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Vacant Property Ordinances Updates from Four States: Michigan

Posted By USFN, Friday, May 3, 2013
Updated: Monday, November 30, 2015

May 3, 2013

 

by Jessica Rice
Trott & Trott, P.C.
USFN Member (Michigan)

Michigan was just one of many states that were greatly impacted by the rise in foreclosures over the past few years. With this increase in foreclosures also came the emergence of vacant property ordinances (VPOs). These ordinances have been on the rise and it can be inferred that this is due in large part to the increase in foreclosures and, subsequently, the difficulty in marketing and selling foreclosed properties. Whether this is due to property conditions, title issues, or just a downturn in the marketability of certain properties in a given area, these ordinances put yet another requirement on mortgage servicers that can prove both onerous and costly.

Since my last article in the Autumn 2011 USFN Report, Michigan has seen an increase in the number of VPOs across the state. Traditionally, these ordinances have only impacted mortgage servicers at the time of REO. However, there is a trend in Michigan in which inspection requirements are triggered by the commencement of the foreclosure process and, in some cases, registration of a property is required when a foreclosure is initiated. Given this, it is imperative that mortgage servicers are aware of these ordinances and utilize the knowledge of their asset managers, brokers, and local securing companies to ensure compliance.

Municipalities have implemented VPOs as a means to hold property owners accountable for properties and to impose requirements that function to alert the municipality to properties that need to be monitored. This implementation is in large part due to a municipality’s attempt to limit and combat blight, maintain the integrity of the community, and to stabilize property values. Failure to comply with an ordinance and file the proper registration could result in a lien being placed on the property by the municipality as well as legal action up to and including abatement.

VPOs serve to provide municipalities with the means to contact the property owner or mortgage servicer should issues occur with a property. This is commonly done to make sure that if any issues develop at a particular property (such as suspected misconduct, vandalism, or failure to maintain the property) the city has a point of contact to refer these matters. These ordinances also will oftentimes require a “responsible local agent” to be appointed if the mortgage servicer is located outside of a certain predetermined distance from the property. This further ensures that the city will be able to contact someone who will be able to take immediate action at a property when an issue arises.

Historically, the onus for compliance with a VPO did not shift to the mortgagee until the mortgagee acquired the property by way of foreclosure. However, as previously mentioned, a new trend in Michigan has emerged in which cities are including requirements in their VPOs that are triggered by the commencement of the foreclosure process. In these instances, the mortgagee must adhere to the terms of the applicable ordinance prior to acquiring title through a foreclosure. This changes things a bit from the mortgage servicing standpoint, as this impacts the manner in which property registrations are handled from a time frame perspective and puts the onus for registration and compliance with the ordinance on the mortgage servicer sooner than has generally been the case.

More specifically, ordinances with requirements that are triggered by the initiation of the foreclosure process typically mandate that an inspection of the property is performed upon initiation of the foreclosure. The “initiation of the foreclosure” is most often defined as the filing of a complaint for foreclosure if the foreclosure is proceeding judicially, or the publishing of a notice of foreclosure if a foreclosure is proceeding by advertisement. Subsequent to the inspection, if the property is determined to be vacant or shows evidence of vacancy, then the property must be registered within a certain time frame — mostly ranging from 15-45 days.

Additionally, a few municipalities have recently taken this a step further and have imposed requirements that do not just call for registration once a property is determined to be vacant or abandoned but, rather, upon initiation of a foreclosure. For example, the city of Jackson imposed a “Foreclosed, Vacant and Abandoned Residential Property Ordinance” in March 2012. This ordinance requires an owner of a foreclosed, vacant, or abandoned residential property to register the property within 15 days of the property becoming subject to foreclosure, the property becoming vacant, the property becoming abandoned, or upon notification that the structure has been declared a foreclosed, vacant, or abandoned property, whichever is earlier. For purposes of this ordinance, “owner” is defined as including a financial institution that is foreclosing a mortgage interest. Therefore, in instances where the property becomes subject to foreclosure prior to the property being vacant, abandoned, or notification being sent by the city, the city is requiring the property be registered.

The city of Port Huron has also imposed a requirement for the registration of foreclosed properties. This requirement is predicated by the foreclosure action, but is a bit more simplistic in that it requires that the mortgage servicer initiating the foreclosure merely provide contact information for their office and their designated point of contact within 10 days following a foreclosure filing.

While the number of cities enacting this new category of ordinances with more onerous registration requirements is, at this time, relatively limited, it certainly appears that this is evidence of a new trend by municipalities in Michigan to implement ordinances that hold mortgage servicers accountable for properties much sooner than was previously the case. Whether that takes the form of requiring property inspections until the property is determined to be vacant, or requiring registration upon the property becoming subject to foreclosure, it seems it is now more necessary than ever to be aware of these ordinances and make certain that there are mechanisms in place to ensure compliance.

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Spring USFN Report

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