Farouk Saco v. Deutsche Bank National Trust

*501 SUTTON, Circuit Judge. Farouk and Suha Saco mortgaged their Michigan home to obtain a loan. When they could no longer keep up with their payments, their bank foreclosed on the house. A federal district court refused to invalidate the sheriffs sale that ensued. Neither will we. In 2004, the Sacos took out a $255,000 loan and secured it with a mortgage on their house. The Sacos defaulted nine years later, prompting Deutsche Bank— which by then had been assigned the mortgage — to foreclose on the house. As required by Michigan law, the Bank told the Sacos that a sheriffs sale was imminent, and it won the property at the resulting 'auction with a bid of $156,141.61. Once that happened, the Sacos had six months to “redeem” their property by buying it back from its new owner at the new sales price. Mich. Comp. Laws § 600.3240(1), (7). They did not try to redeem the property. Instead, after the redemption period ended, the Sacos sued the Bank in Grand Traverse County, claiming that the sheriffs sale was invalid. The Bank removed their lawsuit to federal court, which dismissed the complaint for failure to state a claim. The Sacos appeal. The appeal turns on whether the Bank properly obtained ownership of the house through the sheriffs sale. One statute and two facts demonstrate that the Bank permissibly owns the house. In Michigan, a valid sheriffs sale gives “all the right, title, and interest” in a property to whoever wins the auction, unless the original owner redeems the property within six months. Id. § 600.3236. The Bank won the auction, and the Sacos never exercised their right of redemption. See R. 11-3 at 2, PagelD #100; R. 19 at 2. The Sacos cannot head off this conclusion by claiming that the Bank’s alleged violations of the Michigan loan-modification statute made the sheriffs sale invalid. For one, Michigan has repealed the statute. An Act To Amend 1961 PA 236, 2012 Mich. Legis. Serv. 521 (West). For another, they cannot prevail even if we assume their allegations are true and even if we assume the statute still bears on the issue. In Michigan, courts cannot set aside a completed sheriffs sale without “a clear showing of fraud” or “irregularity.” Conlin v. Mortg. Elec. Registration Sys. Inc., 714 F.3d 355, 359 (6th Cir.2013). The Sacos mention this standard but make no attempt to meet it with the specificity Federal Rule of Civil Procedure 9(b) requires. See Appellants’ Br. at 8. More, the Sacos misunderstand how the (repealed) loan-modification statute worked. It created a limited and exclusive remedy for violations: judicial supervision of a pending foreclosure proceeding. Mich. Comp. Laws § 600.3205c(8). The sheriffs sale, however, has come and gone. That leaves the courts with no foreclosure to supervise and the Sacos with no claim to bring, as we have said before in similar circumstances. E.g., Holliday v. Wells Fargo Bank, NA, 569 F. App’x 366, 370 (6th Cir.2014); Elsheick v. Select Portfolio Servicing, Inc., 566 F.App’x 492, 499 (6th Cir.2014). It is true that, in one instance, we said that violations of the statute are “structural defects” that automatically void a foreclosure. See Mitan v. Fed. Home Loan Mortg. Corp., 703 F.3d 949, 952 (6th Cir.2012). But that was when Michigan law permitted that conclusion. That is no longer the case. The Michigan Supreme Court has since made clear that defective foreclosures are voidable, not void from the outset, and voidable only if the claimants (here the Sacos) can show they were prejudiced by the defect. Kim v. JPMorgan Chase Bank, N.A., 493 Mich. 98, 825 *502 N.W.2d 329, 337 (2012). Any such violation thus does not void the foreclosure from the outset. And the Sacos at any rate have not alleged that “they would have been in a better position to preserve their interest in the property” had the Bank complied with the statute. Id. They may not proceed to discovery on speculation alone. See New Albany Tractor, Inc. v. Louisville Tractor, Inc., 650 F.3d 1046, 1051 (6th Cir.2011). That leaves one other question — their action to quiet title under Mich. Comp. Laws § 600.2932(1). Michigan Court Rule 3.411(B)(2)(c) explains that, to invoke that statute, the Sacos must plead “facts establishing the superiority of the[ir] ... claim” to the property — showing, in other words, that the sheriffs sale was somehow invalid. But their only arguments on this score involve the Bank’s alleged violations of the loan-modification statute. Those allegations, we have just explained, do not take the Sacos where they need to go. For these reasons, we affirm.