Real Estate Law

Borrowers' Counsel Can Be Sanctioned over Frivolous Complaints in Foreclosure and Eviction Proceedings, Michigan Court Holds

By the Ballard Spahr LLP Mortgage Banking Group

A Michigan appellate court recently held that a borrower's counsel could be sanctioned for filing a complaint for the purpose of delaying foreclosure or eviction. In Edgett v. Flagstar Bank, [enhanced version available to subscribers], after multiple reviews of the borrower's loan modification requests, the bank completed foreclosure. The borrower then filed a four-count complaint alleging quiet title, unjust enrichment, breach of implied agreement/specific performance, and breach of Michigan's loan modification process.

The trial court granted the bank's motion for summary disposition finding that the borrower failed to show fraud or irregularity to set aside the sheriff's sale, that the statute of frauds barred the borrower's claims of unjust enrichment and breach of implied contract, and that the bank did not violate Michigan's loan modification process. The trial court declined to award the bank sanctions. Both parties appealed.

The borrower's appeal was dismissed because she never filed an opening brief. Reviewing the bank's cross-appeal, the appellate court held that the borrower's lawsuit epitomizes frivolousness and remanded to the trial court for an assessment of reasonable attorneys' fees to be imposed only against borrower's counsel. Specifically, the appellate court concluded the borrower's complaint was not well grounded in fact and was not warranted by existing law or a good-faith argument for the extension, modification, or reversal of existing law. Additionally, the court found, the lawsuit was clearly initiated to cause unnecessary delay. The appellate court also awarded taxable costs to the bank.

Lenders should note that sanctions may be available against a borrower's counsel who files multiple frivolous complaints simply to delay foreclosure or eviction proceedings.

- Robert A. Scott, Edward Chang, and Patrick H. Pugh

Copyright © 2014 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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