May 5, 2015
by Jessica Rice
Trott Law, P.C.
USFN Member (Michigan)
The legislature was very busy in 2014. The good news is that some of the bills that were passed, pertaining to Michigan’s foreclosure by advertisement statute, turned in a different direction than has been seen over the past six years or so. The enacted bills seek to clean up the foreclosure by advertisement statute and, more importantly, offer greater protections to foreclosing lenders.
Michigan is a redemption state, where borrowers typically enjoy the benefit of a six-month redemption period. This time frame can vary in limited circumstances, but for the most part, six months is the norm. Historically, the redemption period has been a time when the mortgagor is entitled to retain possession of the property, may lease it out, or may even sell it and redeem the foreclosure sale. While this is still true, enactment of the above-mentioned bills brought about changes to the redemption statute that provide purchasers at the foreclosure sale with greater rights to protect their interest in the property during the redemption period.
More specifically, the amended redemption statute now contains a provision wherein the purchaser may inspect the exterior and interior of the property periodically during the redemption period. If the property is found to meet certain requirements under this new provision, then the revised statute goes further to allow for the commencement of summary proceedings to seek possession of the property.
While this may seem like a fairly straightforward change, it is a significant departure from past practice. The statute outlines a very specific process that must be followed in order to proceed with the inspections. The statute requires the purchaser to send multiple letters to the property in order to be able to proceed with an interior inspection. The first of these letters serves as informational under MCL 600.3237. This letter must set forth the name and contact information for the purchaser at the foreclosure sale, the date and the amount of the foreclosure sale, as well as the redemption expiration date. The letter also provides the information contained in MCL 600.3238 regarding the purchaser’s rights to an inspection, in addition to the requirements and procedures for proceeding with it. This letter further establishes a rebuttable presumption regarding liability for damages for failure to allow the inspection, or failure to notify the purchaser if the property is going to be surrendered.
As for the subsequent letters called for under the statute, there are specific requirements for these, too. The focus of these letters is on the actual inspections, including the scheduling, results, and any follow-ups as permitted by the statute. Given the nature of these letters, it is recommended that foreclosing lenders use their local presence, such as property preservation specialists and brokers, to send the letters as they will be the parties conducting the inspections and assessing the property.
The statute also allows for the commencement of eviction proceedings. This is permissible under the statute if an inspection is unreasonably refused, or if damage to the property is imminent or has occurred. It is important to note that the term “unreasonably refused” is not defined in the statute. Accordingly, it is likely that there will be issues with the interpretation of this term between foreclosing lenders and borrowers. If that becomes the case, the determination as to whether an inspection was unreasonably refused will need to be made by the presiding judge. Unlike the lack of a definition for “unreasonably refused,” MCL 600.3238(11) provides a list of what is considered “damage” under this statute, but it is important to note that this is not an exhaustive list.
Similar to the inspection process, there are very specific measures that must be met before beginning an eviction. The statute provides that before the eviction can proceed, the purchaser must send another notice advising the mortgagor of the intent to commence the eviction action if the damage, or condition causing the belief that damage is imminent, is not repaired or corrected within seven days after receipt of the notice. This certainly is open to interpretation because the foreclosing lender may have a different opinion than the mortgagor as to whether the damage has been repaired. If this issue arises, it is wise to consult with local counsel to determine the best course of action. The statute also indicates that the foreclosing lender can work with the mortgagor to create procedures, or a timeline, to repair the damage. If the repairs are made in accordance with those timelines, the eviction may not proceed. Here again, this is open to interpretation. Conversely, if the mortgagor does not repair the damage within seven days or by the agreed-upon timeline, a determination can be made as to whether it is advisable to proceed with filing an eviction action in the local district court.
Once it is decided to start an eviction action, it is important that the complaint includes detailed information as to the nature of the action and the findings at the property. This could include, but is not limited to, copies of the required letters that were sent to the property pursuant to the statute, as well as affidavits and photos reflecting the inspection findings from the inspectors.
It is likely that there could be a difference of opinion between the parties at the eviction hearing as to repairs and/or whether an inspection was unreasonably refused. This is further reason as to why it is imperative that the judge is aware of the statute and that all necessary information is presented to the court. Ultimately, if at the eviction hearing the court grants a judgment for possession in favor of the purchaser, the right of redemption is extinguished and title in the property vests to the purchaser. This is a significant departure from prior practice in that the borrower would be divested of his redemption rights prior to the expiration of the typical six-month statutory redemption period.
As with any change, there are likely to be hiccups. Because this is a substantial shift from a longstanding history of closely-guarded redemption rights in Michigan, it can be anticipated that there will be resistance. There are, also, likely going to be some risks in proceeding under the terms of this new provision. This is due to the fact that the revised statute tends to contradict the traditional notions of the mortgagor’s rights during the redemption period, and any type of infringement on those rights could be construed as a violation. Therefore, it will be crucial for purchasers to comply with all of the requirements of the statute. It is also possible that judges may not yet be familiar with these changes, and may be hesitant to divest borrowers of their redemption rights during the redemption period. To help ensure that any potential issues are mitigated, all options and any best practices should be discussed with local counsel before proceeding under this provision of the revised statute.
While these changes certainly offer greater protections to foreclosing lenders, something to keep in mind is that this provision is not applicable to abandoned properties. Rather, the Michigan foreclosure by advertisement statute includes sections that specifically pertain to abandoned properties. If a particular property has been abandoned, the redemption period can be shortened once certain requirements are met. Local counsel will be able to assist with this process in the event that the property is abandoned, as defined by the applicable statutory sections during a foreclosure by advertisement.
When used properly, the changes to the foreclosure by advertisement statute will benefit foreclosing lenders by protecting their interests in foreclosed properties during the redemption period. These additional protections should help prevent damage to properties. In those situations where damage has occurred and is not appropriately rectified, a lender now has recourse to seek to obtain possession of the property much sooner than has ever been permissible. While it is important to proceed cautiously and to seek guidance from local counsel, these changes are most certainly a change for the better.
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