In JPMorgan Chase Bank, N.A. v Bayle, et al, COA Docket No. 32544, (April 26, 2016)(unpublished), the Court was faced with a case of first impression under Michigan law involving two competing purchase money mortgages. The Court ultimately held that when there are competing purchase money mortgages, priority is determined by which mortgage was recorded first. In a dissent, Judge Michael Gadola would have affirmed the trial court ruling.
The dispute concerned two mortgages recorded against residential property located in Muskegon, Michigan. On May 21, 2007, Defendant Bayle purchased the property from Homeland Developers, Inc., of which Defendant Yonkman was its president. Bayle funded her purchase of the property, in part, with a loan from Chase Bank for the sum of $99,200.00, which she applied toward the purchase price of the home. Bayle granted Chase a mortgage (the “Chase Mortgage”) on the property to secure repayment of the loan. The Chase Mortgage was executed on the date of closing, June 14, 2007, and recorded on June 19, 2007. That mortgage was subsequently assigned to JP Morgan. Bayle simultaneously borrowed $27,027.01 from Yonkman, in her individual capacity, which loan was secured by a mortgage (the “Yonkman Mortgage”). The Yonkman Mortgage was recorded on June 19, 2007, approximately three hours before the Chase mortgage was recorded. Although the Yonkman Mortgage was dated June 22, 2007, an affidavit was submitted in the trial court claiming that the date on the mortgage was erroneous and that the mortgage had been executed at the closing on June 14, 2007.
Bayle defaulted on the bank loan, and JP Morgan filed a quiet title action seeking to have its mortgage declared superior to that of Yonkman. JP Morgan subsequently moved for summary disposition under MCR 2.116(C)(10). The trial court granted that motion on the basis that although Yonkman’s interest was recorded first, she had knowledge of JP Morgan’s interest at the time she acquired hers. Thus, Yonkman was not a good-faith subsequent mortgagee and could not claim superiority under Michigan’s race-notice statute, MCL 565.29.
Yonkman appealed as of right and argued that summary disposition was improperly granted under (C)(10) because there was a question of fact over whether she was a third-party purchase money mortgagee, which if true, would grant her priority over JP Morgan because she had recorded her interest first. On appeal, the COA agreed with Yonkman and reversed the lower court.
The Court stated, “Under Michigan’s race-notice scheme, when the holder of a real estate interest fails to record its interest (i.e., the prior or first-in-time interest), that interest is deemed void but only against (1) any subsequent interest holder (2) who obtained its interest in good faith and for valuable consideration and (3) recorded first.” (Id. at 3)
The Court rejected Chase’s argument that its mortgage was a first lien, stating that Chase’s argument hinged on a finding that under MCL 565.29, the Yonkman Mortgage was a “prior transaction” and the Chase Mortgage, a “subsequent transaction”, when in fact, both mortgages were simultaneous transactions. (Id. at 3) The Court found that in such a situation, the “subsequent purchaser in good faith” provision of the race-notice statute would not decide priority because neither party can be said to be “subsequent” to the other. (Id. at 4)
The Court then went on to look at whether JP Morgan was nevertheless entitled to judgment as a matter of law if both mortgages were deemed to be purchase money mortgages. Finding no guidance under Michigan precedent, the Court turned to Minnesota law. The Court noted that Minnesota was also a race-notice state which had recently confronted the same issue and held that priority was determined by who recorded its interest first. The Court stated:
“We agree with this rule and hold that the priority between competing third-party purchase money mortgages is to be resolved by which mortgage is recorded first. With the transactions having taken place simultaneously, the only meaningful way to break this temporal tie is to see which conveyance was recorded first … Accordingly, assuming that both Yonkman and JP Morgan possess purchase money mortgages, JP Morgan cannot establish priority and is not entitled to judgment because Yonkman recorded her interest first.” Id. at 5.
In his dissent, Judge Gadola took issue with the majority’s conclusion that the Yonkman Mortgage was a purchase money mortgage because it was dated June 22, 2007, eight days after the admitted closing occurred on June 14, 2007. Judge Gadola would find that because the mortgage was granted after the closing, Yonkman could not be considered a subsequent good faith purchaser for value without notice. (Id. at 2)
In reaching his conclusion, Judge Gadola essentially rejected the affidavit submitted by Yonkman, which asserted that the June 22, 2007 date on the mortgage was a typographical error, and ignored the fact that the mortgage had actually been recorded by the register of deeds on June 19, 2007.
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