If you are a homeowner in Michigan facing the scary prospect of losing your home to foreclosure, don’t be caught off guard. Read on to find out each step in a Michigan foreclosure from missing your first payment all the way to eviction.
(For more articles on foreclosure in Michigan, including the state program to assist struggling homeowners, visit our Michigan Foreclosure Law Center.)
Michigan Mortgage Loans
When you take out a loan to purchase residential property in Michigan, you typically sign a promissory note and a mortgage. A promissory note is basically an IOU that contains the promise to repay the loan, as well as the terms for repayment. The mortgage provides security for the loan that is evidenced by a promissory note.
Find out more in our article What’s the Difference Between a Mortgage and a Promissory Note?
To learn more about mortgage terminology, see our Glossary of Foreclosure Terms.
What Happens When You Miss a Payment
If you miss a payment, most loans include a grace period of ten or fifteen days after which time the mortgage servicer will assess a late fee. (Mortgage servicers collect and process payments from homeowners, as well as handle loss mitigation applications and foreclosures for defaulted loans.)
The late fee is generally 5% of the overdue payment of principal and interest. To find out the late charge amount and grace period for your loan, look at the promissory note that you signed. This information can also be found on your monthly mortgage statement.
Learn more about fees that the lender can charge if you’re late on mortgage payments.
What Happens When You Fall Behind in a Few Payments
If you miss a few mortgage payments, your mortgage servicer will probably send a letter or two reminding you to get caught up, as well as call you to try to collect the payments. Don’t ignore the phone calls and letters. This is a good opportunity to discuss loss mitigation options and attempt to work out an agreement (such as a loan modification, forbearance, or payment plan) so you can avoid foreclosure.
Learn the difference between a loan modification, forbearance agreement, and payment plan.
Pre-Foreclosure Loss Mitigation Review Period
Under the federal Consumer Financial Protection Bureau servicing rules that went into effect January 10, 2014, the mortgage servicer must wait until you are 120 days delinquent on payments before making the first official notice or filing for any judicial or nonjudicial foreclosure. This is to give you sufficient time to explore loss mitigation opportunities. (If a servicer's sole purpose of providing a notice is to inform you that you are late on your payments and/or explain what your loss mitigation options are, the servicer can deliver the notice within this pre-foreclosure period.)
In Michigan, most residential foreclosures are by advertisement (that is, nonjudicial). This means the lender can foreclose without going to court so long as the mortgage contains a power of sale clause. (Learn more about power of sale clauses.)
However, before the foreclosure can begin, you are entitled to certain notice depending on whether the property is your principal residence and the terms of your mortgage contract.
30-Day Mediation Notice Required if the Property is Your Principal Residence
If the property being foreclosed is your principal residence, the foreclosing party must send you a notice prior to commencing foreclosure (by regular first-class mail and by certified mail, return receipt requested, to your last known address). Among other things, the notice gives you a chance to try to work out a loan modification before the official foreclosure proceeding starts.
The notice must contain the following information:
- The reasons that the mortgage loan is in default and the amount that is due and owing under the mortgage loan.
- The names, addresses, and telephone numbers of the mortgage holder, the mortgage servicer, or any agent designated by the mortgage holder or mortgage servicer.
- A designation of a person (a representative of the lender) that has the authority to make a mortgage modification agreement.
- Within 30 days after the notice is sent, you may (either by contacting the representative directly or by contacting a housing counselor from the list enclosed with the notice) request a meeting with the representative to work out a mortgage modification to avoid foreclosure.
- If you request a meeting to discuss a mortgage modification, foreclosure proceedings will not be commenced until 90 days after the date the notice was mailed. (This negotiation window is extended to 120 days under federal regulations starting on January 10, 2014.)
- If you and the lender’s representative reach an agreement to modify the mortgage loan, the mortgage will not be foreclosed so long as you abide by the terms of the agreement.
- If you and the representative do not agree to modify the mortgage loan, but it is determined that you meet certain criteria for a modification and foreclosure is not allowed to proceed nonjudicially per state law, the foreclosure will proceed judicially instead.
- You may request that a housing counselor from the provided list attend any meetings with the lender’s representative.
- You have the right to contact an attorney (and the notice will provide the telephone numbers of the state bar of Michigan's lawyer referral service and of a local legal aid office serving the area in which the property is situated).
- The number of days in the redemption period.
- If the property is sold at a foreclosure sale, you will be held responsible to the person who buys the property at the sale (or to the mortgage holder) for damaging the property during the redemption period.
However, the lender does not need to send this notice if you have previously agreed to a loan modification and have not complied with the terms of the agreement for at least one year after the date of the modification.
Michigan's mediation program was set to sunset (end) on June 30, 2013, but HB 4765 delayed that date until June 30, 2014. This means the requirements will have to be complied with through June 30, 2014, in regard to any nonjudicial foreclosures for which the notice was published prior to January 10, 2014.
To get more information about loan modifications and other options to avoid foreclosure, see our Alternatives to Foreclosure area.
Mortgage Contracts Often Require a Breach Letter
Michigan mortgages often contain a clause that requires the lender to send a notice, commonly called a breach letter or demand letter, informing you that your loan is in default before it can accelerate the loan and proceed with foreclosure. (The acceleration clause in the mortgage permits the lender to demand that the entire balance of the loan be repaid if the borrower defaults on the loan.)
The letter must specify:
- the default
- the action required to cure the default
- a date (usually not less than 30 days from the date the notice is given to the borrower) by which the default must be cured, and
- that failure to cure the default on or before the date specified in the notice may result in acceleration of the debt and sale of the property.
The breach letter will also often contain a Servicemembers Civil Relief Act Notice. (To learn about the protections available for servicemembers facing foreclosure, see our article Legal Protections for America's Military: The Servicemembers' Civil Relief Act.)
Foreclosure Publishing and Posting Requirements
In Michigan, notice of the sale must be published and posted.
Publication of the Notice of Sale
To begin the foreclosure, the lender’s attorney will publish notice of the sale once a week for four successive weeks in a newspaper published in the county in which the property is located. (If there is no newspaper published in the county, the notice must be published in an adjacent county).
The notice must include all of the following:
- The names of the borrowers, the original lender, and the foreclosing assignee, if any.
- The date of the mortgage and the date the mortgage was recorded.
- The amount claimed to be due on the mortgage on the date of the notice.
- A description of the mortgaged premises that substantially conforms with the description contained in the mortgage.
- For a mortgage executed on or after January 1, 1965, the length of the redemption period.
- A statement that if the property is sold at a foreclosure sale under this chapter, the borrower will be held responsible to the person who buys the property at the mortgage foreclosure sale or to the mortgage holder for damaging the property during the redemption period.
Posting of the Notice of Sale
Within 15 days after the first publication of the notice, a copy of the notice must be posted in a conspicuous place on the property.
If the foreclosing party is not the original lender, a record chain of title must exist prior to the foreclosure sale date. (This means that all assignments of mortgage must be recorded in the county records prior to the sale. Learn more about mortgage assignments.)
Reinstatement Before Sale
There is no statutory right to reinstate the loan prior to the sale in Michigan. However, most mortgage forms, such as the conventional FNMA/FHLMC mortgage, provide the borrower the right to cure the default after acceleration and reinstate the loan, usually up to five days prior to the foreclosure sale.
Learn more about reinstating a loan to avoid foreclosure.
The Foreclosure Sale
Foreclosure sales are held between 9:00 A.M. and 4:00 P.M. at the courthouse in the county where the property is located.
The property will be:
- sold to the highest third-party bidder or
- revert to the foreclosing lender and become REO.
Deficiency Judgment Following Sale
When a lender forecloses on a mortgage, the total debt owed by the borrower to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a “deficiency.” In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount from the borrower.
Learn about methods that creditors can use to collect judgments.
In Michigan, the lender may obtain a deficiency judgment following a nonjudicial foreclosure, but the borrower can contest the amount of the deficiency if:
- the lender was the purchaser at the foreclosure sale, and
- the foreclosure sale price was substantially less than the fair market value of the property.
Find out more about Deficiency Judgments After Foreclosure in Michigan.
A redemption period is the legal right of any mortgage borrower in foreclosure to pay off the total debt, including the principal balance, plus certain additional costs and interest, in order to reclaim the property.
For most residential foreclosures in Michigan, the redemption period is six months if:
- the property does not exceed four units, and
- more than two-thirds of the original indebtedness is still owed.
If the amount owed is less, the redemption period is 12 months. If the property is abandoned, the redemption period is one month.
Michigan law allows the purchaser at the foreclosure sale to inspect the interior and exterior of the home during the redemption period. If an inspection is refused or certain damage is found or is imminent, the purchaser can start proceedings to evict the resident and take over the property.
Recently passed HB 5277 (Public Act 125 of 2014) requires the purchaser to give an initial notice and a second notice 72 hours before inspecting the interior of the home. It also limits the number of interior reviews that the purchaser may conduct. HB 5277 also requires that the foreclosed homeowners tell the purchaser when they are moving out, if the purchaser has provided such notice, and they plan to vacate the property before the redemption period expires.
Learn more about redemption periods.
Eviction Following Foreclosure
If you don’t vacate the property following the foreclosure sale, the new owner will likely:
- offer you a cash-for-keys deal (where the new owner offers you money in exchange for you agreeing to move out), or
- have to go to court to get an eviction order.
To learn more about foreclosure in general, ways to defend against foreclosure, and programs to help struggling homeowners avoid foreclosure, visit our Foreclosure Law Center.