Successor Interests: Record ALL of your Assignments
In Kim v JP Morgan Chase Bank, the Michigan Court of Appeals reversed the lower court's decision and found a sheriff's sale to be void for lack of record chain of title linking the mortgage interest to JP Morgan Chase.
The Kims took out a loan with Washington Mutual, who recorded a mortgage on the property securing the loan. Washington Mutual went under, and the FDIC appointed JP Morgan Chase as the receiver, acquiring all of Washington Mutual's loans and loan commitments. JP Morgan Chase's purchase and assumption of the Washington Mutuals's assets and liabilities from the FDIC was memorialized by a Purchase and Assumption Agreement. However, each mortgage that JP Morgan Chase was acquiring was not specifically assigned and recorded. When the Kims defaulted on the loan, JP Morgan Chase foreclosed on the property.
The Kims filed a complaint to set aside the sheriff's sale because JP Morgan Chase failed to record an assignment of the mortgage from Washington Mutual. The trial court dismissed the case, ruling that since JP Morgan Chase acquired the interest in the mortgage by operation of law, it was not necessary to record its interest.
The Michigan Court of Appeals pointed out that MCL 500.3204(d)(3) requires a record chain of title to exist prior to the date of the sale if the party foreclosing is not the original mortgagee. JP Morgan Chase was not the original mortgagee. The assignment of the individual mortgage interest was not recorded. The Court reasoned that there is no exception for interests acquired by operation of law. Moreover, it was the FDIC that acquired the interest by operation of law; JP Morgan Chase simply purchased the loans from the FDIC. Because JP Morgan Chase had not recorded an assignment of interest, it lacked standing to foreclose, leaving the sheriff's sale void.
This case will likely be reviewed by the Michigan Supreme Court. However, in the meantime:
- The door is open for challenges to any past foreclosures by advertisement proceedings that were conducted by an acquiring bank without a recorded assignment of mortgage from the FDIC.
- Before initiating any future foreclosure by advertisement proceedings, an acquiring bank should be sure to obtain and record an assignment of mortgage from the FDIC to the acquiring bank.