On May 21, 2009 Michigan passed a package of laws that may change the way foreclosures will be handled in Michigan (Public Acts 29, 30 & 31 of 2009).  The new laws carry a two-year sunset provision, from the date of enactment, which is immediate. Notice provisions take effect 45 days following the enactment.   Foreclosure by Advertisement, the historically preferred method in Michigan, will require additional notices and provide certain other protections for the borrower, as outlined below.

Foreclosure by Advertisement has typically been less costly with a shorter timeline from initiation to expiration of the 6- or 12-month redemption period following the Sheriff’s sale. Judicial foreclosures, foreclosure of vacant land, commercial transactions and abandoned property are not impacted by the new procedures, which apply only to principal residences.  The intent is to help prevent foreclosures and provide mandatory procedures to give homeowners an opportunity to meet with lenders and work out a loan modification.

The new law does the following:

• Requires a foreclosing party to serve on the borrower, and publish a written notice containing specified information and a list of approved counselors before proceeding with a sale;
  
  
• Requires the Lender to designate a contact person with the authority to negotiate a loan modification;
   
• Prohibits a party from commencing a foreclosure by advertisement if the prescribed procedures have not been followed or the applicable time limits have not expired, or if the parties agreed to a modification of the loan and the borrower is not in default of the modified terms;
  
  
• Allows a borrower to bring an action in court to enjoin the foreclosure if the required notice was not served;
  
  
• Provides a mandatory procedure if the borrower wants to work out a modification with the assistance of a housing counselor and requires the counselor to schedule a meeting with a contact person designated by the mortgage holder or servicer, which is to take place within 90 days of the original notice;
   
• Requires the lender to use a target of 38% total housing debt to income ratio, to modify the loan by lowering interest rates, extending terms, waiving up to 20% of the principal and elimination or reduction of late fees;
   
• Allows the mortgage holder or servicer to proceed to foreclose by advertisement if the borrower is eligible for a modification, and has not accepted the modified loan, and allows the holder or servicer to proceed with a judicial foreclosure; and
  
  
• Allows a borrower to bring an action in the circuit court to convert a foreclosure by advertisement to a judicial foreclosure if the mortgage lender or servicer proceeds with a foreclosure by advertisement in violation of the new law.

A possible alternative is a foreclosure by judicial action from the inception.   A judicial action is a lawsuit that following judgment, advertisement occurs and a Sheriff’s deed is issued. One advantage is that this action also allows the lender to obtain a deficiency judgment following the Sheriff’s sale. Under non-judicial foreclosures, this is a separate action, following sale. A deficiency judgment may provide the lenders with a negotiating tool to obtain a deed-in-lieu of foreclosure or to negotiate vacating the property before the 6-month redemption period would normally expire.

A sample of the expected timeline of a Foreclosure by Advertisement vs. a Judicial Foreclosure is shown below:

Foreclosure by Advertisement	Foreclosure by Judicial Action
Day 1: Notice Mailed to Borrower	Complaint Filed
By Day 8: Publish Notice of Borrowers rights	Complaint out for Service (personal service is required, or posting if court approved).
By Day 15: Borrower to notify lender if they desire a meeting	21 days following service, a response is due, if not filed default is entered.
By Day 25: Housing Counselor to notify Lender Borrower desires a meeting	Default judgment may be entered, 6 months from the date of filing.
By Day 90: Have meeting with Borrower. If Borrower qualifies for a Modification, but it is not agreed to, the Lender may need to convert to a Judicial Foreclosure and start over. If Lender has made a good faith effort and Borrower does not return executed modification papers within 14 days of delivery by lender, then Foreclosure by Advertisement may commence.	Deficiency is set by the Sheriff's deed.
By Day 104: Publication commences for 4 weeks
Approximately Day 140: Sheriff sale held. Redemption period of 6 months on most properties. 12 month redemption on property over 3 acres.	6-month redemption following sheriff's sale (unless abandoned).

For a complete summary of the legislation, go here.

If you have any questions, please contact Stuart A. Best, Esq., Michael I. Rich, Esq. or John E. Melton, Esq.

Stuart is a partner in the Complex Litigation department in the Detroit office of Weltman, Weinberg & Reis Co., L.P.A. (WWR).  He can be reached at (248) 786-3124 or via e-mail at sbest@weltman.com. Michael is an associate of the Detroit office who concentrates on title work and REO closing services within the Real Estate Default Group. He can be reached at (248) 786-3137 or via e-mail at mrich@weltman.com. John is an associate in the Litigation & Defense department in the Detroit office. He can be reached at (248) 989-3008 or via e-mail at jmelton@weltman.com.

Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation.  The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship.  Contact any of our offices or visit our website at realestatedefaultgroup.com for more real estate related information, company facts and attorney profiles. (c)2009