The opinion
If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
FEDERAL HOME LOAN MORTGAGE FOR PUBLICATION
CORPORATION, January 21, 2021
9:15 a.m.
Plaintiff/Counterdefendant-Appellee,
v No. 350981
Allegan Circuit Court
LESA WERME, also known as LESA J. WERME, LC No. 18-060665-CH
Defendant/Counterplaintiff-Appellant.
Before: REDFORD, P.J., and MARKEY and BOONSTRA, JJ.
REDFORD, P.J.
Defendant/counterplaintiff-appellant, Lesa Werme, appeals the circuit court’s grant of
summary disposition and dismissal of her counterclaims against plaintiff/counterdefendant-
appellee, Federal Home Loan Mortgage Corporation (Freddie Mac). For the reasons set forth in
this opinion, we affirm the circuit court’s grant of summary disposition in favor of Freddie Mac,
but remand for entry of an order declaring that Freddie Mac’s ownership and possession of the real
property resulted in the extinguishment of the mortgage loan debt under the promissory note that
it holds associated with the discharged senior mortgage because equity will not permit Freddie
Mac a double recovery.
I. FACTUAL AND PROCEDURAL BACKGROUND
Werme owned property commonly known as 671 Spear Street, Saugatuck, Michigan, and
during 2004 granted two mortgages on the property to secure two loans. First, she obtained a
$330,400 mortgage loan from NovaStar Home Mortgage, Inc. and she granted its nominee,
Mortgage Electronic Registration Systems, Inc. (MERS), a mortgage on the property to secure the
loan. A little over one month later Werme obtained a $46,000 personal line of credit secured by a
second mortgage on the property that she granted to Huntington National Bank (HNB). Werme
later obtained an increase in the HNB loan and agreed to a modification of the HNB mortgage.
During 2008, Freddie Mac acquired ownership of the promissory note secured by the senior
mortgage on the property. Mortgage Center, LLC serviced that loan for Freddie Mac. Werme
defaulted during 2014 on both loans.
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In January 2015, MERS assigned the senior mortgage to Mortgage Center, LLC which
initiated foreclosure proceedings. Werme sued Mortgage Center, LLC and Freddie Mac in federal
court for declaratory and injunctive relief to prevent the foreclosure and for an accounting and
damages for alleged unjust enrichment. HNB later foreclosed its mortgage by advertisement, and
on November 5, 2015, HNB purchased the property at the sheriff’s sale for a full credit bid of
$96,000. HNB recorded its Sheriff’s Deed on Mortgage Sale on November 12, 2015, in the
Allegan County Register of Deeds. The sheriff’s deed specified May 6, 2016, as the last day to
redeem the subject property. Werme failed to redeem the property. Instead, on May 6, 2016, she
sued HNB in federal court to challenge the validity of the foreclosure sale. The federal court
dismissed Werme’s lawsuit on September 2, 2016, with prejudice for failure to state a claim
because she could not establish fraud, irregularity, or prejudice related to HNB’s foreclosure.
On July 6, 2017, Freddie Mac purchased the property from HNB which conveyed the
property to Freddie Mac by quitclaim deed. On April 5, 2018, Freddie Mac filed in Allegan County
district court a summary proceeding for possession of the property. Werme removed the action to
federal court and filed a countercomplaint. Freddie Mac moved to remand the case to state court,
and the federal court remanded to the state district court and closed the case. On remand from the
federal court, Werme moved to transfer the case to the circuit court on grounds that she filed a
counterclaim for declaratory and injunctive relief because Freddie Mac had no right to possess the
property or evict her from the premises. The district court ordered the removal of Werme’s
counterclaim to the circuit court on December 20, 2018, but retained the summary proceeding.
Werme filed an amended countercomplaint in the circuit court in which she admitted facts related
to HNB’s foreclosure and that Freddie Mac purchased the property from HNB. She alleged two
counts, one for declaratory and injunctive relief and the other for determination of the rights to the
property. Werme claimed that she held fee simple title to the property and that Freddie Mac neither
owned nor had a right to possess it.
Meanwhile, Freddie Mac moved for judgment of possession in the district court which
granted the motion and entered a judgment of possession and ordered Werme to vacate the
premises. Freddie Mac next moved for summary disposition in the circuit court which granted its
motion. Werme now appeals.
II. STANDARDS OF REVIEW
We review de novo questions of law, actions to quiet title in equity, as well as decisions to
grant or deny summary disposition. Trademark Props of Mich, LLC v Fed Nat’l Mortg Ass’n, 308
Mich App 132, 138; 863 NW2d 344 (2014). This Court reviews de novo the grant or denial of
summary disposition to determine if the moving party had entitlement to judgment as a matter of
law. Maiden v Rozwood, 461 Mich 109, 118; 597 NW2d 817 (1999). In Maiden, 461 Mich at
119-120 (quotation marks and citations omitted), our Supreme Court explained:
A party may support a motion under MCR 2.116(C)(7) by affidavits,
depositions, admissions, or other documentary evidence. If such material is
submitted, it must be considered. MCR 2.116(G)(5). Moreover, the substance or
content of the supporting proofs must be admissible in evidence. . . . Unlike a
motion under subsection (C)(10), a movant under MCR 2.116(C)(7) is not required
to file supportive material, and the opposing party need not reply with supportive
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material. The contents of the complaint are accepted as true unless contradicted by
documentation submitted by the movant.
A motion under MCR 2.116(C)(8) tests the legal sufficiency of the
complaint. All well-pleaded factual allegations are accepted as true and construed
in a light most favorable to the nonmovant. A motion under MCR 2.116(C)(8) may
be granted only where the claims alleged are so clearly unenforceable as a matter
of law that no factual development could possibly justify recovery. When deciding
a motion brought under this section, a court considers only the pleadings.
A motion under MCR 2.116(C)(10) tests the factual sufficiency of the
complaint. In evaluating a motion for summary disposition brought under this
subsection, a trial court considers affidavits, pleadings, depositions, admissions,
and other evidence submitted by the parties, . . . , in the light most favorable to the
party opposing the motion. Where the proffered evidence fails to establish a
genuine issue regarding any material fact, the moving party is entitled to judgment
as a matter of law.
Summary disposition is appropriate under MCR 2.116(C)(10) if no genuine issue of any
material fact exists, and the moving party is entitled to judgment as a matter of law. West v Gen
Motors Corp, 469 Mich 177, 183; 665 NW2d 468 (2003). A genuine issue of material fact exists
when the record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue
upon which reasonable minds could differ. Id.
This Court also reviews de novo a decision to grant or deny declaratory judgment, and
reviews for clear error the trial court’s factual findings regarding such decision. Ter Beek v City
of Wyoming, 297 Mich App 446, 452; 823 NW2d 864 (2012), aff’d 495 Mich 1 (2014). Clear
error occurs “when this Court is left with a definite and firm conviction that a mistake has been
made.” Hardrick v Auto Club Ins Ass’n, 294 Mich App 651, 660; 819 NW2d 28 (2011) (quotation
marks and citation omitted).
III. ANALYSIS
Werme argues that the circuit court erred by granting Freddie Mac summary disposition of
her claims for declaratory judgment and determination of rights in the property because she asserts
that Freddie Mac must foreclose the discharged first mortgage, and until it does, she continues to
hold fee simple title to the property and the right to possess it. We disagree.
Under MCR 2.605(A)(1) a court “may declare the rights and other legal relations of an
interested party seeking a declaratory judgment, whether or not other relief is or could be sought
or granted.” In a declaratory action, the plaintiff generally has the burden to prove each fact
alleged. Shavers v Attorney Gen, 402 Mich 554, 589; 267 NW2d 72 (1978). Under MCL
600.2932, a person may seek to quiet title to real property by bringing an action in circuit court.
MCL 600.2932 provides in relevant part:
(1) Any person, whether he is in possession of the land in question or not,
who claims any right in, title to, equitable title to, interest in, or right to possession
of land, may bring an action in the circuit courts against any other person who
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claims or might claim any interest inconsistent with the interest claimed by the
plaintiff, whether the defendant is in possession of the land or not.
(2) No action may be maintained under subsection (1) by a mortgagee, his
assigns, or representatives for recovery of the mortgaged premises, until the title to
the mortgaged premises has become absolute, or by a person for the recovery of
possession of premises, which were sold on land contracted, to whom relief is
available under subdivision (1) of section 5634.
(3) If the plaintiff established his title to the lands, the defendant shall be
ordered to release to the plaintiff all claims thereto. In an appropriate case the court
may issue a writ of possession or restitution to the sheriff or other proper officer of
any county in this state in which the premises recovered are situated.
* * *
(5) Actions under this section are equitable in nature.
“[T]he plaintiff in a quiet-title action has the initial burden of establishing a prima facie
case of title, and that summary disposition in favor of the defendant is properly entered if the
plaintiff fails to carry this burden.” Special Prop VI LLC v Woodruff, 273 Mich App 586, 590;
730 NW2d 753 (2007) (citations omitted). If the plaintiff makes out a prima facie case, the
defendant then has the burden of proving superior right or title in itself. Beulah Hoagland Appleton
Qualified Personal Residence Trust v Emmet Co Rd Comm, 236 Mich App 546, 550; 600 NW2d
698 (1999); see also Boekeloo v Kuschinski, 117 Mich App 619, 629; 324 NW2d 104 (1982).
Actions to quiet title are equitable in nature. Dobie v Morrison, 227 Mich App 536, 538; 575
NW2d 817 (1998).
Resolution of the issues presented necessarily requires consideration of the legal principles
governing promissory notes secured by mortgages on real property and the equities as between the
parties. In Babcock v Young, 117 Mich 155, 160; 75 NW 302 (1898) (citations omitted), our
Supreme Court explained:
It has been held many times in this state that where a negotiable note is given, and
a mortgage taken as security therefor, the note is the evidence of the debt, and the
mortgage only an incident of the debt; that the mortgage follows the note into the
hands of the lawful owner of the note; and that, without any written assignment of
the mortgage, the owner of the note is the owner of the mortgage.
This Court has similarly expressed that a mortgage “is a lien on real property intended to secure
performance or payment of an obligation.” Prime Fin Servs LLC v Vinton, 279 Mich App 245,
256; 761 NW2d 694 (2008) (citation omitted). A promissory note secured by a mortgage is
personal property that may be transferred by the owner to third parties. Id. “A mortgage is a mere
security interest incident to an underlying obligation, and the transfer of the note necessarily
includes a transfer of the mortgage with it.” Id. at 257 (citing Ginsberg v Capital City Wrecking
Co, 300 Mich 712, 717; 2 NW 892 (1942)). “[A] mortgage without an underlying obligation is a
nullity.” Id. at 269 (citing Ginsburg, 300 Mich at 717). If the underlying indebtedness evidenced
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by a promissory note is paid, the debt is extinguished and the mortgage is discharged because the
mortgage follows the note. Fox v Mitchell, 302 Mich 201, 212; 4 NW2d 518 (1942).
“Under general contract law, rights can be assigned unless the assignment is clearly
restricted.” Burkhardt v Bailey, 260 Mich App 636, 653; 680 NW2d 453 (2004), citing Calamari
& Perillo, Contracts (3d ed), § 18–10, p. 735. “An assignee stands in the position of the assignor,
possessing the same rights and being subject to the same defenses.” Id. (citations omitted). “[A]
mortgage is merely a ‘chose in action’—a secondary incident to the debt to secure its payment
through a lien on specific property.” Id. at 654 (citation omitted). “A mortgagee may foreclose
on a mortgage without producing the note secured by the mortgage.” Sallie v Fifth Third Bank,
297 Mich App 115, 118; 824 NW2d 238 (2012).
In Residential Funding Co LLC v Saurman, 490 Mich 909, 909-910; 805 NW2d 183 (2011)
(quotation marks, ellipsis, alteration, and citations omitted), our Supreme Court clarified that a
record holder of a mortgage claiming
status as an “owner of an interest in the indebtedness” does not equate to an
ownership interest in the note. Rather, [the] record-holder of the mortgage [] owned
a security lien on the properties, the continued existence of which was contingent
upon the satisfaction of the indebtedness. This interest in the indebtedness—i.e.,
the ownership of legal title to a security lien whose existence is wholly contingent
on the satisfaction of the indebtedness—authorized [the record holder of the
mortgage] to foreclose by advertisement under MCL 600.3204(1)(d).
* * *
Under the settled law of this State, the mortgage and the note are to be construed
together. The rule is well-settled that the mortgagee has a lien on the land to secure
the debt. It has never been necessary that the mortgage should be given directly to
the beneficiaries. The security is always made in trust to secure obligations, and
the trust and the beneficial interest need not be in the same hands. The choice of a
mortgagee is a matter of convenience. Indeed, in interpreting predecessor
foreclosure-by-advertisement statutes, in cases in which the mortgagee had
transferred a beneficial interest, but retained record title, this Court has
unanimously held that only the record holder of the mortgage has the power to
foreclose; the validity of the foreclosure is not affected by any unrecorded
assignment of interest held for security.
* * *
Rather, as explained above, the Legislature’s use of the phrase “interest in the
indebtedness” to denote a category of parties entitled to foreclose by advertisement
indicates the intent to include mortgagees of record among the parties entitled to
foreclose by advertisement, along with parties who “own the indebtedness” and
parties who act as “the servicing agent of the mortgage.”
After foreclosure, the rights and obligations of the parties are fixed by statute rather than
controlled by the mortgage. Senters v Ottawa Savings Bank, FSB, 443 Mich 45, 52; 503 NW2d
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639 (1993). That is because upon foreclosure, the mortgage itself becomes extinguished. Bank of
Three Oaks v Lakefront Props, 178 Mich App 551, 555; 444 NW2d 217 (1989). In Trademark
Props, 308 Mich App at 138-139 (quotation marks, ellipses, alteration, and citations omitted), this
Court explained the consequence of foreclosure of a mortgage as follows:
Foreclosure of a mortgage containing a power of sale is permissible by
advertisement, provided the proceedings are instituted in accordance with the
foreclosure statutes. A foreclosure of a mortgage extinguishes it. And the
purchaser becomes the owner of an equitable interest in the mortgaged premises
which ripens into a legal title if not defeated by redemption as provided by law.
Statutory foreclosures should not be set aside without some very good reasons
therefor. A strong case of fraud, irregularity, or some peculiar exigency is required
to set aside a statutory foreclosure sale.
Thus, if a holder of a mortgage on real property forecloses, the foreclosure extinguishes
the mortgage. Id. at 139. “Pursuant to MCL 600.3240, after a sheriff’s sale is completed, a
mortgagor may redeem the property by paying the requisite amount within the prescribed time
limit.” Bryan v JPMorgan Chase Bank, 304 Mich App 708, 713; 848 NW2d 482 (2014). MCL
600.3236 provides:
Unless the premises described in [the sheriff’s] deed shall be redeemed
within the time limited for such redemption as hereinafter provided, such deed shall
thereupon become operative, and shall vest in the grantee therein named, his heirs
or assigns, all the right, title, and interest which the mortgagor had at the time of
the execution of the mortgage, or at any time thereafter, except as to any parcel or
parcels which may have been redeemed and canceled, as hereinafter provided; and
the record thereof shall thereafter, for all purposes be deemed a valid record of said
deed without being re-recorded, but no person having any valid subsisting lien upon
the mortgaged premises, or any part thereof, created before the lien of such
mortgage took effect, shall be prejudiced by any such sale, nor shall his rights or
interests be in any way affected thereby.
The mortgagee who purchases the property at the sheriff’s sale and holds a sheriff’s deed
must wait the statutory redemption period, but when the mortgagor fails to redeem the property
within the statutory redemption period, all right, title, and interest in the property vests in the holder
of the sheriff’s deed. Trademark Props, 308 Mich App at 139. Accordingly, “[i]f a mortgagor
fails to avail him or herself of the right of redemption, all the mortgagor’s rights in and to the
property are extinguished,” Bryan, 304 Mich App at 713, and the mortgagor does not have standing
to bring any claim related to the property absent clear proof of fraud or irregularity, id. at 713-715.
Upon the expiration of the redemption period, the sheriff’s deed becomes operative and
vests in the purchaser at the sheriff’s sale “all the right, title, and interest” in the property, including
the right to possess the property. MCL 600.3236. To effectuate possession, however, the deed
holder must seek possession of the premises through summary proceedings under MCL 600.5714
which provides in relevant part as follows:
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(1) A person entitled to possession of premises may recover possession by
summary proceedings in the following circumstances:
* * *
(g) When a person continues in possession of premises sold by virtue of a
mortgage or execution, after the time limited by law for redemption of the premises.
In this case, the following facts are supported by record evidence and the legal
consequences that follow cannot be evaded:
(1) During 2014, Werme defaulted under the terms of promissory notes secured by
mortgages on the subject real property;
(2) HNB foreclosed by advertisement its second mortgage on the property that
secured Werme’s $96,000 unpaid HNB loan debt;
(3) HNB purchased the property at the sheriff’s sale for the full amount of its credit
bid of $96,000;1
(4) Werme failed to redeem the property during the statutory redemption period
which expired on May 6, 2016;
(5) Instead of redeeming the property, Werme challenged HNB’s foreclosure in a
lawsuit filed in federal court which the federal court dismissed with prejudice for
failure to state a claim because she could not establish fraud, irregularity, or
prejudice related to HNB’s foreclosure;2
(6) All right, title, and interest in the property vested in HNB as a matter of law
because Werme failed to timely redeem;3
(7) HNB conveyed by quitclaim deed all of its right, title, and interest in the
property to Freddie Mac on July 6, 2017;
1
“It is well established that a purchaser at a foreclosure sale of a second mortgage takes the
property subject to the first mortgage . . . .” Advanta Nat’l Bank v McClarty, 257 Mich App 113,
124; 667 NW2d 880 (2003), citing Bd of Trustees of the Gen Ret Sys of Detroit v Ren-Cen Indoor
Tennis & Racquet Club, 145 Mich App 318, 324-325; 377 NW2d 432 (1985).
2
“The principle of judicial comity generally states that foreign courts can afford each other's
judgments mutual respect and recognition.” MLive Media Group v Grand Rapids, 321 Mich App
263, 273; 909 NW2d 282 (2017). Therefore, the principles of comity require a state court “to defer
to a federal court ruling when a federal district court is the equivalent of a state circuit court.” Id.
(internal citation, quotation marks, and brackets omitted).
3
MCL 600.3236.
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(8) As of July 6, 2017, Freddie Mac held all right, title and interest in the property
subject to the senior mortgage held by Mortgage Center, LLC;4
(9) Mortgage Center, LLC held by an assignment dated January 13, 2015, the
senior mortgage granted by Werme on the property to secure her 2004 mortgage
loan in the amount of $330,400, which Mortgage Center, LLC serviced for Freddie
Mac since 2008;
(10) Mortgage Center, LLC initiated the foreclosure of its mortgage in 2015 and
Werme filed suit in federal court against Mortgage Center, LLC and Freddie Mac
to prevent the foreclosure seeking declaratory relief, an accounting, and damages
for alleged unjust enrichment;
(11) Mortgage Center, LLC discharged its mortgage on August 22, 2017, and
recorded its discharge in the Allegan County Register of Deeds on September 15,
2017;5
(12) After three years of litigating, Mortgage Center, LLC and Freddie Mac moved
for summary judgment of Werme’s claims and the federal court granted the motion
because her claim for declaratory relief had been rendered moot by Mortgage
Center, LLC’s discharge of its mortgage. The federal court also ruled that Werme
established no basis for an accounting, and she failed to factually and legally
support her claim of unjust enrichment;
(13) Freddie Mac commenced summary proceedings in state district court under
MCL 600.5714 for possession of the property. Werme removed the action to the
federal court which remanded the case to the state district court. The district court
transferred Werme’s countercomplaint against Freddie Mac to the circuit court but
not the summary proceedings for possession;
(14) Freddie Mac moved in the district court for possession of the property and the
district court granted Freddie Mac judgment of possession and ordered Werme to
vacate the premises;
(15) Werme appealed the district court’s judgment and order and the circuit court
affirmed both because Werme failed and could not establish her right to possession
having failed to redeem the property.
In this appeal, Werme essentially collaterally attacks the circuit court’s affirmance of the
district court’s judgment by asserting that Freddie Mac does not own and cannot retain possession
of the property. In an effort to support her position, Werme argues that Freddie Mac must foreclose
4
Advanta Nat’l Bank, 257 Mich App at 124.
5
“When a document stating that a mortgage is discharged is filed with the register of deeds, the
mortgage is discharged.” Burkhardt, 260 Mich App at 657 (citation omitted).
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the senior mortgage, despite its having been discharged, before it can assert that it holds title to the
property. Michigan law does not support her position.
De novo review of the record establishes that Freddie Mac proved its superior right to
ownership and possession of the property under the title it holds by virtue of its purchase of the
property from HNB following its foreclosure of the junior mortgage and Werme’s admitted failure
to timely redeem the property. Accordingly, all of Werme’s rights “in and to the property” were
extinguished absent clear proof of fraud or irregularity in HNB’s foreclosure proceeding itself.
Bryan, 304 Mich App at 713. Werme challenged HNB’s foreclosure of the second mortgage and
the federal district court dismissed her claims with prejudice because she could not establish fraud,
irregularity, or prejudice related to HNB’s foreclosure.6 Therefore, as a matter of law, Freddie
Mac had entitlement to entry of judgment of possession under MCL 600.5714(1)(g). The district
court did not err by granting Freddie Mac judgment and the circuit court did not err by affirming
that ruling.
The record also reflects that in this action Werme did not challenge HNB’s foreclosure but
conceded that HNB properly foreclosed its mortgage, obtained title when she failed to redeem,
and HNB conveyed its interest in the property to Freddie Mac by quitclaim deed. Such necessary
concessions completely undermined her claim for a declaration that she owned and had the right
to possess the property. Further, the evidence established that she could make no legitimate claim
to quiet title to the property in herself. In an action to quiet title, a plaintiff bears the burden of
proof to establish a prima facie case of title. Boekeloo, 117 Mich App at 628. If the plaintiff fails
to meet this burden, summary disposition is appropriate. Special Prop VI, 273 Mich App at 590.
As a matter of law, Werme could not establish her prima facie case of title to the property having
lost it by her failure to redeem. Accordingly, the circuit court did not err by granting Freddie Mac
summary disposition of her claims. Id.
Werme argued to the circuit court that it should reinstitute the senior mortgage which
before being discharged by Mortgage Center, LLC secured the promissory note owned and held
by Freddie Mac. Distilled to its essence, Werme’s appeal challenges whether Freddie Mac owns
and can possess the property while holding the unsatisfied and unsecured debt obligation which it
could potentially attempt to collect from her sometime in the future. Werme asserts that, despite
her loss of title to the property because of her failure to redeem, she nevertheless owns the property
and has the right to possess it. Werme’s argument is factually and legally unsupported.
Werme relies on Ren-Cen, 145 Mich App 318, to advance her contentions that Freddie
Mac has no right to possess the property and evict her from the premises, that Mortgage Center,
LLC’s discharge of its mortgage is void, and that she, not Freddie Mac, holds fee simple title to
the property. Ren-Cen, however, does not support Werme’s contentions. Nevertheless, the equity
principle articulated in Ren-Cen guides our decision.
6
Werme v Huntington Nat’l Bank, unpublished opinion of the United States District Court for the
Western District of Michigan issued September 2, 2016, Case No. 1:16-CV-479. [2016 WL
4578006.]
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In Ren-Cen, the plaintiff held two mortgages on a property, the first securing a $1.1 million
loan and the second securing a $500,000 loan. The property had a fair market value of more than
$3 million. The defendant defaulted on both mortgage loans. The plaintiff foreclosed by
advertisement on the junior mortgage, purchased the sheriff’s deed at the sheriff’s sale for the
amount owed on the second note, and took possession of the property after the redemption period
expired without the defendant redeeming the property. The plaintiff then commenced an action to
recover the amount owed on the first note despite its ownership and possession of the property that
secured that debt. Ren-Cen, 145 Mich App at 319-320.
The defendant could not avail itself of the defense against a party seeking a deficiency
judgment as provided in MCL 600.3280, because the statute only applied in instances where a
foreclosure sale involved one note and one mortgage. The defendant argued that foreclosure of
the second mortgage discharged the promissory note secured by the first mortgage because the
property held value exceeding the junior loan debt and possession of the property required deeming
the senior debt satisfied. Id. at 320-321. A panel of this Court considered caselaw and treatises
addressing the consequence of a holder of two mortgages foreclosing on either the first mortgage
or the second mortgage. The panel observed that under MCL 600.3236, a purchaser at a
foreclosure sale of a second mortgage takes the property subject to the first mortgage, but that the
contrary is not true. Id. at 322. The panel explained:
At law, whenever a greater and lesser estate or a legal and equitable estate coincide
in the same person, the lesser or equitable estate is destroyed by merger. Equity,
however, will generally prevent a merger if the parties did not intend a merger, and
an intent to avoid a merger will ordinarily be inferred where it is in the interest of
the person holding the various estates to keep them separate. Plaintiff must look to
equity here to prevent the merger which would be automatic at law. [C]ases show,
equity is of no assistance to plaintiff under the circumstances presented here,
because plaintiff seeks to avoid a merger to enable it to obtain, in effect, a double
recovery.
The price at a foreclosure sale on a second mortgage is depressed to reflect
the outstanding first mortgage. A third party who purchases the property at the
foreclosure sale on the second mortgage would have to satisfy the debt secured by
the first mortgage in order to prevent the mortgagee of the first mortgage from
asserting a superior claim to the property. Because plaintiff itself is the mortgagee
of the first mortgage, plaintiff need not concern itself with the possibility that the
mortgagee of the first mortgage would assert a superior claim. Plaintiff wants to
obtain the price advantage of purchasing at a second mortgage sale without the
disadvantage of having to satisfy the debt secured by the first mortgage in order to
obtain uninterrupted enjoyment of the property. Equity will not assist plaintiff to
achieve such a result. Instead, the debt secured by the first mortgage was
discharged when plaintiff acquired the mortgaged property at the foreclosure sale
on the second mortgage. [Id. at 325-326 (citations omitted).]
Close analysis of Ren-Cen discloses that the panel’s decision rested on its determination of
the equities as between the parties. The panel discerned that, under the circumstances, equity could
not permit the plaintiff to enjoy both title to the property and maintain a deficiency action to collect
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the debt because the value of its property sufficed to satisfy both loan debts. The panel recognized
that equity would not permit the plaintiff a double recovery which would constitute a windfall.
Although Ren-Cen involved a single party holding both the senior and junior mortgages, we hold
that the general equitable principle against double recovery applies under the particular facts of
this case.
Contrary to Werme’s argument, however, Ren-Cen does not stand for the proposition that,
once having lost all right, title, and interest in the property because of failure to redeem, one may
still claim title to the property and a right to possess it. Ren-Cen instead upholds the vesting of
title in the holder of the sheriff’s deed after the mortgagor has failed to redeem. Ren-Cen also
supports the title holder’s right of possession of the property while protecting the former mortgagor
and debtor against claims that would permit double recovery, an inequitable and unjust outcome.
The equitable principle set forth in Ren-Cen applies in this case and when applied clarifies
the rights of the parties and an equitable and just outcome results. Ordinarily, the foreclosure of a
junior mortgage does not impact the senior mortgagee’s rights because the senior mortgage rides
through the foreclosure and the junior mortgagee takes the property subject to the senior mortgage.
Advanta Nat’l Bank, 257 Mich App at 124. The underlying debt would have to be satisfied by the
new title holder to obtain the discharge of the senior mortgage and release of the encumbrance
upon the property. In this case, however, HNB purchased the property and took it subject to the
senior mortgage held by Mortgage Center, LLC. Freddie Mac then purchased the property from
HNB which conveyed all of its right, title, and interest to Freddie Mac. Accordingly, Freddie Mac
held the property subject to Mortgage Center, LLC’s mortgage. Freddie Mac, however, owned
the debt secured by Mortgage Center, LLC’s mortgage. The promissory note and the mortgage
were held by separate entities. Mortgage Center, LLC initiated foreclosure of its mortgage and
Werme responded by filing suit in federal court to challenge the foreclosure. After protracted
litigation and after Freddie Mac obtained title to the property from HNB, Mortgage Center, LLC
with Freddie Mac’s approval discharged its mortgage and the federal court dismissed Werme’s
lawsuit. The discharge of the senior mortgage resulted in Freddie Mac’s holding an unsecured
debt, the collateral and security for the debt’s repayment having been given up. Ordinarily in such
situation, a creditor may seek to hold the debtor personally liable.
The problem in this case, however, is that it would not be equitable for Freddie Mac to hold
Werme personally liable for the outstanding debt underlying the first mortgage because Freddie
Mac holds title to and possesses the property, the value of which the parties do not dispute suffices
to satisfy not only the debt underlying the second mortgage (on which Freddie Mac foreclosed),
but additionally to satisfy the outstanding debt underlying the first mortgage. Although the
equitable merger doctrine articulated in Ren-Cen does not technically apply in this case because
here two separate entities each held a mortgage, the underlying equitable principle against double
recovery must apply.7 We conclude that under the particular facts of this case, Werme is entitled
to a declaration that Freddie Mac’s ownership and possession of the property satisfied the
unsecured debt under the promissory note formerly secured by Mortgage Center, LLC’s senior
7
We note that in the matter at bar, Freddie Mac filed an affidavit of its representative in the trial
court that stated it would not pursue any action for deficiency against Werme.
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mortgage. Freddie Mac cannot enforce the note and hold Werme personally liable for that debt,
because equity will not permit Freddie Mac a double recovery.
The circuit court properly ascertained that Werme had neither a legal nor equitable right to
own and possess the property, the relief that she sought in this case. The record reflects that the
circuit court understood the equitable problem and realized that Werme appeared to be vulnerable
to personal liability on the outstanding unsecured debt. The circuit court inquired whether she
desired to be released from the debt but Werme declined and argued against declaring the debt
satisfied because she wanted ownership and possession of the property. Rather than declaring the
debt extinguished, the circuit court granted Freddie Mac summary disposition because, as a matter
of law, Werme failed and could not establish her claims for the relief she sought. The circuit court
did not err in this regard.
Nevertheless, the circuit court should have declared the rights of the parties more clearly,
particularly respecting Werme’s personal liability for the debt under the promissory note formerly
secured by the discharged senior mortgage. Freddie Mac’s having obtained fee title to the property
and its judgment of possession, as a matter of equity, extinguished Freddie Mac’s right to ever
hold Werme personally liable and collect the unsecured debt. The circuit court reached the right
result respecting Werme’s claims and her lack of entitlement to the relief she sought, but it failed
to definitively clarify the parties’ rights by setting forth on the record that equity would not permit
Freddie Mac a double recovery.
The record reflects that the circuit court accepted Freddie Mac’s representative’s affidavit
testimony that Freddie Mac had no intention of collecting on the outstanding debt and agreed that
Freddie Mac likely would be collaterally estopped from collecting the debt because of the affiant’s
statement. While Werme may be able to assert a defense to a collection action based upon Freddie
Mac’s stated intention, Werme still faces the potential that Freddie Mac could change that
intention, take action to collect the outstanding debt, and force her to have to defend. Accordingly,
the circuit court should have exercised its equitable powers and clarified the parties’ respective
rights by declaring that Freddie Mac could not seek to hold Werme personally liable on the
remaining debt, the property having satisfied it.
Therefore, we affirm the circuit court’s summary disposition ruling because it correctly
concluded that Freddie Mac held absolute title to the property and the right to possess it;
nevertheless, the circuit court erred by not declaring that Freddie Mac’s ownership and possession
of the property resulted in the extinguishment of the debt associated with the discharged senior
mortgage because equity will not permit Freddie Mac a double recovery.
Affirmed but remanded for entry of an order consistent with this opinion. We do not retain
jurisdiction.
/s/ James Robert Redford
/s/ Jane E. Markey
/s/ Mark T. Boonstra
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