More Legal Maneuvering Over The Scope And Applicability Of Michigan's 'One Action' Rule Governing Mortgage Foreclosures By Advertisement

In order to commence and complete in Michigan a foreclosure of a mortgage by advertisement, there must not have been instituted "an action or proceeding . . . at law, to recover the debt secured by the mortgage or any part of the mortgage" unless that action has either been "discontinued" or an "execution on a judgment rendered in that action or proceeding has been returned unsatisfied, in whole or in part." MCL § 600.3204(b). The rationale behind this rule is to prohibit harassment of the mortgagor by requiring it to defend two proceedings at once and to forbid a double recovery on the debt. See, e.g., Lee v. Clary, 38 Mich. 223, 227 (1878); Larzelere v. Startkweather, 38 Mich. 96 (1878).

In a previous alert dated April 23, 2012 , the authors discussed the long-recognized exception to this rule when a mortgagee commences an action for an in personam judgment against a guarantor of the mortgage debt. See, e.g., United States v. Leslie, 421 F.2d 763 (6th Cir. 1970) and Church & Church, Inc. v. A-1 Carpentry, 281 Mich. App. 330, 766 N.W.2d 30 (2008), for court decisions recognizing and applying this exception. This earlier alert discussed a recent Michigan Court of Appeals decision holding that a mortgagor's action against a guarantor of the mortgage debt triggered the application of the one-action rule to invalidate a foreclosure sale when the loan documents defined the mortgage indebtedness as including debt arising under "guaranties." Greenville Lafayette, LLC v. Elgin State Bank, 818 N.W.2d 460 (2012).

In a decision issued this November, the Michigan Court of Appeals struggled with the consequences of its Greenville Lafayette decision in a similar context, only to be aided by the guarantor's imprecise pleading in the trial court below. Canvasser Heritage, L.L.C. v. Fifth Third Bank, Case No. 304510 (Mich. Ct. App. Nov. 15, 2012). In Canvasser, Fifth Third Bank (the "Bank") made two separate loans to Canvasser Heritage, L.L.C. (the "LLC") secured by a real estate development located in Macomb County, Mich. Payment of the entire mortgage debt was guaranteed by Mark Canvasser ("Canvasser") an individual, and his trust. After the LLC defaulted on the two notes, the Bank commenced a collection against the two guarantors for a money judgment on their guaranties and was granted summary judgment in that action by the Macomb County Circuit Court. Thereafter, the LLC commenced a separate action against the Bank in the same court seeking an...