6th Circuit: No Equitable Mortgage Where Bank or Agents Forged Homeowners' Signatures

IN RE: DANIEL JOSEPH SUTTER; SHERYL LYNN SUTTER, DEBTORS.
DANIEL JOSEPH SUTTER; SHERYL LYNN SUTTER, APPELLEES,
v.
U.S. NATIONAL BANK; SAXON MORTGAGE SERVICES, INC., APPELLANTS.

No. 10-1656

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: October 12, 2011
Decided and Filed: January 3, 2012

Attorney Gregory Bryl website:

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B. The World Wide Mortgage is Void Ab Initio

The district court's conclusion that the World Wide mortgage was void ab initio was based on the bankruptcy court's factual findings that the Sutters did not sign the World Wide mortgage and that their signatures had been forged. The bankruptcy court held that "[t]he Court is well satisfied the debtors have established the necessary burden of proof that the signatures on the mortgage before the Court are not theirs." The court based its findings on the fact that the World Wide mortgage indicates that the Sutters signed the document in Michigan on April 8th, 2004, when it is undisputed that they were in California on that date. While the Appellants have offered various theories during the course of this litigation for this discrepency, they have offered no evidence to support any scenario other than forgery by World Wide or its agents. Counsel for Appellants conceded at oral argument in this appeal that the mortgage was forged, and Appellants also noted that a claim has been filed against the bond of the notary who attested to the alleged signatures of the Sutters. Accordingly, the district court's factual finding that the World Wide mortgage was forged is not clearly erroneous.

The district court also held that, under Michigan law, a forged mortgage is void ab initio. In Horvath v. National Mortgage Co., the plaintiffs challenged a deed that bore their signatures, on the theory that they had been led to believe they were signing power of attorney documents, not a deed. 213 N.W. 202, 202-03 (Mich. 1927). After determining that there was no "distinction between the act of simulating a signature and procuring the signature [by trickery]," the Michigan Supreme Court concluded that the deed in question was void. 213 N.W. at 204. The Court made clear that "[t]here can be no such thing as a bona fide holder under a forgery, whose good faith gives him any rights against the party whose name has been forged or his heirs." Id. (quoting Austin v. Dean, 40 Mich. 386 (Mich. 1879)). As a result, the deed and subsequent transactions based on the deed "are void and should be set aside . . . ." Id. More recent Michigan cases have confirmed this principle and emphasized that parties that take possession of interests granted by the forged instrument, even if they do so innocently, have no rights under the forged document. Special Property VI v. Woodruff, 730 N.W.2d 753, 756

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Finally, Appellants argue that the balance of equities supports finding an equitable mortgage on the Sutter property. At the heart of this argument is the concern, expressed by the bankruptcy court at the April 2007 hearing, that the Sutters will receive a windfall in the form of a "free house," particularly as it is undisputed that the Sutters intended to grant a mortgage interest to World Wide. In the Appellants' view, the Sutters have exploited the bankruptcy process on two occasions to free themselves of otherwise valid obligations. Even if we were to consider a balance of the equities, the result would be the same. The fact that the Sutters have sought relief under the Bankruptcy Code twice is not, in itself, inequitable conduct that would justify imposing an equitable mortgage. Moreover, the Sutters have not receive and cannot receive a

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bankruptcy discharge and remain liable for the now-unsecured note that was validly signed in California.² If the Sutters cannot meet their obligations under that note, we are aware of no bar to Appellants' bringing a debt collection action against the Sutters to collect on their claims, and they would potentially have access to remedies of a judgment lien creditor as to the Sutter property to collect the debt. It is far from certain that the Sutters will get a "free house" as the end result of this process.

III.

The district court correctly held that no mortgage, equitable or otherwise, exists on the Sutters' property. Therefore, we AFFIRM the judgment of the district court.