If I buy a home at a foreclosure sale in Michigan, can its owners later "redeem" the house?

Question

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?

Answer

Yes, foreclosed-upon owners in Michigan might 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 limited amount of time called a "redemption period."

In a nutshell, Michigan homeowners get a one-month, six-month, or one-year redemption period, explained in more detail below. Most homeowners get six months. The main effect on you is that you'll 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 might 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 30 days (or until the required fifteen-day notice that the lender considers the premises abandoned expires, whichever is later). (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 notices are sometimes available online.

How Much the Foreclosed Homeowners Must Pay to Redeem

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 because they'd have to find another source of financing and pay a lot of money to get the house back. Because the homeowners' credit took a big a hit during the foreclosure process, they're 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 § 600.3238).

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 § 600.3238).

Michigan law 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. Keep in mind that statutes change, so checking them is always a good idea. How courts and agencies interpret and apply the law can also change. And some rules can even vary within a state. These are just some of the reasons to consider consulting a lawyer if you're thinking about buying a property at a foreclosure sale.