Michigan Foreclosure
Process: Soup to Nuts
Presented By:
Michael I. Rich, Esq.
Michigan Foreclosure
• Michigan allows foreclosures by advertisement or by
judicial action
• Foreclosure by advertisement has historically been the
favored approach by lenders as it is usually quicker and
less expensive (do not need to pay attorneys to go to
court)
• Changes enacted in 2009, lengthened and made it more
expensive to proceed to foreclose by advertisement.
This has caused lenders to reconsider their best strategic
options in the foreclosure process
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure Alternatives
• The most popular alternative to a
foreclosure is a Deed in Lieu (DIL) of
foreclosure
• When considering a DIL, the ability to
pursue a deficiency and the condition
of the title are most important
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure Alternatives Deed in Lieu
• Many people are under the impression that if a DIL is
accepted, the debt is wiped out
• While that may be the law in some states, it is NOT the
law in Michigan
– Example: If the debt is $100,000 and the house is only worth
$75,000, you may accept the DIL, and unless agreed to
otherwise, pursue the $25,000 difference
– One caveat, there must be some consideration given to the
Borrower for giving the DIL
– The Borrower is giving up their right to remain in the property
through a foreclosure
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure Alternatives Deed in Lieu
• Best recommendation is to waive some
portion of the deficiency in exchange for
the DIL
• Waiving a small portion, should still leave
the lender ahead, as they can save the
cost of a foreclosure, eviction, and not worry
about the property depreciating further due to a
vindictive borrower
• Time is the biggest money saver, as the property may be
able to be re-sold quickly and not have to wait for months
while a foreclosure and eviction occur
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure Alternatives Deed in Lieu
• When a DIL is considered, title work should be obtained
• It is possible that since the mortgage was taken out, the
property has been transferred into a Trust or someone
has been added or deleted from title (marriage, divorce,
death, etc.)
• Everyone that has an interest in the property needs to
sign off on a DIL
• Dower rights apply in Michigan, so title that has a
married man solely on title, still requires his wife to sign
the DIL, as to her dower rights
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure Alternatives Deed in Lieu
• If there is a junior lien holder,
a DIL does not eliminate their lien
• Unless you can get them to agree
to release their lien (not the
indebtedness), you will still have
to foreclose on the property to
eliminate their interest
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure Alternatives Deed in Lieu
• Similarly, if there is a condo
association or an IRS or Justice
Department Lien, releases
(Certificate of Non-Attachment
from IRS) or a foreclosure will
still be necessary, unless you
wish to pay the lien
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure Alternatives Short Sales
• Short sales are another popular alternative to foreclosure
• While everyone knows a short sale is allowing the
property to be sold without paying the lender’s lien in full
from the closing, there is the same popular
misconception about the difference
• A lender may agree to release its lien on a property in
exchange for some amount, but that does NOT
automatically mean the rest of the debt goes away
• Similar to the DIL, you may work out a repayment for the
deficiency or just agree that there is a deficiency
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure Alternatives Short Sales
• When there are other liens on title,
first mortgage holders are sometimes
even asked to allow some payment
to go to junior lien holders, in order to
get the juniors to release their liens
as well
• In those cases, it may be more likely
to get a deficiency agreement, as the
lender is paying other creditors on
behalf of the Borrower
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure Alternatives Short Sales
• When considering a short sale, specific terms should be
in the short sale letter
• Among these
– that the Borrower receives nothing from the closing;
– that any escrowed funds at the closing may NOT be returned to
the Borrower, but must be surrendered to the lender;
– the amount, if any, that junior creditors may receive;
– that this is an arm’s length transaction (the new buyer is not
related to the Borrower); and
– the amount that will be credited on the loan.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure Alternatives Short Sales
• You may consider a restriction
against the Borrower
remaining on the property for
more than a limited time (up to
90 days)
• A violation of any of the above
could result in any amount
waived to be reinstated or for
the lien to not be released
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure Alternatives
Foreclose or Not to Foreclose?
• An area that is getting more consideration is whether it is
even worth foreclosing in the first place
• Property values have dropped so significantly, it may not
be worth foreclosing
• The costs of foreclosing, eviction, trash out, carrying
costs and then the costs of disposition, usually end up
running over $10,000
• Frequently the largest part of this is the property taxes,
water bills and/or other utilities
• If the property cannot be sold for at least $10,000, it may
be better to just sue on the Note or charge off the loan
altogether
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure Alternatives
Foreclose or Not to Foreclose?
• There is no requirement in Michigan
that you must foreclose first, before
suing on the deficiency
• The same analysis applies when
considering foreclosing on a
HELOC
• What is the Equity available if a senior lien would need to
be paid off?
– If you are not likely to have a positive return, the foreclosure
should not be pursued.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure and Bankruptcy
• A bankruptcy filing can affect the strategy of foreclosure
in numerous ways
• Did all borrowers file bankruptcy, or just 1 (some)?
• Did they file Chapter 7, 13 or even an 11 or 5?
• At what point did they file the bankruptcy, before sale,
during redemption, before eviction?
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure and Bankruptcy
• How do they plan treating the
mortgage loan in bankruptcy?
• Have they filed before or is their
first time?
• Was the bankruptcy filed
primarily to stop/delay the
foreclosure?
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure and Bankruptcy
• There are certain terms that have a different meaning in
bankruptcy than in real estate or in common meaning
• Discharge
– Discharge in Bankruptcy means that the Debtor has been
released of personal liability for the debt. The debt still exits, as
does the lien.
– Some borrowers believe their property cannot be foreclosed
because they obtained a bankruptcy discharge.
– Unless other relief from the bankruptcy stay is obtained, a lender
must wait until the bankruptcy discharge is obtained to proceed.
– Some lenders are also confused as to how they can proceed after
a discharge.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure and Bankruptcy
• Surrender
– Surrender in bankruptcy means
the Debtor is not going to try and
keep the property
– Essentially if the property is to
be surrendered, you should be
able to get Relief from the stay
– You may then proceed with your
state rights or foreclosure
– The surrender does NOT mean
the bank automatically gets the
property
– You must still go through with
the foreclosure
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure and Bankruptcy
• Many bankruptcies are filed to delay the foreclosure
process
• Most are filed shortly before the scheduled foreclosure
sale
• Bankruptcy law prohibits the continued efforts to collect
on the debt
• Therefore, the foreclosure should not be adjourned, but
canceled
• Unfortunately, if the Borrower then dismisses their
bankruptcy, we must start all over
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure and Bankruptcy
Chapter 7
• In a Chapter 7, a trustee is
appointed who is to determine
ne if
the borrower has any unsecured
ured
assets to be liquidated and have
the proceeds distributed among
ong
the unsecured creditors
• Trustees have become less
accommodating to secured
creditors
• The Trustee can object to a
motion for relief from the stay,
y,
(MFR), by claiming there is
equity that could be recovered
ed
d
and distributed to unsecured
creditors
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure and Bankruptcy
Chapter 7
• In backwards logic, if the lender has already gone to
foreclosure sale, and bid a deficiency, the Trustee
believes they may be able to sell the property and obtain
excess proceeds
• If a lender bid the full debt at the sale, then the Trustees’
usually believe there is no equity to be obtained and
have not been objecting to the creditor’s motion for relief
from stay
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure and Bankruptcy
Chapter 7
• For a borrower to keep their property in a Chapter 7, they
need to reaffirm the debt
• Most debtors are reluctant to reaffirm mortgage debt
because:
– property values are not yet stable;
– there is a potential for personal liability if the debtor later defaults;
and
– borrowers know that creditors are reluctant to foreclose on a
performing loan;
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure and Bankruptcy
Chapter 13
• In a Chapter 13, the debtor files
a plan to pay creditors and
provide for assets they wish
to retain
• If they wish to keep the home,
they must account for it in the plan
n
• Regular payments should resume plus some monthly
amount towards the arrearage
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure and Bankruptcy
• Borrowers are almost always represented by an attorney
• If you wish to discuss a loan workout or mitigation,
contact the attorney directly
• Recommend that if a repayment plan is worked out, that
language be put in, that if the plan is broken, the original
loan terms remain
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure and Bankruptcy
• HELOC’s and other junior liens are
now eligible for “lien stripping” in
bankruptcy
• If there is no equity at all to be used
towards payment of a junior lien,
then the Bankruptcy Court may
consider the HELOC to be an
unsecured loan and essentially
order the lien be released from the
property
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure and Bankruptcy
• There are also repeated attempts to change bankruptcy
law to allow “cram downs”
• This is essentially forcing lenders to write down the
amount of their mortgages to the current market value,
and the rest is discharged (charged off)
• Disputes as to valuation are the inevitable result if those
changes are made
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• Once it has been decided
that a foreclosure needs to
proceed, the decision as to
how to proceed needs to be
made
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• Factors that affect the decision as to what is the best
course of action
–
–
–
–
–
Status of title;
Size of the property;
Occupancy status;
Bankruptcy history;
Likelihood of pursuing a
deficiency;
– Other creditors
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• Title – Before foreclosing title needs
to be reviewed for the following
– Verify the priority of the lien (senior,
junior, etc.),
– Whether the property more than 3 acres;
– Whether a homestead is filed on the
property;
– Who the current owners are; and
– To make sure the mortgage is properly
perfected.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• Senior Lien considerations
– When the title is reviewed, the lien positions need to be
determined
– If there is a question, as to priority, then care should be taken as
to whether a judicial foreclosure should be filed
– If the lender believes they are in 2nd position, but find out they are
in first position, they may not wish to foreclose judicially
– They would need to serve the other lien holder and allow them to
counter sue to show they deserve to be in first position
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• If we are not in the position we
expected to be, we may wish to
proceed to proceed judicially to
determine the priority
• This may be especially true
when we believe we are in first,
but something happened that may jeopardize our
lien position
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• Name the other lien holder and have the Court grant an
Order that our lien has priority
• If we expected to be in 2nd and the title work shows we
are in first, we may want to wait on a judicial action and
let the other lender start the fight
– Michigan does NOT currently follow equitable subrogation
– Equitable subrogation is when a first mortgage is refinanced, and
they neglect to get a subordination from the second lien holder
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
– The 2nd is not hurt by the
refinance, so the refinanced
first mortgage is still
determined to be in first
position
– Even in the states that allow for
equitable subrogation, major
complications arise if the
refinanced first mortgage is for
more money or has other terms
that could jeopardize the
second mortgage from being
paid back
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
– Michigan is a race/notice state
Whomever records their lien first (wins the race to the court
house), has priority UNLESS they had notice of another lien that
was intended to be superior
– This eliminates the problem of mortgages being recorded out of
order, as it is usually obvious which is intended to be first and
which second
– Notice has recently been expanded to include information from
credit reports
– Information on loan applications can be considered notice
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• Residential property over 3 acres has a 12 month
redemption period
• If a homestead has been filed, then to foreclose by
advertisement would require following the Michigan
modification process (discussed later), which could delay
the foreclosure by another 3 months
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• Combined these eliminate the
advantage of a faster
foreclosure and increase the
likelihood of wanting to
foreclose judicially
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• If the property has been transferred
to a 3rd party, you need to also
check their bankruptcy status
• If the mortgage has not been
properly perfected (errors in the
legal description, not properly executed (missing a
spouse’s signature), then the mortgage needs to be
corrected
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• It may be possible to do this by an Affidavit of Scrivener’s
Error, but sometimes a Declaratory/Quiet Title action is
needed
• Since a Court filing is proceeding anyway, it may be best
to foreclose judicially, or at least leave that option open,
by filing for the judicial foreclosure with the
Declaratory/Quiet Title action
• If a deficiency is going to be pursued, it may be obtained
as part of the judicial action with no additional work
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• All judicial foreclosures have a
6 month redemption period that
cannot be accelerated by
abandonment
– Foreclosures by advertisement
usually have a 6 month redemption
period, but can be 12 months.
– They may be accelerated to 1 month if abandoned, but the IRS
always gets a 4 month (120 days) redemption period.
– If the property has been abandoned, then foreclosing by
advertisement may be shortened by abandonment.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• One of the more interesting
considerations occurred with the
• 2009 law changes
• If the property has a homestead filed
on it, then you must either foreclose
judicially or offer the Borrower to go
through the Michigan modification
process (discussed later)
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• If there is a question as to whether there is equity,
determine whether the first has started foreclosure
• You may wish to foreclose on the second and then see if
you can sell it for enough to pay off the first plus recoup
something on the second
• If not, then you are only out the costs of the foreclosure
• While increased monitoring of the asset is necessary, it
may be smartest to NOT advance funds to pay off senior
liens until you must
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• If the first has already gone to sale,
and there is equity, will they consider
assigning the Sheriff’s Deed interest?
or will the first require you to pay them
off and do your own foreclosure?
•
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If there are any issues as to the perfection
on of your
mortgage, having the senior lien interest assigned to you
could eliminate the need to file the Declaratory/Quiet
Title action
Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
• Junior Lien considerations
– Valuation again comes into play.
– If the property is worth significantly more than what you are owed,
then you may want to contact the junior lien holder and see if they
wish to buy your lien.
– Selling the Note (without recourse) and assigning the Mortgage
could assist the 2nd and result in you being paid off sooner.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Judicial v. Advertisement
– If there is a junior lien and there are
deed-in-lieu discussions, then a
foreclosure may be required.
– A deed-in-lieu does not eliminate
junior liens.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Bid Amounts
• Foreclosure bid amounts:
– The amount realized at sale is applied against the amount owed
and determines the deficiency.
• Example: If you are owed $100,000, and bid $80,000, but a
3rd party bidder pushes the winning bid to $85,000, the
deficiency amount is $15,000.
– Before bidding, a valuation should be done of the property.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Bid Amounts
• The bid should have some correlation
to the value of the property UP to the
amount that is owed on the debt.
– If the property is worth $100,000, and you
are owed $100,000, you do not need to bid
the whole $100,000.
– You may discount the redemption period, the
costs expected to be incurred in disposing of
the asset, etc.
– If you bid too low, a Court could rule you did
not bid a fair amount and rule you are not
entitled to ANY deficiency.
– No rules have been established, but 80% of
current market value is usually acceptable.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Bid Amounts
• Some lenders bid less in the hopes of attracting 3rd party
bidders
• This results in getting funds immediately, but again may
negate the ability to get a deficiency
• If no 3rd party bids, the borrower has a lower amount for
which they may redeem the property
• If that is your intent, that is fine, but realize, you are not
being paid in full and the borrower is keeping the
property in this instance
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Redemption Periods
• In judicial foreclosures, ALL
redemption periods are 6 months
• All commercial property has a
6 month redemption period,
whether foreclosed by advertisement
or judicially
• In foreclosures by advertisement, residential
dential
redemption periods very from 1 month to 12 months
– Most are 6 months
– The redemption period is 12 months if the property being
foreclosed is residential property over 3 acres OR if more than 1/3
of the original principal balance has been paid off
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Redemption Periods
• History of the redemption rules:
– Anyone owning more than 3 acres was a farmer.
– Farmers needed to wait for the crop harvest in order to pay the
bank.
– For the first time, there is finally proposals to eliminate this
exception to the redemption rules.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Redemption Periods
• If someone had paid off more than 1/3
of their original loan amount, they had
usually lived there at least 15 years
• Something had gone wrong but it was
assumed that property appreciation
combined with principal reduction would
leave significant equity in the land
• The bank could wait for the borrower to straighten their
finances out or sell the property
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Redemption Periods
• There were no loans such as HELOC’s or reverse
mortgages. Now, a lender cannot look at the face value
of the mortgage and the current principal balance and
determine if more than one third has been paid down
• The loan history should be reviewed to see if the entire
loan amount had ever been borrowed. If not, it would be
whether 1/3 of the maximum amount drawn was paid off
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Redemption Periods
• If a property is deemed abandoned,,
the redemption period can be
accelerated to 1 month
• Remember the IRS must always
gets a minimum 120 day redemption
n
period
• If the borrower gets a longer time frame, the IRS also
gets the longer time frame
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Michigan Modification Procedure
• To foreclose an owner occupied, residential property by
Advertisement, the following procedures are required:
– Mail a new notice, both by regular mail and certified mail – return
receipt requested, informing the Borrowers that they may contact
a designated person at the lender to try and reach a mortgage
modification instead of being foreclosed upon.
– For many lenders, determining and giving out contact information
for a specific person may be the most onerous part of the new
rules.
– The notice MUST include the name, address and phone # of a
designated individual (not a group or a pseudonym) who has the
authority to negotiate a modification AND can meet with the
Borrower, potentially in the county where the property is located.
– Within 7 days of mailing the notice, a one- time notice informing
the Borrowers of their right to contact the designee must be
published.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Michigan Modification Procedure
• The statutes require the Borrower to contact the
designee within 14 days and the Housing Counselor to
contact the designee within 10 days after contact from
the Borrower
• Therefore, if no one contacts the designee within the first
14 days, you may commence foreclosure
• It is our expectation that if a housing counselor has
contacted the designee within 24 days of the letter, many
courts will require the lender to go through the
modification process
• Therefore, lenders may choose to wait to begin the
foreclosure process until 24 days have elapsed
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Michigan Modification Procedure
• If the Borrowers, and/or a housing
counselor on the Borrowers’ behalf,,
contact the designee to work out
a modification within the 14 and
24 days respectively, of the letter
being mailed, then foreclosure
proceedings may NOT commence for
90 days from the date the letter was
mailed.
s mailed
• The designee should then request financial information
from the Borrowers in order to determine if they qualify
for a modification.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Michigan Modification Procedure
• This information should be similar to that information
used to currently underwrite a loan for the lender
• To use other criteria could lead to charges of bad faith by
the lender
• There is nothing in the statues that dictate how fast the
Borrowers must comply with the request or a penalty for
failing to comply with the request
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Michigan Modification Procedure
• Upon receipt, the designee is to
calculate if the total housingrelated payments can be reduced
to a 38% (or less) debt ratio to
gross income
• Total housing related payments,
include principal, interest, property
taxes, insurance, association fees
and apparently principal and
interest on other liens on the
property
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Michigan Modification Procedure
• Unless the loan is pooled for sale to a governmental
entity or has been sold to a governmental sponsored
enterprise, the lender’s modification program MUST
include one or more of the following in order to reach the
targeted 38%:
– Interest rate reduction as needed, subject to a floor of 3%, for a
fixed term of at least 5 years.
– Extend the amortization period to 40 years or less from the date of
the modification.
– Deferral of some portion of the principal balance of 20% or less,
until maturity, refinancing or sale.
– Reduce or eliminate late fees.
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Michigan Modification Procedure
• If the loan was pooled or sold to
the government entity or
enterprise, then their modification
program must be followed
• Nothing prohibits the lender and
borrower from agreeing to a
modification under different terms
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Michigan Modification Procedure
• If the Borrower does not provide the requested
documentation or does not qualify for a modification, the
lender may proceed to foreclose after the 90 days
• If the Borrowers do qualify and the lender and they agree
to a modification, the foreclosure will not begin unless the
borrower does not follow the terms of the modification
• If the Borrower does not sign the modification within 14
days after it is sent to them, then foreclosure may begin
after the 90 day period
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Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Michigan Modification Procedure
• If the Borrower qualifies for a
modification, but the lender will
not offer a modification in good
faith, the lender may still foreclose,
but must foreclose judicially after
the 90 days
• Once the designee has received the information, they
are to meet with the Borrowers within the 90 day time
period
• If the meeting has not taken place, foreclosure
proceedings are delayed until it occurs
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Michigan Modification Procedure
• Common Questions
– Q: Can I send out the Notice letter and then
start judicial proceedings if the Borrower
responds?
– A: No foreclosure proceedings may
commence for 90 days, after the letter is
mailed, if the Borrower timely requests a
meeting to discuss a modification.
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Michigan Modification Procedure
– Q: The Borrower has broken previous
workout agreements. Do I still need to follow
the new procedure?
– A: If you wish to foreclose by advertisement,
you must follow the new rules. If a new
modification is reached and the Borrower
defaults on the new modification within 1 year,
then you may foreclose, without going through
this procedure again.
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Michigan Modification Procedure
– Q: Can we keep our calculations and
guidelines secret?
– A: The statutes REQUIRE providing the
Borrower a copy of any calculations made by
the designee and if requested by the
Borrower, a copy of the program, process or
guideline under which the determination of
eligibility for a modification was made.
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Foreclosure
Michigan Modification Procedure
– Q: What are the penalties for non-compliance
with the new rules?
– A: The Borrower may request a restraining
Order stopping the foreclosure and making it
convert to a judicial proceeding
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Abandonment v. Vacant
• An area of significant confusion is whether a vacant
property is abandoned
• Abandonment generally means the borrower does not
expect to return to the property OR to exert any dominion
over the property
• If the property is not being maintained (snow removal in
winter, grass cutting in summer), utilities are off, mail is
not being picked up, are all indications the property has
been abandoned
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Abandonment v. Vacant
• These need to be balanced, by
whether the type of property
• If this was a 2nd home loan
(vacation property), it may be
expected that it is vacant for
long stretches of time
– Snow may not need to removed or
grass cut
• Whether the property is
furnished or not can often
determine if it has been
abandoned or not
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Abandonment v. Vacant
• One area that causes lots of disputes is having the
property listed for sale
• This usually indicates the borrower is continuing to
exercise their dominion over the property
• Further complications arise when the listing agent is
contacted and it is found the list price is less than what
would be necessary to redeem the Sheriff’s Deed
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Abandonment v. Vacant
• Informing the realtor that you will not accept anything
less than the full redemption amount and already have a
new realtor lined up may result in them giving up and
removing their sign
• Offering to list the property with them, should be
contingent on getting them to have the Borrowers sign
something stating the property has been abandoned
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Abandonment v. Vacant
• If a DIL has been accepted, but a foreclosure is still
proceeding due to needing to eliminate junior creditors,
abandonment becomes an issue
• When a DIL has been accepted, the lender is the owner.
If the lender is now foreclosing, the lender has not
abandoned their interest, so how can abandonment be
done?
• The Borrower has given up their interest, but they
conveyed it in the DIL, they did not voluntarily abandon it.
• It is possible no one would challenge the abandonment,
but legally, it probably does not meet the rules.
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Abandonment v. Vacant
CASH FOR KEYS DURING REDEMPTION
• The goal of getting the property back as
soon as possible in reasonable condition
has led to an increase in offering cash to
the borrowers to vacate before the
redemption period expires.
• The closer to the end of the redemption
period the less that is usually offered.
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Abandonment v. Vacant
• Similar to earlier discussions, if there are junior lien
holders, does a cash for keys eliminate the redemption
rights of junior creditors?
• Anyone claiming by through or under the borrower has
the right to redeem.
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Abandonment v. Vacant
• Considering the junior lien
holder already has an interest
in the property, the Borrower
cannot shut off their rights
with the cash for keys deed,
anymore than they do with
a DIL.
• All of the issues of a DIL should be taken into
consideration on a cash for keys file
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Short Redemptions
• The redemption amount is determined by the amount of
the Sheriff’s Deed plus filed Affidavits for amounts
allowed to be advanced during redemption (taxes,
insurance, senior liens, but not repairs or maintenance)
• A lender may agree to issue a redemption certificate for
less than the full amount of redemption, which is similar
to a short sale
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Short Redemptions
• The major difference is that a short
redemption has ABSOLUTELY NO
EFFECT on the deficiency amount.
– The deficiency is determined at the
Sheriff’s sale, it is not affected by the price
for which the property eventually sells.
– A short redemption is more akin to an
REO sale.
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Short Redemptions
• Any difference between the Sheriff’s Deed amount and
the amount accepted for the redemption MUST be
CHARGED OFF
• The same rules as to what should be in a short sale letter
as to arms length transaction, how funds are to be
disbursed, etc., should be in a short redemption letter
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Property Taxes
• The terminology used in
regards to Michigan taxes
causes confusion.
• Taxes are categorized as:
–
–
–
–
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Current;
Delinquent;
Forfeit; and
lost.
Michigan Foreclosure Process
WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Property Taxes
• Taxes are generally assessed in
July and December of each year
• On March 1 of the following year,
the local municipality stops
collecting the taxes (limited
exceptions for Flint and
Kalamazoo), and they are
transferred to the county for collection
• At that point they are considered delinquent
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Property Taxes
• On the following March 1, if the delinquent taxes have
not been paid, they are “forfeited”
• This results in additional penalties and an increase in the
interest rate
• Notices will be sent to all parties with an interest in the
property. They have until March 31 of the following year
to “redeem” the forfeited taxes
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Property Taxes
• If not paid by that time
the property is lost with
no further right to redeem
(Wayne County usually
accepts late redemptions
in violation of state
statutes)
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Property Taxes
• Example: Taxes assessed July 1 & December 1, 2009
– On March 1, 2010, the taxes
were transferred to the
county for collection
– On March 1, 2011, the taxes
would be forfeited and the
penalties and interest
increase
– At some point we will receive
a notice of the forfeiture.
If we do not redeem the
taxes by March 31, 2012, we are out
– The property reverts to the county free and clear of all liens
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Best Practices
• Vacant and abandoned property present a significant
challenge to lenders until the property ownership is
transferred back to the lender
• The property is not yet the lender’s, but it is not secured
• You can try and accelerate the process via
abandonment, but it still takes time
• Additionally, if the property is not maintained (lawn
mowing) the city may maintain it and assess the costs
against the property for which the lender will ultimately
be responsible
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Best Practices
• Legally, the lender has limited options
• While a mortgage contains clauses that the Borrower is
to maintain the property and if they do not, the lender
may, the mortgage is extinguished by the Sheriff’s Deed
and is no longer controlling
• It is recommended that if the property is secured, have a
24/7 number posted to allow access to those legally
entitled to access the property
• Additionally, instead of changing all the locks, secure the
property and only change 1 lock, so the borrower can still
get in if they have a key
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Best Practices
• Many cities are starting to enact
Foreclosure Registration rules
• If you begin a foreclosure or go
to Sheriff’s sale or when the
foreclosure is complete, you
may be required to register
with a local entity
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Best Practices
• Turn that to your advantage by asking them to notify you
if the property is not being maintained and you will
arrange for the grass cutting
• That may save significantly compared to the amount the
municipality charges
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WELTMAN, WEINBERG & REIS CO., LPA
Foreclosure
Best Practices
• Contact neighbors and ask them to contact you if the
borrowers vacate the property
• The neighbors do not want a vacant blighted property
next to them, so they may assist you
• You may also get leads on potential buyers
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WELTMAN, WEINBERG & REIS CO., LPA
Questions & Answers
• Any questions?
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WELTMAN, WEINBERG & REIS CO., LPA
Thank you
• Contact Me
Michael I. Rich
Associate, REDG Practice Group
Weltman, Weinberg & Reis Co., LPA
(248) 786-3137
[email protected]
www.weltman.com
www.thatcreditunionblog.com
www.ciicu.com
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WELTMAN, WEINBERG & REIS CO., LPA