Avoiding Pitfalls in Home Mortgage Foreclosures: Recent Changes to Michigan Law
Michigan’s Governor Rick Snyder recently signed into law three bills regulating mortgage foreclosure by advertisement proceedings in the State of Michigan. These bills are denominated as Public Acts of 2011 ## 301-303, which affect certain provisions of MCL §§ 600.3201, et seq. These bills became effective upon their signing but most of their provisions apply to foreclosures for which the initial notice is sent on or after Feb. 1, 2012.
Most, but not all, of these statutory changes affect foreclosure of mortgages encumbering homestead property. In 2009, the Michigan legislature enacted the Residential Mortgage Foreclosure Reform Act, which changed certain procedures for foreclosure by advertisement on homestead property. This act granted to homeowners certain protections including requiring lenders to transmit specific notices to homeowners by mail and by publication and also to grant the homeowner an opportunity to negotiate modifications to their home mortgage documents. This act contained a sunset provision of July 5, 2011 but, due to the persistence of the housing crisis in Michigan, the act’s expiration date has now been extended to Dec. 31, 2012.
The following is a brief description of the primary changes wrought by these statutes that govern foreclosures of homestead mortgages that are commenced on or after Feb. 1, 2012:
A. Transmission of Initial Notice to Borrowers: The lender must send an initial notice to its borrower (discussed below) of his or her right to negotiate modifications to the mortgage loan documents as a prerequisite to the commencement of foreclosure by advertisement proceedings on the homestead. MCL § 600.3204(4). Previously, the lender was required to both send to the borrower and publish this notice in a local newspaper. The publication requirement has now been abolished. If the loan is secured by a mortgage on a homestead that is used for “agricultural purposes,” these foreclosure provisions will not apply to that property if the mortgage is subject to mortgage modification rights under federal law but only (i) when those laws grant the borrower a period within which to seek a mortgage modification that is longer than the period permitted under Michigan law; and (ii) when application of federal law will not result in a foreclosure proceeding being commenced within 90 days after the mortgage default. MCL § 600.3204(6).
B. Required Contents of Initial Notice: The initial notice to the borrower must contain the following new requirements:
(i) The notice must identify the borrower’s contact with whom to address the defaulted mortgage loan. The amendments now permit that a department or unit of the lender may be this contact as well as an individual. In addition, the amendments also mandate that the notice contain a dedicated phone number and email address for this contact. MCL § 600.3205a(1)(c).
(ii) The notice must advise the borrower that he or she has the power to request a meeting with the lender either via direct contact with the lender or through a housing counselor. In addition, the time within which the borrower must request a meeting with the lender has been expanded from 14 to 30 days. MCL § 600.3205a(1)(d)
(iii) The notice must now identify the number of days in the redemption period that are available to the borrower, assuming that the property is sold pursuant to foreclosure by advertisement proceedings unless the property is abandoned and a separate statute governing the computation of the redemption period in such circumstances applies.
(iv) The notice must also now state that if the mortgaged homestead is sold at a foreclosure by advertisement sale, the borrower will be held liable under MCL § 600.3278 to the entity that buys the property at the sale or to the mortgage holder for any damages to the property occurring during the running of the redemption period. MCL § 600.3205a(1)(j).
C. Contents of Optional Publication Notice: If the foreclosing lender elects, it may (but is not required to) publish the notice described above in the same manner as a notice of foreclosure by advertisement is published under MCL § 600.3208. The required contents of this optional notice are listed in MCL § 600.3205a(4).
D. Borrowers’ Obligations to Submit Proof of Eligibility for Loan Modifications: MCL § 600.3205b(2) has been amended to require the borrower to provide documents requested by the lender to determine if the borrower is eligible for a loan modification under MCL § 600.3205c. As before these amendments were enacted, the borrower is required to contact the lender or a housing counselor within 30 days after the notice described above is mailed in order to request commencement of negotiations for a modification of a mortgage loan. If this request is made to a housing counselor, that entity must advise the lender of that request. MCL § 600.3205b(1). If the borrower fails to act within this 30-day period, the lender may proceed with foreclosure by advertisement proceedings. Within 10 days after the lender is contacted by the borrower or a housing counselor regarding the borrower’s request for loan modification negotiations, the lender may request the borrower to provide documents necessary to determine whether the borrower is eligible for a modification. The borrower will then be required to transmit to the lender copies of these requested documents within 60 days after the notice of the right to negotiate a loan modification was mailed to the borrower. If the borrower fails to provide these documents on a timely basis, the lender may proceed with foreclosure by advertisement proceedings.
E. Requirements of Notice of Foreclosure: MCL § 600.3212, which lists the information that must be in a notice of foreclosure by advertisement, now contains a new requirement that relates to all notices of foreclosure and not just to notices of foreclosure of residential real property. The notice must now contain the following provision:
“If the property described in this Notice is sold at the foreclosure sale referred to above, the borrower will be held responsible to the purchaser who buys the property at the mortgage foreclosure sale or the mortgage holder for damaging the property during the redemption period as provided by MCL § 600.3278 or otherwise by law.”
F. Liability of Borrower for Damages to Mortgaged Realty: The amendments also added a new provision, MCL § 600.3278, which requires the borrower to compensate the purchaser at a foreclosure sale of mortgaged realty or the mortgage holder for money damages caused by physical injury to that realty “beyond the wear and tear resulting from the normal use of the property if the physical injury is caused by or at the direction of the mortgagor or other person liable on the mortgage.” The language of this new statute is not limited to homestead realty.
G. Reduction of Redemption Period: The redemption period applicable to residential real estate that is more than three acres in size has been reduced from one year to six months in most cases. MCL § 600.3240(8). If two-thirds or less of the original indebtedness is still owing on a mortgage loan secured by residential property not exceeding four units (including such property that is more than three acres in size), the applicable redemption period remains at one year. MCL § 600.3240(13).
H. Redemption Period Applicable to Realty Used for Agricultural Purposes: MCL § 600.3240 has also been amended to provide a one-year redemption period for all property used for “agricultural purposes.” MCL § 600.3240(13). Although the statute does not contain a definition of the term, “agricultural purposes,” there is a new provision that creates alternative presumptions for determining whether the property in question falls within this category. MCL § 600.3240(17).