In response to the ongoing foreclosure crisis in this country, Michigan has implemented a foreclosure mediation program to assist borrowers in finding ways to avoid foreclosure. Read on to learn more about how Michigan’s mediation program works and how you can benefit from the process.
(To learn about other options for dealing with foreclosure, visit Nolo's Foreclosure section. To learn about foreclosure mediation programs in other states, visit our State Foreclosure Mediation page.)
What is Foreclosure Mediation?
Foreclosure mediation is a process that is used to help homeowners avoid foreclosure by coming up with an alternate solution that benefits both the borrowers and the lender. Mediation consists of a meeting between:
- the borrowers
- their lender, and
- an impartial third-party (the mediator).
At the meeting, the parties discuss the borrowers’ financial situation and try to negotiate a way for the homeowner to keep the home or give up the property without going through a foreclosure. By working together, the parties are often able to reach an agreement.
Potential outcomes of mediation include (there are often called loss mitigation options):
- loan modification
- forbearance agreement
- short sale, or
- deed in lieu of foreclosure.
(To get information about each of these loss mitigation options, see our Alternatives to Foreclosure area.)
Michigan law provides an opt-in foreclosure mediation program for homeowners in foreclosure that is specifically designed to assist borrowers in obtaining a loan modification.
In Michigan, lenders may foreclosure by either a nonjudicial or judicial process. Most foreclosures in Michigan are nonjudicial, which means the lender does not have to go through state court to get one. Michigan nonjudicial foreclosures take around 60 days to complete if uncontested. (With a judicial foreclosure, the lender must foreclose through the state court system and the process is generally much longer.)
To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
To learn about the specific foreclosure laws in Michigan, see Summary of Michigan's Foreclosure Laws.
Notice of the Availability of Mediation
As part of the foreclosure process, the lender will send the borrowers a notice that they may opt in to the state’s mediation program (Mich. Comp. Laws § 600.3205a-d). The mediation notice will provide the contact information, including name, address, phone number, and email address of a designated lender’s representative who has the authority to negotiate a loan modification.
How to Opt In to the Program
The borrowers have 30 days after the notice is sent to contact the lender’s representative (or to contact a housing counselor from a list provided by the lender along with the notice) to elect to participate in mediation to attempt to work out a modification.
90-Day Delay in Foreclosure
If the borrowers choose to participate in to the mediation program, the foreclosure is postponed for 90 days from the date the notice was mailed.
Documentation That May Be Required
Within ten days of being notified by the borrowers (or by the borrowers' housing counselor) that they would like to participate in mediation, the lender’s representative may request financial documentation from the borrowers. This documentation will allow the lender’s representative to determine whether the borrowers are eligible for a modification.
The borrowers must provide the documents within 60 days after the initial mediation notice was mailed (Mich. Comp. Laws § 600.3205b). If the borrowers do not return the financial documentation, the nonjudicial judicial foreclosure may proceed. However, if the borrowers send in the financial documentation, then the mediation will be held.
At the mediation, the parties will participate in negotiations to attempt to work out a modification of the mortgage loan.
After the Mediation
The lender’s representative must notify the borrowers of its decision regarding a modification within 90 days after it mailes the mediation notice or ten days after the mediation, whichever is later.
If the borrowers are eligible for a loan modification, the borrowers must sign and return the modification documents within 14 days after receiving them.
If an agreement cannot be reached, the lender may proceed with the foreclosure. However, the foreclosure must be judicial (go through court) unless the lender has offered, and the borrowers have not accepted, a modification that complies with:
- The Home Affordable Modification Program, known as HAMP, if the loan is eligible for that program (see Nolo's article on HAMP to learn more about this program), or
- Michigan statute, which targets a ratio of housing related debt to gross income of 38% or less (Mich. Comp. Laws § 600.3205c).
This means that if the lender has offered you a modification that complies with HAMP or the applicable Michigan statute, but you do not return the documents within 14 days or reject the modification outright, the lender may continue the nonjudicial foreclosure.
Program End Date
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 set forth in Mich. Comp. Laws §§ 600.3205a-3205d 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.
Should You Participate in the Foreclosure Mediation Program?
Even though participating in a Michigan’s foreclosure mediation program does not guarantee that you can avoid foreclosure, it doesn't hurt to attend the meeting. The lender may be more likely to agree to a nonforeclosure solution at a mediation than if you approach it outside of the program. Or you might qualify for a loss mitigation option that you hadn’t previously considered.
For More Information
If you would like more information, the statutes covering the foreclosure mediation program are found in §§ 600.3205a to 600.3205d of the Michigan Compiled Laws.