In Federal Home Loan Mortgage Corporation v Werme, a published opinion of the Michigan Court of Appeals, the property owner granted two notes and mortgages. The first ultimately wound up in the hands of FHLMC; the second with Huntington National Bank. The mortgagor defaulted under both. Huntington foreclosed and the property owner failed to redeem, although the property owner engaged in protracted litigation with both mortgagees. After the redemption period expired, Huntington conveyed the property to FHLMC, which started eviction proceedings. The former owner filed a counterclaim to quiet title, which was removed to the circuit court while the district court retained the eviction proceedings. The district court entered a judgment of possession in favor of FHLMC, and the circuit court dismissed the property owner’s claims to quiet title to the property. The owner appealed.
On appeal, the Michigan Court of Appeals upheld both the possession judgment and dismissal of the quiet title action. When the property owner failed to redeem from foreclosure of the second mortgage, all of her rights in the property were extinguished. Thus, FHLMC was entitled to possession, and the property owner could not establish title to the property.
However, the case was remanded to the circuit court for entry of an order that the debt underlying the first mortgage was equitably satisfied. Relying upon case law holding that when the same entity holds two mortgages on the property and forecloses the second mortgage it extinguishes the debt underlying the first mortgage, the court held that the same principles equitably discharged the debt here because, even both debts were not held by the same entity at the time of the foreclosure of the second.