Michigan Supreme Court Remands Cherryland Case: Constitutionality of Retroactive Effect of Nonrecourse Mortgage Loan Act Likely to be Tested

Earlier this year, we reported to you on the Michigan Court of Appeals decision in Wells Fargo Bank, NA v. Cherryland Mall Ltd. P’ship (Cherryland). The Cherryland decision resulted in "springing recourse" liability for the borrower and guarantor under a CMBS loan. As expected, a request for leave to appeal was filed with the Michigan Supreme Court.

We subsequently reported to you on the bipartisan legislation enacted in the Michigan Legislature after the Cherryland decision was rendered, known as the Michigan Nonrecourse Mortgage Loan Act (the Act). The Act retroactively prohibits a post-closing solvency covenant from being used as a nonrecourse carveout or as a basis for any claim against a borrower, guarantor, or other surety on a nonrecourse loan. As a result, the Act effectively overturned the decision rendered in Cherryland.

In an order issued on September 26, 2012, the Michigan Supreme Court, in lieu of granting leave to appeal, remanded the Cherryland case to the Court of Appeals for further proceedings as necessary to reconsider its decision in light of the passage of the Act. The constitutional questions raised by the Act, principally its retroactive nature, will likely be addressed by the Michigan Court of Appeals, and perhaps later by the Michigan Supreme Court.

Dykema will continue to monitor these issues and provide further updates and analysis. If you are interested in the impact of the Act and/or the Cherryland decision on your specific loan or circumstances, you may contact Adam Fishkind at 248-203-0749, Brian Page at 616-776-7509 or your regular Dykema contact.

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