Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, many federal and state laws now give protections to borrowers. Servicers generally must provide borrowers with loss mitigation opportunities, account for each foreclosure step, and carefully comply with foreclosure laws.
Also, most people who take out a loan to buy a residential property in Michigan sign a promissory note and mortgage. These documents give homeowners some contractual rights in addition to federal and state legal protections.
So, don't get caught off guard if you're a homeowner behind in mortgage payments. Learn about Michigan foreclosure laws and how the foreclosure process in Michigan works, from missing your first payment to a foreclosure sale.
In a Michigan foreclosure, you'll most likely get the right to:
Once you understand the Michigan foreclosure process and your rights, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale happens as "preforeclosure," too.)
During the preforeclosure period, the servicer can charge you various fees. Also, in most cases, federal law requires the servicer to let you know how to avoid foreclosure, and most mortgage contracts require the servicer to send you a breach letter.
Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a few exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners with ample opportunity to submit a loss mitigation application to the servicer.
If you default on your mortgage payments in Michigan, the lender may foreclose using a judicial or nonjudicial method.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. If you don't respond with a written answer, the lender will automatically win the case.
But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold at auction.
If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. After completing the required steps, the lender can sell the home at a foreclosure sale.
Most lenders opt to use the nonjudicial process because it's quicker and cheaper than litigating the matter in court.
Again, most residential foreclosures in Michigan are nonjudicial. But Michigan law doesn't require the lender to notify the homeowner personally as part of the process. Instead, notice of the foreclosure sale must be published and posted.
To begin the foreclosure, the lender's attorney publishes a notice of sale once a week for four successive weeks in a newspaper published in the county in which the property is located. If no newspaper is published in the county, the notice must be published in an adjacent county. (Mich. Comp. Laws § 600.3208).
The notice must include, among other things:
Within 15 days after the first publication of the notice of sale, a copy must be posted in a conspicuous place on the property. (Mich. Comp. Laws § 600.3208).
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. (Mich. Comp. Laws § 600.3216). The sale is an auction, which is open to the public.
At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less. In some states, including Michigan, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower, subject to some limitations (see below). If the lender is the highest bidder, the property becomes what's called "Real Estate Owned" (REO).
But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds—that is, money over and above what's needed to pay off all the liens on your property—you're entitled to that surplus money.
A few potential ways to stop a foreclosure and keep your home include reinstating the loan, redeeming the property before or after the sale, or filing for bankruptcy. Working out a loss mitigation option, like a loan modification, will also stop a foreclosure.
Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid foreclosure. (But you'll have to give up your home with a short sale or deed in lieu of foreclosure transaction.)
Michigan law doesn't provide a statutory right to reinstate the loan before the sale. But many mortgages, like the uniform Fannie Mae/Freddie Mac mortgage, provide the borrower the right to cure the default after acceleration and reinstate the loan. Check your loan documents to find out if you get a reinstatement right and, if so, the deadline to complete one.
One way to stop a foreclosure is by "redeeming" the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.
Some states also provide foreclosed borrowers with a redemption period after the foreclosure sale, during which they can buy back the home. In Michigan, the length of the redemption period depends on how much of the loan the borrower has paid off when the foreclosure took place, as well as the occupancy status of the home.
If you abandon the home, the redemption period is 30 days after the sale or until the required notice that the lender considers the premises abandoned expires, whichever is later. (Mich. Comp. Laws § 600.3240(10)).
If you're facing a foreclosure, filing for bankruptcy might help. In fact, if a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy. Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction, which prohibits the lender from foreclosing on your home or otherwise trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out about the options available to you, speak with a local bankruptcy attorney.
Michigan law provides special protections against foreclosure to certain military servicemembers, including members of the Michigan National Guard. So long as either the mortgagor entered into the mortgage before becoming a servicemember or the mortgagor is deployed in overseas service, the lender can't foreclose nonjudicially during the servicemember's period of military service (or within six months thereafter) unless a court ordered the sale or foreclosure. (Mich. Comp. Laws § 600.3285).
In a foreclosure, the borrower's total mortgage debt frequently exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $300,000, but the home sells for $250,000 at the foreclosure sale. The deficiency is $50,000.
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—in our example, $50,000—from the borrower.
Michigan law allows deficiency 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
For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
Get tips on what to do—and what not to do—if you're facing a foreclosure.
Find out if foreclosures are on the rise.
If you have questions about Michigan's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney. Talking to a HUD-approved housing counselor about different loss mitigation options is also a good idea.