based in Ft. Lauderdale, Florida, was one of the firms most often used by Freddie Mac, Fannie Mae and mortgage-backed trusts to foreclose in Florida. The Watson Firm came under the scrutiny of the Economic Crimes Division of the Florida Attorney General for improper loan documentation and foreclosure practices.

In over ten thousand Florida foreclosure cases, the Watson firm used mortgage assignments signed by the firm’s own employees to prove that their clients owned the mortgages. In most of these cases, Freddie Mac, Fannie Mae and mortgage-backed trusts were claiming to own the mortgages. Fannie, Freddie and the trusts lost or never obtained the mortgage assignments needed to prove ownership.

In these cases, two associate lawyers in the Watson firm, Patricia Arango and Caryn Graham, signed the Assignments to the trusts so that the foreclosures could proceed. When Arango and Graham signed these mortgage assignments, they did not disclose that they were lawyers in the Watson Firm. Instead, Arango and Graham signed as officers of Mortgage Electronic Registration Systems, Inc.

In the last three years, Arango and Graham signed as officers of the Mortgage Electronic Registration Systems, Inc., as Nominee for the following lenders on over 10,000 documents used in Florida foreclosures:

• Aegis Wholesale Corporation;
• America Imperial Mortgage Business, Inc.;
• American Bancorp Mortgage Corp.;
• American Home Mortgage;
• America’s Wholesale Lender;
• BNC Mortgage, Inc.;
• Century 21 Mortgage;
• Countrywide Bank, FSB;
• Countrywide Home Loans, Inc.;
• CTX Mortgage Company, LLC;
• Gateway Funding Diversified Mortgage Services;
• Decision One Mortgage Company, LLC;
• E-Loan, Inc.;
• First Choice Funding Group;
• First Magnus Financial Corporation;
• Flagstar Bank, FSB;
• Greenpoint Mortgage Funding;
• Guaranteed Mortgage Bankers;
• HomeAmerica Mortgage Corp.;
• Interstate Home Loan Center, Inc.;
• Ivanhoe Financial, Inc.;
• KB Home Mortgage Company;
• MFC Mortgage Inc. of FL;
• Quicken Loans, Inc.;
• Suntrust Mortgage, Inc.; and
• Universal American Mortgage Company, LLC.

On the majority of these documents, the date of the alleged transaction is falsely stated. The documents were so poorly prepared that in many cases, the new owner is shown to have acquired the mortgage months and even years AFTER the foreclosure cases were filed by those new mortgage owners.

The Watson Firm was also the law firm that most frequently used mortgage assignments prepared by Docx, LLC. The assignments from Docx, LLC include thousands of documents with forged signatures of Linda Green, Tywanna Thomas and Korell Harp, as well as dozens of documents where the lenders were identified as “Bogus Assignee” and “A Bad Bene.” These Docx-prepared assignments also falsely stated the dates of the alleged transfers, and even the authority of the signers to sign on behalf of Mortgage Electronic Registration Systems, Inc.

Despite the well-documented problems with foreclosure cases brought by the Watson Firm, Fannie Mae has not removed the firm from its list of approved law firms. Fannie Mae removed Florida firm Ben-Ezra & Katz in February, 2011, and required the firm to transfer over 15,000 files. Fannie also removed The Law Offices of David J. Stern in Plantation, Florida. That firm announced that it would stop doing all foreclosure work as of March 31, 2011.

No criminal charges have been filed in any case involving forged or fraudulent loan documents used by banks and mortgage lenders to foreclose.

While courts have been critical of such documents and have added requirements to civil procedure rules so that law firms can be sanctioned for using such documents, no sanction has ever included any criminal charges.

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

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PBPOST | Freddie Mac takes foreclosure files from Fort Lauderdale-based Marshall C. Watson law firm

PBPOST | Freddie Mac takes foreclosure files from Fort Lauderdale-based Marshall C. Watson law firm

by Kim Miller

Federal mortgage backer Freddie Mac is taking its foreclosure cases from the Fort Lauderdale-based Marshall C. Watson law firm, one of eight Florida firms facing state scrutiny for its handling of home repossessions.

Brad German, a spokesman for Freddie Mac, confirmed the removal of the cases this morning, but did not say why Watson will no longer be used.

“Going forward our servicers will be directing business to other counsel,” German said.

In a statement, the Marshall C. Watson law firm said the parting was a mutual decision made by both sides.

“Freddie Mac and our firm mutually decided to part ways,” that statement said. “The Freddie Mac portfolio was only a small portion of the firm’s business, representing less than ten percent. Our firm will continue to work with Freddie Mac to ensure the transition of files is expedited and smooth. We are operating as normal with respect to all other clients and as always remain focused on providing superior service.”

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

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Freddie Mac’s Chief Operating Officer Bruce Witherell Resigns

Freddie Mac’s Chief Operating Officer Bruce Witherell Resigns

According to a regulatory filing on February 9, 2011, Bruce M. Witherell resigned from his position and responsibilities as Chief Operating Officer of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation) for personal reasons, effective immediately.

Mr. Witherell will not receive any termination benefits.



© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

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Foreclosure Mills and The 4 Minute Foreclosure

Foreclosure Mills and The 4 Minute Foreclosure

For you to understand a little more about “the 4 minute foreclosure” you first have to know some key players in the controversy surrounding the foreclosure process today. I included a few excerpts from an article written by Gerlad B. Alt for DS News March of 2007 that you will find at the end. I only wish MERS was included in this article because without this device none of this would have been made possible.

The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac, is a public government sponsored enterprise (GSE), headquartered in the Tyson’s Corner CDP in unincorporated Fairfax County, VirginiaFreddie Mac, one of America’s biggest buyers of home mortgages, is a stockholder-owned corporation chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of home-ownership and rental housing.

Freddie Mac was the first investor to improve on the so-called standard timeframes by tightening the noose and imposing what seemed at the time like draconian and arbitrary standards for completion of legal actions for foreclosure and bankruptcy. To reinforce its point, the Federal Home Loan Mortgage Corporation adopted a designated counsel program under which the attorneys chosen to participate were expected to meet and be graded against these more stringent dates.

LOGS Network is a multi-state network of title companies and law firms and connecting them via a proprietary web-hosted software system. They developed a proprietary statistical program called ASAP (Attorney Scorecard and Performance) to help manage the more than 250 law firms its outsourcing division. By introducing , invented the field counsel industry that serves residential mortgage banking. LOGS Network was co-founded by Gerald M. Shapiro of Shapiro & Fishman PA a law firm who handles foreclosures for the financial industry. His network held a virtual monopoly on all foreclosure and bankruptcy work nationwide until the early 1990s. In addition, he preempted the entire industry by creating the “cradle to grave” concept through business developments in title, closing, document preparation, foreclosures, REO, outsourcing, collection, and debt acquisition businesses.

Fidelity National, a national default outsourcing and information provider, was one of the first in the industry to implement time-frames a high priority instead of a guideline standards. It instituted a policy recognizing and rewarding those attorneys who did work for its clients in a consistently shorter time than their competition. Fidelity mentality was the faster the better and by publicizing and comparing the time to completion of various legal tasks among the hundreds of law firms doing work for its client base. It created a demand for attorneys to keep up with their business practices in the same sequence that other industries have had to in the sense of “recreating the wheel” so to speak to keep up with growing competition.

By having a goal of recovering nonconforming assets for the servicers this put pressure on the time frames they had in order to recover title.

Of course, when the only acceptable
test for quality becomes a simple test
of speed, it is inevitable that some of
the participants will feel compelled
to cut corners to stay in the game.

Click Image For PDF


© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

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Say Goodbye to Fannie and Freddie

Say Goodbye to Fannie and Freddie

Published: August 11, 2010

Elkton, Md.

THE Federal National Mortgage Association — known as Fannie Mae — and the Federal Home Loan Mortgage Corporation — Freddie Mac — were poorly structured from the time, 40 years ago, when they were set up as so-called government-sponsored enterprises. Both of these technically private companies, designed to foster the issuance of home mortgages, enjoyed implicit federal backing in the event they got into financial trouble but only weak regulation to prevent such trouble. Essentially, the federal government insured the companies’ liabilities but never charged a premium.

Fannie and Freddie had a license to print money. They could borrow at an interest rate only a bit over the Treasury rate and then accumulate large portfolios of mortgages and mortgage-backed securities earning the market rate. What a deal — borrow at the low rate, invest at a higher one, hold little capital and let the federal government bear the risk! Investors enjoyed high returns, and management enjoyed high salaries. Incidentally, politicians also got a steady flow of campaign contributions from the companies’ executives.

Fannie and Freddie’s risky policies led to their near collapse; in September 2008, the federal government brought them under federal conservatorship. Fannie and Freddie have cost taxpayers about $150 billion so far.

On Tuesday, the Obama administration plans to hold a conference to address the question of what to do with the two companies. Clearly, it would be an inexcusable mistake to reconstitute them as private companies in anything close to their prior form. Some people have suggested recasting them as a single new “Fan-Fred agency” that would continue to securitize and guarantee home mortgages. It’s true that Fannie and Freddie played an important role in developing the market for mortgage-backed securities. But they have completed that work, and they should not be preserved in any form. They should be thanked for their successes and gracefully retired.

Continue Reading…NYTimes

William Poole, a senior fellow with the Cato Institute and a distinguished scholar in residence at the University of Delaware, was president of the Federal Reserve Bank of St. Louis from 1998 to 2008.

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

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