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, but sometimes either the lender or the borrower opt to have the process take place in the court. The lender may file for a judicial foreclosure if the mortgage agreement lacks a power-of-sale clause upon default or the lender believes that the judge needs to make a judicial determination of who has ownership interest in the property. The borrower may file suit in court to raise defenses to the foreclosure by advertisement process and that the lender has a legal basis to initiate proceedings. This blog article will attempt to explain the procedure for judicial foreclosures to take away the mystery from the process.
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. However, most lenders will consider you in default after 30 days have passed without payment. In that event, the lender may file suit in the circuit court where the property is located to seek a court order that forecloses the mortgage for violation of any of its conditions. MCL 600.3101. 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 pre-foreclosure 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 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 judicial foreclosure process may begin. The lender will file and serve upon the borrower a summons and complaint compelling an appearance in court. Once a foreclosure action is filed in court, the lender is barred from initiating any other proceeding to recover the debt secured by the mortgage until the case is concluded. MCL 600.3105(2). The lender is also required in the complaint whether an action has ever been brought to recover all or part of the debt secured by the mortgage and whether part of the debt has been collected or paid. MCR 3.410(B)(1).
The circuit court has the power to do ALL of the following in a judgment for judicial foreclosure:
- Decide which defendants (if any) are personally liable for the mortgage debt. MCL 600.3150.
- Order a sale of the premises subject to the mortgage or the portion sufficient to discharge the amount due on the mortgage plus costs. A sale under a judgment of foreclosure may not be ordered on less than 42 days of notice. MCR 3.410(C). Also, the court cannot order that the land be sold sooner than 6 months after the filing of the complaint. MCL 600.3115; MCR 3.410(C)(1).
- Provide that, upon the sale of the mortgaged property, the unpaid amount of principal, interest or costs due after applying the proceeds will be a deficiency judgment executed against the borrower. MCL 600.3150.
- Order and compel the delivery and possession of the premises to the purchaser at the sale. MCL 600.3150.
However, the borrower may take the following actions to delay or cancel the judicial foreclosure proceedings:
- The lender’s complaint is dismissed at ANY TIME before the judgment of sale if the borrower brings into court the principal and interest due, with costs, of the amount of the payments due to date. MCL 600.3110.
- “If, after a judgment of sale is entered against him, the defendant brings into court the principal and interest due with costs, the proceedings in the action shall be stayed; but the court shall enter a judgment of foreclosure and sale to be enforced by a further order of the court upon a subsequent default in the payment of any portion or installment of the principal, or of any interest thereafter to become due.” MCL 600.3120.
- If the borrower or any defendant in an action to foreclose a mortgage is an active-duty service member in the U.S. Armed Forces or Michigan national guard and EITHER entered into the mortgage before becoming a service member OR is deployed in overseas service, then the court may stay proceedings until 6 months after the end of the service member’s active-duty unless it “determines that the ability of the defendant to comply with the terms of the obligation secured by the mortgage or land contract is not materially affected by the service member’s military service”. MCL 600.3185.
If the foreclosure sale proceeds as ordered, it “shall be made by the county clerk of the county in which the judgment was rendered or of the county where the land or some part of the land is situated, by a deputy county clerk, or by some other person duly authorized by the order of the court. These sales shall be at public sale between the hour of 9 a.m. and 4 p.m. and shall take place at the courthouse or place of holding of the circuit court in the county in which the land or some part of its is situated or at any other place the court directs.” MCL 600.3125.
- The court may fix and determine the minimum price at which the property covered by the mortgage may be sold at the foreclosure sale. MCL 600.3155.
- The highest bidder at the sale will receive a deed that is recorded within 20 days. This deed must clearly state the date that the borrower may redeem the property. If the property is not redeemed, then the deed becomes operative and full rights to the property are vested in the purchaser. MCL 600.3130(1); MCR 3.410(D).
- The proceeds of the sale under the judgment are applied to the mortgage debt as determined by the court to be due in addition to any costs awarded. If there is a surplus from the sale, it is payable to the borrower or any other person the court determines to be entitled to it. MCL 600.3135(1).
Even after a court-ordered sale is held and the property was purchased by another party, the borrower or any person that has a recorded interest in the property may redeem the entire premises sold by paying, within 6 months after the sale, to the purchaser (or to the register of deeds office) the amount that was bid with interest from the date of the sale at the interest rate provided in the mortgage. MCL 600.3140(1). This will cancel the effect of the sale, nullify the deed and put the property back in the hands of the borrower. However, the borrower has a strict time limit and must have the exact amount of money required by law or else it will be too late.
- The exact amount of money needed to redeem must be stated on the purchaser’s affidavit attached to the deed of sale at the register of deeds, which must also include any daily per diem amounts and the date the property must be redeemed. MCL 600.3140(3). In addition, a $5.00 fee must be paid to the register of deeds if they are taking care and custody of the redemption money. MCL 600.3140(4).
- The court, in its judgment of foreclosure, may add to the amount required for redemption, “any sum or sums paid at any time after the foreclosure and prior to the expiration of the period of redemption, as taxes assessed against the property and/or the portion of the premium of any insurance policy covering any buildings located on the premises as is required to keep the policy in force until the expiration of the period of redemption, if under the terms of the mortgage it would have been the duty of the defendants determined to be personally liable to have paid the taxes or insurance premium had the mortgage not been foreclosed.” MCL 600.3145.
- Unlike foreclosure by advertisement, there is a flat 6 month right of redemption period from the date of sale. There is no statutory right to shorten the redemption period because the property is abandoned, or inspection was unreasonably refused.
When faced with a judicial foreclosure, you should contact a skilled lawyer immediately to protect your rights. The homeowner who represents himself is expected to understand civil procedure, the rules of evidence and the laws regarding judicial foreclosure. Going it alone can result in the loss of your home and a possible deficiency judgment against you. You cannot simply ignore the process either and hope that nothing bad happens. If you fail to respond to the legal proceedings, the lender can obtain a default judgment based entirely on their terms and conditions. You cannot afford to not take action, especially when your most valuable asset is at stake.
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.