Sixth Circuit Court of Appeals: debtors must meet high standard to set aside foreclosure after redemption period


The Sixth Circuit Court of Appeals recently held in Conlin v Mortgage Electronic Registration Systems, Inc that Michigan law imposes strict limitations on debtors’ ability to set aside foreclosures once redemption periods expire. Debtors must not only establish a “clear showing of fraud or irregularity” that relates to the foreclosure procedure itself but must also establish that they were “prejudiced,” or that they would have been in a better position to preserve their property interests absent a defendant’s noncompliance with foreclosure laws.

In Conlin, the debtor alleged that an assignment of his mortgage from MERS to U.S. Bank was forged or “robosigned” and that MERS had no capacity to assign to U.S. Bank. This argument had a number of legal problems. Under Michigan law, an outside third-party like Conlin does not have standing to raise a flaw in an assignment. Further, even assuming the foreclosure violated Michigan’s foreclosure by advertisement law, that would make the foreclosure voidable — not necessarily void. Ultimately, Conlin could neither make a clear showing of fraud nor establish prejudice. Therefore, the Court of Appeals affirmed the district court’s dismissal of Conlin’s complaint.

Conlin demonstrates that Michigan’s restrictions on post-redemption challenges to foreclosure have a purpose. By restricting borrowers’ ability to challenge a foreclosure once the redemption period expires, Michigan law encourages finality and provides security to purchasers of foreclosed properties.

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