By Michelle Clark, Esq.

Trott Law, PC*

USFN Member (MI, MN)

Lenders, servicers, and investors encounter situations in which necessity prompts them to set aside a foreclosure sale. Prior to 2018, a lender would accomplish the process in Michigan by recording an affidavit. There were no published appellate cases on the issue and title underwriters accepted the expedient process.

In 2018, the Michigan Court of Appeals ruled that “a party cannot set aside a foreclosure sale simply through the unilateral filing of an expungement affidavit.” Wilmington Savings Fund Society v. Clare, 323 Mich. App. 678, 686-690. The narrow ruling provided no clear guidance regarding how a lender might successfully vacate a foreclosure sale via affidavit, whether unilateral or bilateral. What Clare did make clear was that MCL 565.451a “does not include any indication that an affidavit may be used to create a condition.”*

On May 26, 2022, the Michigan Court of Appeals provided partial clarification on this unsettled issue in 1373 Moulin, LLC v. Wolf, 2022 Mich. App. LEXIS 3062.** The question: Can an affidavit effectively set aside a foreclosure sale? The answer is yes, if it recites knowledge of an independent condition or event.

Unlike the mortgagee in Clare, a representative of [lender] filed an affidavit that stated facts about a “happening of [an] . . . event” that affected the interests of [lender] and [borrower] in the property.

Thus, unlike the affidavit in Clare, the affidavit in this case did not create the condition that affected an interest in the property. Rather [the parties’] agreement created the condition, and the affidavit merely stated facts concerning the representative’s knowledge of that agreement.

The Court suggested, but did not state unequivocally, that such affidavits should be recorded within the statutory redemption period and prior to a post-foreclosure conveyance.

Additionally, at the time the affidavit was executed and recorded, [borrower] still had a present interest in the property as the holder of the redemption rights. ...This is unlike the mortgagor in Clare. Indeed, the affidavit in Clare was filed years after the redemption had expired and after the mortgagee that had purchased the property purported to convey the property to another entity.

Prior to the Wolf decision, many industry attorneys correctly interpreted Clare in a manner consistent with the new ruling. The case eliminates some uncertainties, but questions remain. The suitability of using an affidavit to vacate a foreclosure sale should be determined on a case-by-case basis.

It remains to be seen if title underwriters will insure transactions involving similar affidavits. What is clear is that lenders wishing to utilize them should proceed quickly and craft a document that recites a legitimate and independent “condition or event” underlying the set aside.

Questions regarding this case can be directed to Michelle K. Clark at Trott Law, P.C.

*     The relevant portion of the Michigan statute reads (emphasis added):

An affidavit stating facts relating to any of the following matters that may affect the title to real property in this state and made by any person having knowledge of the facts and competent to testify concerning those facts in open court may be recorded in the office of the register of deeds of the county where the real property is situated:

(b) Knowledge of the happening of any condition or event that may terminate an estate or interest in real property[.]

**  The opinion is subject to revision until final publication in the Michigan Appeals Reports.

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