Mitan v. Federal Home Loan Mortgage Corp., No. 12-1168, (6th Cir. Dec. 12, 2012)
Michigan law distinguishes between foreclosures with notice defects and those
with “structural defect[s] that go to the very heart of defendant’s ability to foreclose
by advertisement in the first instance.” Davenport, 739 N.W.2d at 384. Notice defects
render a foreclosure voidable. Jackson Inv. Corp. v. Pittsfield Prods., Inc., 413 N.W.2d
99,101 (Mich. Ct. App. 1987). Structural defects, on the other hand, render the
foreclosure absolutely void. Davenport, 739 N.W.2d at 385. In Davenport, for instance,
the defendant bank had no statutory authority to foreclose because it did not own an
interest in the mortgage when it published its first notice of foreclosure, as required by
Mich. Comp. Laws § 600.3204(1)(d). Similarly, Mich. Comp. Laws § 600.3204(4) is
a statutory prohibition on foreclosure by advertisement where a lender does not take the
required steps to negotiate a loan modification. Although one of the required steps is to
provide notice, see Mich. Comp. Laws § 600.3204(4)(a), the failure to comply with the
loan-modification process as outlined in the statute is a structural defect because it
deprives the borrower of the opportunity to demonstrate eligibility for a loan
modification that would avoid foreclosure altogether. See id. § 600.3204(4)(f). In
contrast, the notice defect at issue in Jackson did not call into question the underlying
right of the lender to foreclose once past the procedural defect. See 413 N.W.2d at 101.
It follows that, as a matter of Michigan law, a lender that fails to follow the loan-
modification procedures set forth by the statute has engendered a structural defect and
is thus without authority to commence a foreclosure. Without a valid foreclosure, the
redemption period has not begun, and the owner of the property retains an interest
conferring standing to sue.
Arizona has a law requiring that the lender “attempt to contact the borrower to explore options to avoid foreclosure at least thirty days before the notice is recorded” but it does not require an actual modification be granted.
33-807.01. Notice of trustee’s sale conditions; exceptions
A. For a property with a first deed of trust recorded on or after January 1, 2003 through December 31, 2008, if the borrower occupies the property as the borrower’s principal residence, before a trustee may give notice of a trustee’s sale for the property pursuant to section 33-808, the lender must attempt to contact the borrower to explore options to avoid foreclosure at least thirty days before the notice is recorded.
B. The notice required by subsection A of this section shall be made in writing and documentation of the notice shall be maintained in the credit file.