Federal Home Loan Mortgage Association v. Kelley

The Federal Home Loan Mortgage Association (Freddie Mac) (plaintiff), a federally chartered corporation, was created in 1970 to increase the availability of mortgages to low- and moderate-income families and promoteing nationwide access to mortgages. Freddie Mac operated in the secondary- mortgage market, buying and securitizing residential mortgages. In 2008, the Federal Housing Finance Agency (FHFA) was created to supervise Freddie Mac and other organizations. Freddie Mac was placed into conservatorship by FHFA for purposes of reorganizing, rehabilitating, or winding up Freddie Mac’s affairs. In 2011, Michigan homeowners Michael R. Kelley (defendant) and Kathryn M. Kelley (defendants) defaulted on their mortgage. Freddie Mac, as investor in the mortgage, had chosen CitiMortgage (CMI) to service the mortgage. CMI foreclosed pursuant to Michigan’s foreclosure-by-advertisement statute, and Freddie Mac purchased the Kelleys’ property at the sheriff’s sale. The statute allowed the borrower to redeem the property within six months after the sheriff’s sale. After the Kelleys failed to redeem the property within the six-month statutory redemption period, Freddie Mac began eviction proceedings. In defending themselves from eviction, the Kelleys challenged the foreclosure, arguing that FHFA’s conservatorship had transformed Freddie Mac into a federal actor, requiring Freddie Mac to follow Fifth Amendment due- process requirements. The Kelleys argued that Freddie Mac had deprived them of their due- process rights by foreclosing by advertisement. The district court determined that Freddie Mac was not a governmental actor, granted Freddie Mac’s motion for summary disposition, and terminated the Kelleys’ possession of the property. The circuit court reversed, and Freddie Mac appealed.