The foreclosure process can be a scary time for homeowners because it is hard to know what to expect. There are two types of foreclosures: judicial foreclosure (processed and supervised by the court) and foreclosure by advertisement (no court involvement). The most common version is the foreclosure by advertisement because it is quicker, less expensive and does not involve scheduling time before the judge. This article will attempt to explain the procedure for foreclosure by advertisement to take some of the fear and surprise out of it.
Mortgage payments are typically due to the lender on the first day of the month. Even then, many lenders also allow a “grace period” of 20 days after the due day for the homeowner to make the payment without late fees or penalties. Most lenders will consider you in default after 30 days have passed without payment. Mortgage agreements contain a power of sale clause in which, upon default being made in any condition of the mortgage, the foreclosure by advertisement process may be initiated. MCL 600.3201. However, federal law places additional limits on lenders to provide certain notices and comply with procedures before any foreclosure can commence under state law. The Real Estate Settlement Procedures Act of 1974 (“RESPA”) requires the following:
- A lender must provide written notice to a borrower of his or her delinquency NO LATER THAN 45 DAYS after the payment due date so long as the borrower is still delinquent. This notice must include a statement encouraging the borrower to contact the lender, provide a mailing address and telephone number, provide a brief description of “loss mitigation options” (e.g. request for a deed-in-lieu of foreclosure, forbearance, repayment plan, short sale or loan modification) to the borrower, and provide instructions for making an application for a loan mitigation option. 12 C.F.R. §1024.39(b).
- A lender must make personnel available by phone or mail to provide the borrower with accurate information about loss mitigation options available, actions that the borrower must take to be evaluated for a loss mitigation option, the status of any loss mitigation option submitted, the circumstances which a lender may make a foreclosure referral, and notice of any loss mitigation deadlines. 12 C.F.R. §1024.40(a)(1).
- A lender shall not make the first notice or filing for a judicial or non-judicial foreclosure under Michigan law unless the mortgage loan obligation is more than 120 days delinquent. 12 C.F.R. §1024.41(f)(1)(i).
- If a borrower submits a loss mitigation application to the lender during the 120-day period, the lender may not proceed with a foreclosure action UNLESS the lender notifies the borrower that he or she is not eligible for any loan application options and provides notice of appeal options, any request appeal was heard and denied, the borrower rejects all available loss mitigation options, or the borrower fails to perform under a loss mitigation agreement. 12 C.F.R. §1024.41(f)(2).
- If a borrower submits a loss mitigation application to the lender AFTER the first notice or filing for foreclosure but 37 day BEFORE the foreclosure sale, the lender may not proceed with the foreclosure sale UNLESS the lender notifies the borrower that he or she is not eligible for any loan application options and provides notice of appeal options, any request appeal was heard and denied, the borrower rejects all available loss mitigation options, or the borrower fails to perform under a loss mitigation agreement. 12 C.F.R. §1024.41(g).
If it has been more than 120 days since the delinquency, the lender has complied with all legal notices and there are no pending loan mitigation options, then the process for a foreclosure sale begins:
- The lender will schedule a Sheriff’s sale date and then publish notice of the sale in the county newspaper for four (4) consecutive weeks with details of the debt (with notice posted on the property within two (2) weeks of the first publication). MCL 600.3208.
- “The sale shall be at public sale, between the hour of 9 o’clock in the forenoon and 4 o’clock in the afternoon, at the place of holding the circuit court within the county in which the premises to be sold, or some part of them, are situated, and shall be made by the person appointed for that purpose in the mortgage, or by the sheriff, undersheriff, or a deputy sheriff of the county, to the highest bidder.” MCL 600.3216. The lender may, fairly and in good faith, purchase the premises at the Sheriff’s sale. MCL 600.3228.
- The highest bidder at the Sheriff’s Sale will receive a Sheriff’s deed that is recorded within 20 days. This deed must clearly state the date that the borrower may redeem the property. MCL 600.3232. If the property is not redeemed, then the deed becomes operative and full rights to the property are vested in the purchaser. MCL 600.3236.
If the property sells at a foreclosure sale for less than the borrower owes on the mortgage loan, then the borrower may still be liable for the unpaid balance. The lender can file suit against the borrower in court to obtain a deficiency judgment for the remaining debt. If awarded a judgment, the lender may use any method permitted under Michigan law to collect the debt including wage garnishments, liens and seizures. The borrower may be able to contest this amount in court if the lender was the buyer at the foreclosure sale and the foreclosure price was substantially less than the fair market value of the property. MCL 600.3280.
Even after the foreclosure sale, Michigan allows a right of redemption where the borrower can recover the premises by paying the full amount due on the property with a certain amount of time. The amount that must be paid for redemption is the amount that was bid for the entire premises sold, interest from the date of the sale at the interest rate provided for in the mortgage, the amount of the sheriff’s fee paid by the purchaser, and an additional $5.00 paid to the register of deeds if they are taking care and custody of the money. MCL 600.3240(2). The amount of time allowed to recover the premises is as follows:
- For a mortgage of commercial or industrial property or a multifamily residential property exceeding 4 dwelling units, the redemption period is 6 months from the date of sale. MCL 600.3240(7).
- For a mortgage of residential property not exceeding 4 dwelling units and the amount claimed to be due on the mortgage at the date of the foreclosure notice is more than 2/3 of the original indebtedness secured by the mortgage, the redemption period is 6 months from the date of sale. MCL 600.3240(8).
- For a mortgage of residential property not exceeding 4 dwelling units that is ABANDONED, the redemption period is 1 month from the date of sale. MCL 600.3240(9).
- For a mortgage of property that is used for agricultural purposes, the redemption period is 1 year from the date of sale. MCL 600.3240(11).
- For any other mortgages of property not covered by this statute, the redemption period is 1 year from the date of sale. MCL 600.3240(12).
During the foreclosure process and the redemption period, the borrower is permitted to live on the property, is not required to make payments and can sell or buy back the property. However, the purchaser of the property has the right to inspect the premises after the foreclosure sale and, upon reasonable notice, the borrower must allow this. If an inspection is unreasonably refused by the borrower or if damage to the property is imminent or has occurred, the purchaser may immediately commence summary proceedings for possession of the property and eviction of the borrower. MCL 600.3238(6). At the end of the redemption period, the purchaser may also file summary proceedings for possession to remove the borrower if he or she has not redeemed the property and vacated the premises.
You can benefit from the assistance of a skilled lawyer if the foreclosure process is confusing or you feel you have been mistreated by the lender. An attorney can explain to you all the options and alternatives to a foreclosure that can keep you in your home or protect your credit rating. You should never agree to a loan modification or a repayment plan that you cannot afford. The foreclosure process and the right of redemption period operate on very strict timelines, so do not hesitate or wait until the last minute to ask for legal help.
If you or a loved one have questions about the foreclosure process or need legal representation, then do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.