In an opinion issued on July 6, 2015, which has been recommended for publication, the United States Court of Appeals for the Sixth Circuit affirmed the dismissal of several common claims made by borrowers in foreclosure-related litigation. In Rush v. Freddie Mac, the plaintiffs challenged a foreclosure on four grounds: they alleged that (1) Bank of America lacked standing to foreclose because there was no chain of title evidencing ownership of the loan; (2) Freddie Mac negligently failed to evaluate plaintiffs' loan under the Home Affordable Modification Program ("HAMP"); (3) the foreclosure violated Michigan law; and (4) foreclosure by advertisement violated their due process rights.
The Sixth Circuit held that Michigan foreclosure law only requires a record chain of title for the mortgage, and does not require a record of ownership of the underlying note. Similarly, the court confirmed that Michigan law permits the "holder of the mortgage to be different from the holder of the note." Indeed, the court noted that "any severance of the mortgage from the note—even through securitization—had no bearing on Bank of America's right to foreclose." And because plaintiffs did not allege facts showing that they were prejudiced by noncompliance with the foreclosure statute, their challenge to the foreclosure failed under Michigan law.
The Sixth Circuit also dismissed the plaintiffs' negligence claim, which was based on an alleged failure to follow guidelines under HAMP. The court held that "Plaintiffs' negligence claim, based on an alleged violation of HAMP, fails because they cannot establish that Freddie Mac breached any duty owed to them... We recently held under almost identical facts that HAMP does not create a private right of action, and that Michigan courts have not recognized that the HAMP regulations impose a duty of care by servicers to borrowers." As the Sixth Circuit explained, "the duties established by the mortgage contract govern the relationship between the parties. Under Michigan law, a homeowner who has defaulted may not simply waive the contract and sue in negligence."
Finally, the Sixth Circuit put another nail in the coffin for constitutional due process claims brought by borrowers. Citing its decision earlier this year in Garcia v. Federal National Mortgage Ass'n, the court held that Michigan's foreclosure-by-advertisement process "satisfie[s] the requirements of the Due Process Clause."
This opinion will be helpful to lenders and servicers in defending against many of the standard claims brought by Michigan borrowers following mortgage foreclosure. It is the first published opinion in the Sixth Circuit to directly address the trend of the plaintiffs' bar to attempt to disguise HAMP claims as negligence claims and confirms that ownership of the promissory note has no bearing on Michigan's foreclosure by advertisement process.
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