I’ve been renting an apartment in Grand Rapids, Michigan, for ten years. My landlord drastically increased my rent so I’m trying to find a house to buy. I was looking online and found a property that is being foreclosed that appears to be in good shape. I’m thinking about purchasing it at the foreclosure sale, but I’m a bit worried about doing this. Based on what I’ve read, it sounds like there can be a lot of issues when it comes to buying a foreclosed home. For example, I heard the owners might be able to get the house back even after the foreclosure. Could this actually happen?
Yes, foreclosed-upon owners in Michigan may be able to get the home back after the foreclosure. They would do so by paying you the purchase price you paid at the foreclosure sale, plus various other charges, within a certain period of time. This is called a redemption period.
In a nutshell, Michigan homeowners get a one-month, six-month, or one-year redemption period. (This is explained in more detail below.) Most homeowners get six months. The main effect on you is that you will have to wait the applicable length of time before moving in.
Also, not only do you have to be concerned about the foreclosed homeowners redeeming the house after you’ve bought it, but the IRS may be able to redeem the property if there was a federal tax lien on the property.
The Homeowners’ Right to Redeem After the Foreclosure Sale in Michigan
Under Michigan law, the homeowners can redeem the home after the foreclosure sale within:
- six months, if more than two-thirds of the original indebtedness is still owed, or
- one year, if the amount owed is less (Mich. Comp. Laws § 600.3240(8),(12)).
If they abandoned the property, the redemption period is one month (Mich. Comp. Laws § 600.3240(10)).
How to Find Out the Length of the Redemption Period
To find out the length of the redemption period before you purchase the home, you can check the notice of sale that was published in the local newspaper as part of the foreclosure process (Mich. Comp. Laws § 600.3212). These are sometimes available online.
How Much the Foreclosed Homeowners Must Pay to Redeem
In order to redeem the property, the foreclosed homeowners would need to pay you the full price you paid at the sale, plus all other lawful charges such as:
- interest, and
- amounts you paid after the sale for certain expenses (like property taxes, homeowners’ association assessments, and insurance premiums) (Mich. Comp. Laws § 600.3240(1), (4)). (You’d have to file proof with the register of deeds that you made such payments before you can get reimbursed for them.)
Homeowners don’t redeem a foreclosed home very often. This is because they would have to find another source of financing and pay a lot of money to get the house back. Since the homeowners’ credit took a big a hit during the foreclosure process, they are unlikely to qualify for a new mortgage.
It’s also possible, but not especially common, for the IRS to redeem the home if there was a federal tax lien on the property. The IRS gets a 120-day redemption period (or the allowable period under state law, whichever is longer) to redeem after the foreclosure. It would send you a notice in advance of the redemption if it decided to redeem the home.
Who Gets Possession of the Home During the Redemption Period
The original homeowners get to live in the home during the redemption period. (If you buy the home at the foreclosure sale, you’ll receive a Sheriff's Deed, but you won’t officially own the property until the redemption period expires.)
You Can Inspect the Home During the Redemption Period
Under Michigan law, the purchaser who bought the house at the foreclosure sale may inspect the home (both the interior and exterior) during the redemption period (Mich. Comp. Laws § 600.3240(13)).
In addition, you may immediately begin eviction proceedings to get possession of the home (and terminate the homeowners' redemption period) if the foreclosed homeowners:
- unreasonably refuse to allow you to inspect the home, or
- cause damage to the home (or if damage to the home is imminent) (Mich. Comp. Laws § 600.3240(13).
Recently passed HB 5277 (Public Act 125 of 2014) requires you to give an initial notice containing certain information and a notice 72 hours before you inspect the interior of the home. it also restricts the number of reviews (interior) that you can do. The law also requires that, if you give notice, the foreclosed homeowners must let you know when they are moving out, if they plan on vacating the home prior to the expiration of the redemption period.
How to Locate Michigan’s Redemption Laws
To find the statutes that discuss the homeowners’ right to redeem the home in Michigan, go to Chapter 600, Act 236 of 1961 (236-1961-32) of the Michigan Compiled Laws.