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STATE OF MICHIGAN COURT OF APPEALS

RESIDENTIAL FUNDING CO, LLC, f/k/a RESIDENTIAL FUNDING CORPORATION, Plaintiff-Appellee, v GERALD SAURMAN, Defendant-Appellant.

FOR PUBLICATION April 21, 2011 9:00 a.m.

No. 290248 Kent Circuit Court LC No. 08-011138-AV

BANK OF NEW YORK TRUST COMPANY, Plaintiff-Appellee, v COREY MESSNER, Defendant-Appellant. No. 291443 Jackson Circuit Court LC No. 08-003406-AV Advance Sheets Version

Before: WILDER, P.J., and SERVITTO and SHAPIRO, JJ. SHAPIRO, J. These consolidated appeals each involve a foreclosure instituted by Mortgage Electronic Registration Systems, Inc. (MERS), the mortgagee in both cases. The sole question presented is whether MERS is an entity that qualifies under MCL 600.3204(1)(d) to foreclose by advertisement on the subject properties, or if it must instead seek to foreclose by judicial process. We hold that MERS does not meet the requirements of MCL 600.3204(1)(d) and, therefore, may not foreclose by advertisement. I. BASIC FACTS AND PROCEDURAL HISTORY In these cases, each defendant purchased property and obtained financing for their respective properties from a financial institution. The financing transactions involved loan documentation ("the note") and a mortgage security instrument (the "mortgage instrument"). The original lender in both cases was Homecomings Financial, LLC.

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Each note stated, in part, the amount of the loan, the interest rate, methods and requirements of repayment, and the identity of the lender and the borrower. Each mortgage instrument provided the mortgagee the right to foreclosure on the property in the event of default on the loan. The lender, though named as the lender in the mortgage instrument, was not designated therein as the mortgagee. Instead, the mortgage instrument stated that MERS "is the mortgagee under this Security Instrument" and it contained several provisions addressing the relationship between MERS and the lender, including: "MERS" is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns. MERS is the mortgagee under this Security Instrument. * * * This Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower's covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower does hereby mortgage, warrant, grant and convey to MERS (solely as nominee for Lender and Lender's successors and assigns) and to the successors and assigns of MERS, with power of sale, the following described property . . . . . . . Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument. Defendants defaulted on their respective notes. Thereafter, MERS began nonjudicial foreclosures by advertisement as allegedly permitted under MCL 600.3201 et seq., purchased the property at the subsequent sheriff's sales, and then quitclaimed the property to plaintiffs as respective successor lenders. When plaintiffs subsequently began eviction actions, defendants challenged the respective foreclosures as invalid, asserting, inter alia, that MERS did not have authority under MCL 600.3204(1)(d) to foreclose by advertisement because it did not fall within any of the three categories of mortgagees permitted to do so under that statute. The district courts denied defendants' assertions that MERS lacked authority to foreclose by advertisement and their conclusions were affirmed by the respective circuit courts on appeal. We granted leave to appeal in both cases.1

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Residential Funding Co LLC v Saurman, unpublished order of the Court of Appeals, entered May 15, 2009 (Docket No. 290248); Bank of New York Trust Co v Messner, unpublished order of the Court of Appeals, entered July 29, 2009 (Docket No. 291443). 2

II. ANALYSIS A. STANDARD OF REVIEW We review de novo decisions made on motions for summary disposition,2 Coblentz v City of Novi, 475 Mich 558, 567; 719 NW2d 73 (2006), as well as a circuit court's affirmance of a district court's decision on a motion for summary disposition. First of America Bank v Thompson, 217 Mich App 581, 583; 552 NW2d 516 (1996). We review all affidavits, pleadings, depositions, admissions, and other evidence submitted by the parties in the light most favorable to the party opposing the motion, in this case, defendants. Coblentz, 475 Mich at 567-568. We also review de novo questions of statutory interpretation and the proper application of statutes. Id. at 567. The primary goal of statutory interpretation is to give effect to the intent of the Legislature. This determination is accomplished by examining the plain language of the statute. Although a statute may contain separate provisions, it should be read as a consistent whole, if possible, with effect given to each provision. If the statutory language is unambiguous, appellate courts presume that the Legislature intended the meaning plainly expressed and further judicial construction is neither permitted nor required. Statutory language should be reasonably construed, keeping in mind the purpose of the statute. If reasonable minds could differ regarding the meaning of a statute, judicial construction is appropriate. When construing a statute, a court must look at the object of the statute in light of the harm it is designed to remedy and apply a reasonable construction that will best accomplish the purpose of the Legislature. [ISB Sales Co v Dave's Cakes, 258 Mich App 520, 526-527; 672 NW2d 181 (2003) (citations omitted).] B. MERS BACKGROUND The parties, in their briefs and at oral argument, explained that MERS was developed as a mechanism to provide for the faster and lower-cost buying and selling of mortgage debt. Apparently, over the last two decades, the buying and selling of loans backed by mortgages after their initial issuance had accelerated to the point that those operating in that market concluded that the statutory requirement that mortgage transfers be recorded was interfering with their ability to conduct sales as rapidly as the market demanded. By operating through MERS, these financial entities could buy and sell loans without having to record a mortgage transfer for each transaction because the named mortgagee would never change; it would always be MERS even

In Docket No. 290248, the district court granted summary disposition under MCR 2.116(C)(10). In Docket No. 291443, the district court granted summary disposition under MCR 2.116(I)(2) ("If it appears to the court that the opposing party, rather than the moving party, is entitled to judgment, the court may render judgment in favor of the opposing party.").

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though the loans were changing hands. MERS would purportedly track the mortgage sales internally so as to know for which entity it was holding the mortgage at any given time and, if foreclosure was necessary, after foreclosing on the property, would quitclaim the property to whatever lender owned the loan at the time of foreclosure. As described by the New York Court of Appeals in MERSCORP, Inc v Romaine, 8 NY3d 90, 96; 828 NYS2d 266; 861 NE2d 81(2006): In 1993, the MERS system was created by several large participants in the real estate mortgage industry to track ownership interests in residential mortgages. Mortgage lenders and other entities, known as MERS members, subscribe to the MERS system and pay annual fees for the electronic processing and tracking of ownership and transfers of mortgages. Members contractually agree to appoint MERS to act as their common agent on all mortgages they register in the MERS system. The initial MERS mortgage is recorded in the County Clerk's office with "Mortgage Electronic Registration Systems, Inc." named as the lender's nominee or mortgagee of record on the instrument. During the lifetime of the mortgage, the beneficial ownership interest or servicing rights may be transferred among MERS members (MERS assignments), but these assignments are not publicly recorded; instead they are tracked electronically in MERS's private system. In the MERS system, the mortgagor is notified of transfers of servicing rights pursuant to the Truth in Lending Act, but not necessarily of assignments of the beneficial interest in the mortgage. The sole issue in this case is whether MERS, as a mortgagee, but not a noteholder, could exercise its contractual right to foreclose by means of advertisement. C. MCL 600.3204(1)(d) Foreclosure by advertisement is governed by MCL 600.3204(1)(d), which provides, in pertinent part: [A] party may foreclose a mortgage by advertisement if all of the following circumstances exist: * * * (d) The party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage. The parties agree that MERS was neither the owner of the indebtedness nor the servicing agent of the mortgage. Therefore, MERS lacked the authority to foreclose by advertisement on defendants' properties unless it was "the owner . . . of an interest in the indebtedness secured by the mortgage . . . ." MCL 600.3204(1)(d). 4

The question, then, is what is required to be the "owner . . . of an interest in the indebtedness secured by the mortgage." According to Black's Law Dictionary, to "own" means "[t]o have a good legal title; to hold as property; to have a legal or rightful title to . . . ." Black's Law Dictionary (6th ed), p 1105. The dictionary defines an "interest" as "[t]he most general term that can be employed to denote a right, claim, title, or legal share in something." Id., p 812. "Indebtedness" is defined as "[t]he state of being in debt . . . [t]he owing of a sum of money upon a certain and express agreement." Id., p 768. In each of these cases, a promissory note was exchanged for a loan. Thus, reasonably construing the statute according to its common legal meaning, ISB Sales Co, 258 Mich App at 526-527, the defendants' indebtedness is solely based on the notes because defendants owed monies pursuant to the terms of the notes. Consequently, in order for a party to own an interest in the indebtedness, it must have a legal share, title, or right in a note. Plaintiffs' suggestion that an "interest in the mortgage" is sufficient under MCL 600.3204(1)(d) is without merit. This is necessarily so, because the indebtedness, i.e., the note, and the mortgage are two different legal transactions providing two different sets of rights, even though they are typically employed together. A "mortgage" is "[a] conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms." Black's Law Dictionary (7th ed), p 1026. The mortgagee has an interest in the property. See Capital Mtg Corp v Mich Basic Prop Ins Ass'n, 111 Mich App 393, 397; 314 NW2d 635 (1981) (referring to the "mortgagee's interests in the property"). The mortgagor covenants, pursuant to the mortgage, that if the money borrowed under the note is not repaid, the mortgagee will retain an interest in the property. Thus, unlike a note, which provides evidence of a debt and represents the obligation to repay, a mortgage represents an interest in real property contingent on the failure of the borrower to repay the lender. The indebtedness, i.e., the note, and the mortgage are two different things. Applying these considerations to the present cases, it becomes obvious that MERS did not have the authority to foreclose by advertisement on defendants' properties. Pursuant to the mortgages, defendants were the mortgagors and MERS was the mortgagee. However, it was the plaintiff lenders that lent defendants money pursuant to the terms of the notes. In each case, MERS, as mortgagee, only held an interest in the property as security for the note, not an interest in the note itself. MERS could not attempt to enforce the note nor could it obtain any payment on the loan on its own behalf or on behalf of the lender. Moreover, each mortgage specifically clarified that, although MERS was the mortgagee, MERS held "only legal title to the interests granted" by the relevant defendant in the mortgage.3 Consequently, MERS's interest in each mortgage represented, at most, an interest in the relevant defendant's property. MERS was not

We note that, in these cases, MERS disclaims any interest in the properties other than the legal right to foreclose and immediately quitclaim each property to the true owner, i.e., the appropriate lender.

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referred to in any way in the notes and only Homecomings held the notes. The record evidence establishes that MERS owned neither the notes, nor an interest, legal share, or right in the notes. The only interest MERS possessed was in the properties through the mortgages. Given that the notes and the mortgages are separate documents, providing evidence of separate obligations and interests, MERS's interest in the mortgages did not give it an interest in the debts. Moreover, plaintiffs' analysis ignores the fact that the statute does not merely require an "interest" in the debt, but rather it requires that the foreclosing party own that interest. As already noted, to own means "[t]o have a good legal title; to hold as property; to have a legal or rightful title to . . . ." Black's Law Dictionary (6th ed), p 1105. None of these terms describes MERS's relationship to the notes. Plaintiffs' claim--that MERS was a contractual owner of an interest in the notes pursuant to the agreements between MERS and the lenders--misstates the interests created by the agreements. Although MERS stood to benefit if the debt was not paid-- it could become the owner of the property--it was to receive no benefit if the debt was paid. MERS had no right to possess the debt, or the money paid on it. Likewise, it had no right to use or convey the notes. Its only "right to possess" was the right to possess the property if and when foreclosure occurred. Had the lender decided to forgive the debt in the notes, MERS would have had no recourse; it could not have sued the lender for any financial loss. Accordingly, it owned no financial interest in the notes. Indeed, it is uncontested that MERS is wholly without legal or rightful title to the debt and that there are no circumstances under which it is entitled to receive any payments on the notes. The dissent relies on the language in the mortgage instruments to suggest a contractual basis to find that MERS had an ownership interest in the loans. However, the fact that Homecomings gave MERS authority to take "any action required of the Lender" did not transform MERS into an owner of an interest in the notes. Trustees have the authority to take action on behalf of a trust; they can even be authorized to take "any" action. Nevertheless, such authority does not give them an ownership interest in the trust. Moreover, the provision on which the dissent relies (but does not fully quote) contains language limiting MERS to taking action on behalf of the lenders' equitable interest in the mortgage instruments.4 The relevant language provides that the borrower "understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument" and gives MERS "the right: to exercise any or all of those interests . . . and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument." (Emphasis and underlining added.) Thus, the contract language expressly limits the interests MERS owns to those granted in the mortgage instrument and limits MERS's right to take action to those actions related to the mortgage instrument. Nothing in this language permits MERS to take any action with respect to the debt, or provides it any interest therein.

Though the lenders do not hold legal title to the mortgage instruments, they do have an equitable interest therein. See Alton v Slater, 298 Mich 469, 480; 299 NW 149 (1941); Atwood v Schlee, 269 Mich 322; 257 NW 712 (1934). The lenders' equitable interest in the mortgages does not, however, translate into an equitable interest for MERS in the loans.

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Finally, even assuming that the contract language did create such a right, Homecomings cannot grant MERS the authority to take action when the statute prohibits it. Regardless of whether Homecomings would like MERS to be able to take such action, it can only grant MERS the authority to take actions that our Legislature has statutorily permitted. Where the Legislature has limited the availability to take action to a specified group of individuals, parties cannot grant an entity that falls outside that group the authority to take such action. Here, the Legislature specifically requires ownership of an interest in the note before permitting foreclosure by advertisement. The contention that the contract between MERS and Homecomings provided MERS with an ownership interest in the notes stretches the concept of legal ownership past the breaking point. While the term may be used very loosely in some popular contexts, such as the expression to "own a feeling," such use refers to a subjective quality or experience. We are confident that such a loose and uncertain meaning is not what the Legislature intended. Rather, the Legislature used the word "owner" because it meant to invoke a legal or equitable right of ownership. Viewed in that context, although MERS owns the mortgages, it owns neither the related debt nor an interest in any portion of the debt, and is not a secondary beneficiary of the payment of the debt.5 The dissent's conclusion that MERS owns an interest in each note because whether it ultimately receives the property depends on whether the note is paid, similarly distorts the term "interest" from a legal term of art to a generalized popular understanding of the word. It may be that MERS is concerned with (i.e., interested in) whether the loans are paid because that will define its actions vis-

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