Euihyung and In Sook Kim obtained a $615,000 loan from Washington Mutual Bank (WaMu) on July 11, 2007 to refinance their residence at 3455 Brookland Street in Utica. As security for the loan, they granted WaMu a mortgage on the Brookland property. The mortgage granted WaMu, as the mortgagee and lender, the power of sale in the event of default. The mortgage was recorded.
On September 25, 2008, the federal Office of Thrift Management closed WaMu and appointed the Federal Deposit Insurance Corporation as receiver for WaMu. That same day, FDIC, in its capacity as receiver, sold virtually all of WaMu’s assets to JP Morgan Chase Bank pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA (12 USC § 1451 et seq.). Under 12 USC § 1821(d)(2)(G)(i)(II), FDIC is empowered to transfer the assets of failed banks “without any approval, assignment, or consent….” Chase acquired WaMu’s loans pursuant to a Purchase and Assumption Agreement dated September 25, 2008.
According to the Kims, they sought a loan modification in early 2009 because they were having financial difficulties. They contend that they were advised by a WaMu representative that they were not eligible for a modification because they were not at least three months in arrears on their mortgage payments. Because of this advice, the Kims claim, they allowed the mortgage to become delinquent. Sometime during the spring of 2009, the Kims retained an out-of-state attorney to assist them with the loan modification negotiations. The Kims claim that the attorney assured them that the loan modification had been approved, and that they signed some documents to modify their loan; they believed that the matter was resolved.
In May 2009, the Kims received a foreclosure notice from Chase. Chase published the required notice of foreclosure in May and June 2009. The sheriff’s sale was conducted on June 26, 2009. Chase acquired the property for a bid of $216,000. The Kims’ total indebtedness on the loan, including interest and fees was $624,000.
The Kims sued Chase on November 30, 2009, seeking to set aside the sheriff’s sale on the ground that they had requested a loan modification and that Chase had not bid fair market value for the property at the sheriff’s sale. They also alleged violations of the Fair Debt Collection Practices Act. The statutory redemption period expired June 26, 2010.
Chase filed a motion for summary disposition, arguing that the statute of frauds barred the Kims’ claim regarding a loan modification. Chase also contended that the Kims were not legally entitled to set aside the sheriff’s sale based on Chase’s allegedly low bid price, and that the Fair Debt Practices Act applies only to collection agencies and not the direct lender. In response, the Kims claimed that Chase was not the owner of the indebtedness as required to foreclose by advertisement under § 3204(1)(d), and that no assignment of the mortgage from WaMu to Chase had been recorded before the sheriff’s sale as required by § 3204(3).
The trial court granted Chase’s motion. The court concluded that Chase acquired the loan by operation of law; accordingly, § 3204(3) did not apply, the court said. With respect to the bid price claim, the court relied on case law stating that a homeowner’s ability to redeem the property for the bid price justifies the conclusion that a low bid at the sheriff’s sale is not a valid basis on which to set aside the sale.
The Kims appealed to the Court of Appeals, contending that Chase failed to comply with § 3204(3), and, as a result, the sheriff’s sale was void ab initio (meaning that the sale was legally improper and could not stand). In a published opinion, the Court of Appeals reversed the trial court’s ruling and remanded for entry of judgment for the Kims. The Court of Appeals concluded that the plain language of § 3204(3) applied to Chase because Chase was not the original mortgagee and acquired the loan by assignment. Accordingly, it was incumbent on Chase to record an assignment before the sheriff’s sale, the appellate court said. In addition, the Court of Appeals held that Chase did not, in fact, acquire the loan by operation of law. Rather, FDIC, as the receiver of WaMu’s assets, acquired WaMu’s assets by operation of law, but Chase was merely the purchaser of those assets, the appellate panel said. The Court of Appeals also held that the failure to record an assignment prior to the sale rendered the sheriff’s sale void ab initio. The Court of Appeals remanded the case to the trial court, directing the court to enter judgment for the Kims.