'What Do You Mean That I Can't Foreclose My Mortgage And Sue The Guarantor At The Same Time? Since When?'

The answer is, "since April 17, 2012." On that day, the Michigan Court of Appeals, Michigan's intermediate appellate court, issued its opinion in Greenville Lafayette, LLC v. Elgin State Bank (Case No. 308450), which reversed a decision of the Montcalm County Circuit Court on the scope of Michigan's "one action" rule applicable to mortgage foreclosure by advertisement proceedings, MCL 600.3204(1)(b). This statutory provision prohibits the commencement and continuation of foreclosure by advertisement proceedings when "an action or proceedings, at law" have been instituted "to recover the debt secured by the mortgage or any part of the mortgage." If such an action or proceeding has been commenced and is pending, it must be discontinued before the foreclosure proceeding can be begun. Alternatively, if such an action has resulted in the entry of a money judgment on the mortgage debt, then the foreclosure proceeding may only be commenced if an execution on that judgment "has been returned unsatisfied, in whole or in part." Id. The rationale for 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. Starkweather, 38 Mich. 96 (1878).

In 1970, the Sixth Circuit Court of Appeals in United States v. Leslie, 421 F.2d 763 (6th Cir. 1970) held that this statutory one-action rule did not bar the mortgagee, the U.S. Small Business Administration, from foreclosing on mortgaged realty owned by a corporation and separately commencing a civil action for a money judgment against to individual guarantors of the mortgage debt owed by the corporation as the principal obligor. In arriving at this conclusion, the Sixth Circuit found that the guaranty obligation was "separate" from the mortgage indebtedness and the civil action was brought against the two individual guarantors and not against the corporate debtor. Id. at 766. See also Mazur v. Young, 507 F.3d 1013, 1018 (6th Cir. 2007)(discussing the Leslie decision and well-settled Michigan law that a guaranty is an "independent, collateral agreement" separate from the mortgage note); Church & Church, Inc. v. A-1 Carpentry, 281 Mich.App. 330, 766 N.W.2d 30 (2008).

The Michigan Court of Appeals' Greenville Lafayette decision has thrown the Leslie decision and its progeny, as well as established Michigan foreclosure and collection practices into a cocked hat by...