The Michigan Legislature passed an amendment to the Michigan Foreclosure Statute and Governor Granholm signed the legislation on May 20, 2009. The amendment creates additional steps and imposes new requirements before a party may foreclose a mortgage by advertisement in Michigan. The revised statute took effect on July 5, 2009 (45 days after the date it is enacted into law) and only applies to foreclosures by advertisement which begin publication after the effective date. 

The amendment imposes a new layer of notice of the foreclosure, creates a 90-day stay of foreclosure proceedings where the mortgagor desires a loan modification, and allows the mortgagor to demand face-to-face negotiation and counseling with the mortgage holder and an approved housing counselor focused on the possibility of a loan modification. This amendment is applicable only where the property constitutes the mortgagor’s principal residence.

Under the current statute, the notice of foreclosure is published and posted on the subject property within 15 days of the publication. This amendment further requires that before foreclosure proceedings by advertisement may be commenced a preliminary written notice must be served on the mortgagor at their last known address via regular and certified mail.  This notice must contain information including the reason the mortgage is in default, the amount due under the mortgage, the names, addresses and telephone numbers of the mortgage holder, the mortgage servicer or any agent designated by the mortgage holder or mortgage servicer who has the authority to enter into a loan modification agreement with the mortgagor.  The initial notice must also contain a list of housing counselors prepared by the Michigan State Housing Development Authority as well as the telephone numbers of the State Bar of Michigan’s Lawyer Referral Service and a local legal aid office with the indication that the mortgagor has the right to contact an attorney. 

A second preliminary notice must also be published informing the mortgagor of their rights under the amendment within 7 days after the notice has been mailed to the mortgagor.  The notice must be published once in the same manner as required for publishing a notice of foreclosure sale.  Furthermore, the published notice must contain the mortgagor’s name and address, inform the mortgagor of their right to a meeting with the mortgage holder or servicer, and the name of the designee with authority to enter into a loan modification agreement.  In addition, information regarding the Michigan State Housing Development Authority and the mortgagor’s right to contact a housing counselor must also be included in the notice. The mortgagor must be informed that their request for a meeting with the designee automatically stays the foreclosure for 90 days. 

This amendment allows the mortgagor to demand mandatory housing counseling before the foreclosure sale.  It should be noted that this housing counseling is only required if the mortgagor chooses to participate in an effort to modify the loan.  Mandatory counseling is a completely new requirement in Michigan.

Within 14 days after the preliminary notice is sent, the mortgagor may request a meeting with the mortgage holder’s designee to attempt to work out a modification of the loan.  The mortgagor may make this request of the designee or of a housing counselor and the mortgagor may also request that a housing counselor attend the meeting. 

Once a meeting has been requested, foreclosure proceedings may not be commenced for 90 days from the date the notice was mailed to the mortgagor.  Within 10 days after being contacted by a mortgagor, a housing counselor must inform the designee of the mortgage holder/servicer in writing of the mortgagor’s request.  The foreclosure may not be commenced until the timeframe within which the housing counselor must inform the designee has expired.  Therefore, a foreclosure by advertisement may not commence until at least 24 days after the preliminary notice is sent to the mortgagor.  The proceedings will only continue at that time if the mortgagor has not requested a meeting of the designee or housing counselor. 

Upon request, the mortgagor is required to produce any documents necessary for the designee to determine whether the mortgagor is eligible for a loan modification.  Foreclosure proceedings may not commence before the meeting has taken place.  The housing counselor is to schedule the meeting between the designee and the mortgagor at a time and place convenient to all parties or in a location within the county where the property is located.

If the mortgagor has contacted a housing counselor but the process does not result in an agreement to modify the loan, the designee must work with the mortgagor directly to determine whether the mortgagor qualifies for a loan modification.  The process utilized by the designee to make such a determination must target a ratio of the mortgagor’s housing related debt to the mortgagor’s gross income of 38% or less utilizing interest rate reduction, extension of amortization, deferral of principal, and/or reduction or elimination of late fees.  In the event the loan is pooled for sale to a governmental entity or has been sold to a government-sponsored enterprise, the designee must follow the modification guidelines dictated by the governmental entity or government-sponsored enterprise. Other loan modification terms or loss mitigation efforts are not prohibited if agreed to by the mortgagor and designee. 

The designee must provide the mortgagor a copy of any calculations made by the designee and, if requested by the mortgagor, a copy of the program, process, or guidelines under which the determination to approve or deny the loan modification was made.  If the mortgagor is determined to qualify for a modification of payments under an approved workout program, and the mortgagee or servicer refuses to modify the loan, then the mortgagee may only foreclose by judicial means.  The amendment also provides more opportunity for the mortgagor to challenge the foreclosure by advertisement proceedings resulting in a mortgagee having to commence or change its proceedings to a judicial foreclosure. 

The foreclosure may proceed by advertisement in the event the mortgagor does not qualify for the loan modification under the program, or in the event the designee has offered the mortgagor a modification according to the accepted terms and the mortgagor has not executed and returned the modification agreement within 14 days after the mortgagor received the agreement.

The amendment does not apply in cases where loan modifications have already been entered into pursuant to these new foreclosure requirements unless the mortgagor has complied with that modification for at least one year.  In addition, the amendment does not apply to judicial foreclosure actions. Typically, the judicial foreclosure process takes approximately 1 year (including the redemption period) where foreclosures by advertisement in Michigan currently take approximately 7-8 months to complete (including the typical 6-month redemption period).  It is anticipated that the amendment will extend the foreclosure by advertisement process by between 2 and 4 months depending upon whether the mortgagor elects to attempt to modify their loan.  As the time savings advantage of foreclosing by advertisement will no longer be a factor, it may be advisable in some cases to foreclose judicially.

Potestivo & Associates is prepared to implement the additional steps required by the State of Michigan to foreclose loans legally and efficiently by advertisement.  We are prepared to ensure that proper notice is provided to the mortgagor, to attend the housing counseling sessions on behalf of our clients, and are willing to act as the mortgage holder’s and/or servicer’s designee in the process.  If you have any questions or would like to discuss any of this further, please do not hesitate to contact myself at chaack@potestivolaw.com or Michael Woods at mwoods@potestivolaw.com.