With Michael DeFors
MCUL Regulatory Affairs Director
Falling land values, interest rate resets and Michigan’s economy in general are all factors contributing to a significant increase in loan defaults and creditor use of the foreclosure process. Under Michigan law, the foreclosure process includes a period of time after the sheriff’s sale where the borrower/mortgagor may pay off the debt and redeem his/her interest in the property. This is called the redemption period. The redemption period ranges from one month to one year depending on the size and type of the property, the percentage of the original debt still owed and whether the property is deemed to be abandoned. The shortest redemption periods apply to abandoned residential property, a special status permitted under certain conditions provided for in Michigan’s foreclosure statutes. The Michigan Legislature created these shorter redemption periods to help cities experiencing higher rates of foreclosure to deal with vacant properties that often accelerate neighborhood deterioration and create new venues for criminal activity.
Q What foreclosure options are available in Michigan?
A: Generally, Michigan foreclosure law provides for two options: judicial foreclosure, a process commencing with the filing of a complaint with the circuit court, governed by Chapter 31 of the Revised Judicature Act of 1961; and secondly, foreclosure by advertisement, which does not involve the judicial system, governed by Chapter 32 of the Revised Judicature Act of 1961. Judicial foreclosure is deemed an equitable proceeding, which means the court has broad discretion in dealing with the situation. Foreclosure by advertisement is much more common. It must be provided for in the loan/mortgage documents, and is guided primarily by specific statutory requirements.
Q What are the general redemption periods?
A: The redemption period in a judicial foreclosure for residential property is generally six months. In foreclosure by advertisement, it is also typically six months, but this may be adjusted depending on several factors. The factors include the type of property, size of the property, the remaining percentage of the debt owed and whether the property is abandoned. Creditors and their legal counsel should ensure each property is properly evaluated.
Q What are the shorter redemption periods for abandoned property?
A: The redemption period for abandoned residential property (not exceeding four units) is three months unless the claimed debt is more than 2/3 of the original indebtedness. In that case, the redemption period is only one month. For property that is deemed abandoned after foreclosure begins, the redemption period is the greater of 30 days, or until the time to provide notice under the statute expires. Thus, lenders who have commenced foreclosure should pay attention to activity at the property to determine whether the residents have vacated, as it may be advantageous to seek abandonment status early to shorten what might otherwise be the longer redemption period.
Q How is a property determined to be legally abandoned?
A: The statute describes specific requirements to conclusively presume a property is abandoned, thus enabling the shorter redemption periods. Requirements differ slightly depending on whether abandonment is established before or after the foreclosure proceedings have begun. It is important to comply with these requirements since the opportunity to win back one’s property becomes less advantageous to the landowner, and the courts are sensitive to this fact. Generally, the requirements include: posted and mailed notices to the mortgagor containing specified language; recorded affidavits of personal inspection and that the mailings had been sent; and a failure of the mortgagor to notify the mortgagee that the mortgagor, or a person claiming under the mortgagor, is occupying (or intends to occupy) the property.
Q: Where should the credit union turn for assistance?
A: Foreclosure itself is an involved process and should be handled by knowledgeable personnel. Additional care must be given when using the statute’s abandonment provisions. Because borrowers have the right to challenge steps in the process at any stage during the process, the courts pay close attention to these requirements. It is highly recommended that credit unions have a general understanding of foreclosure and engage legal counsel to help them through it. This is especially true if the credit union has not had much experience with the process and the practical issues that also must be considered. Mortgage CUSOs are also an excellent resource with their experienced staff and should be consulted as necessary.
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Regulatory Affairs
