In much of the country a foreclosing party is never required to prove its authority unless the homeowner takes legal action. Michigan shows how a clear documentary rule can exist and still go unenforced, and how anyone with access to public records could measure it.
Ask a homeowner facing foreclosure who owns their note, and most cannot say. That is a predictable result of how the mortgage market works. A loan may be originated by one company, sold to a second, placed in a trust administered by a third, serviced by a fourth and enforced through a substitute trustee appointed by one of them. The homeowner signed with the first and may never have heard of the last.
The harder question is the subject of this article. At what point in a foreclosure must the enforcing party prove the authority it is exercising? In much of the country the answer is that it never has to, unless the homeowner takes legal action to require it.
In a non-judicial foreclosure state, and Michigan, Georgia and Tennessee are among them, no judge reviews the file before the sale. The process runs on notice and publication. A party asserts a default, records what the statute requires, publishes for the statutory period, and the property is sold. There is no hearing at which anyone asks for the note, traces the endorsements or confirms that the party signing the notice holds the interest it claims.
Judicial states add a court, and in practice the court often has nothing to decide. A foreclosure complaint that goes unanswered ends in a default judgment, which accepts the allegations as pleaded. New Jersey’s judiciary reported for court year 2010 that almost 95 percent of residential foreclosures went through to sheriff’s sale uncontested. We know of no national figure, and its absence is part of the problem.
The practical rule is the same in both systems. Authority is examined when a homeowner with a lawyer and a filing fee forces the examination inside a short window. Otherwise the assertion of authority carries the foreclosure through.
A missing document does not show that authority was missing. In most states a note is transferred by endorsement and delivery, and recording an assignment is not what makes the transfer effective. A gap in the county land records therefore does not, by itself, establish that the foreclosing party lacked the right to foreclose, and a homeowner who is told otherwise is being set up to lose.
Our narrower claim is that nobody knows how often authority is defective, because the process is built so that nobody independent has to look.
Michigan’s foreclosure by advertisement statute provides that if the foreclosing party is not the original mortgagee, “a record chain of title must exist before the date of sale” evidencing the assignment of the mortgage to that party (MCL 600.3204(3)). In Kim v. JPMorgan Chase Bank, N.A., 493 Mich. 98 (2012), the Michigan Supreme Court applied that rule to a bank that had bought a failed lender’s loans from the FDIC. Because the purchase was voluntary, the bank had acquired the mortgage by assignment and had to record its interest before the sale.
That is a documentary duty with a clear test. It is objective and public, and anyone with access to a register of deeds can check compliance.
The second half of Kim matters as much. The court held that a defect in a foreclosure by advertisement makes the sale voidable, and that the sale is not void from the outset. To set it aside the homeowner must show prejudice, meaning that they would have been in a better position to preserve their interest in the property had the statute been followed. Once the redemption period ends, which for most residential property is six months (MCL 600.3240(8)), the former owner’s rights in the property are extinguished unless there is a clear showing of fraud or irregularity (Bryan v. JP Morgan Chase Bank, 304 Mich. App. 708 (2014)).
The legislature imposed a documentary duty and the court confirmed that it applies. The remedy for a breach then rests on the person least able to carry it, on a clock that runs out in months. A foreclosing party that skips the recording requirement faces no consequence in any case where the homeowner does not sue in time and prove prejudice. That is an incentive structure, and whether it produces noncompliance is the question the inquiry below would answer.
We investigate a limited number of matters and will not overstate what they prove. Three current files illustrate the question.
These matters are under active investigation. They are not findings by any court, and we name no party. In each file our request for substantiation was the first that appears in the records we were given, and in each the substantiation was not readily produced.
This part is for reporters and researchers, and it needs no access to our files. It needs a county courthouse and about two weeks.
The result is a compliance rate drawn entirely from public records, which anyone can replicate. To our knowledge no newsroom, regulator or academic has published one for any Michigan county. A rate near 100 percent would show the system working. A materially lower rate would mean that a measurable share of Michigan foreclosures went forward in violation of a requirement the state’s highest court has enforced, and that those sales stand because they were not challenged in time. Transfers by operation of law, such as a merger, should be set aside in the count, because the court distinguished them from assignments. Either result is worth publishing.
The design adapts to other non-judicial states with their own statutory tests. It adapts to judicial states by measuring the share of foreclosure judgments entered by default, which indicates how often authority is tested at all.
Write to icd@servincorporated.com. A duty that is never audited operates as a duty in name only. For how untested proof travels downstream into title, see Sworn, Unchallenged, Insured.
This article is general information and is not legal advice. The matters described are under investigation and are not findings of wrongdoing by any court or agency. Foreclosure deadlines are short, and a homeowner facing a sale should speak with a licensed attorney in their state.
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