Michigan: An In-depth Look at Mortgage Foreclosures

Presented by:

Douglas G. SmithAssociate Sr. Underwriter &

Michigan State Counsel

FORECLOSURE PROCEDURES

Requirements for Advertisement Foreclosure

Default in a condition of the mortgage. Sec. 3204(1)(a) No action or proceeding instituted in a court of law.

Sec. 3204 (1)(b) Power of sale in the mortgage. Sec. 3204 (1)(c) Party foreclosing the mortgage is the owner of the

indebtedness or the servicing agent. Sec 3204 (1)(d) If the party foreclosing is not the original mortgagee, a record

chain of title shall exist prior to the date of sale under section 3216. Sec. 3204 (3) / Davenport v. HSBC.

Satisfaction of the provisions of section 3205 (notice to the mortgagor of the ability to seek a loan modification).

Requirements for Notice to Borrower of Opportunity to Modify Mortgage

Foreclosing party shall serve a written notice on borrower of opportunity to seek a loan modification. Sec. 3205a

Foreclosing party must provide a series of information to the borrower to enable them the opportunity to fairly negotiate a loan modification including a list of housing consultants. Sec. 3205a, 3205b and 3205c

[Affidavit of MCL 600.3205 Notice or Affidavit of Compliance] Failure to provide notice to borrower enables borrower to bring an action in circuit

court to enjoin the foreclosure. Sec. 3205a (5) The Company requires the use of the following requirement when issuing a lender

a mortgage foreclosure commitment or when issuing a Michigan Mortgage Foreclosure Guarantee and Commitment:

– Submit evidence satisfactory to the Company that any borrower entitled to receive notice of foreclosure under MCL 600.3204(4) has been served notice, as required, and that all the provisions of MCL 600.3205a, 600.3205b and 600.3205c have been complied with, if applicable. Stewart Bulletin MI2009002

The provisions of these sections: 3205a, b, c and d automatically expire July 5, 2011. Sec 3205e

Notice requirements for publication and posting Sec. 3208

Notice shall be given by publishing for 4 consecutive weeks, at least one in each week, in a newspaper published in the county where the premises are located. [Affidavit of Publication]

If no newspaper is published in the county, the notice shall be published in a newspaper published in an adjacent county.

A true copy shall be posted in a conspicuous place upon any part of the premises described in the notice. [Affidavit of Posting]

Contents of notice: Sec. 3212– Names of the mortgagor, the original mortgagee and foreclosing

assignee, if any.– The date of the mortgage and the date the mortgage was recorded.– The amount to be due on the mortgage on the date of notice.– A description of the mortgaged premises that substantially conforms

with the description contained in the mortgage.– The length of the redemption period.

THE FORECLOSURE SALE

The Foreclosure Sale

Sale shall be a public sale at the county circuit court building and shall be made by the sheriff, undersheriff, or deputy sheriff of the county to the highest bidder. Sec. 3216

[Affidavit of Auctioneer and Certificate of Redemption Period] The mortgagee, or its successor or assigns, may purchase the

premises at such sale. [Note: the mortgagee simply bids in the amount of the indebtedness without actually paying the money to the deputy sheriff in exchange for the deed.] Sec. 3228

The officer executes, acknowledges and delivers to the purchaser at sale the property bid off by him and shall endorse upon each deed the time and when the deed will become operative in the event the premises are not redeemed. Sec. 3232

[Affidavit of Auctioneer and Certificate of Redemption Period]

The Foreclosure Sale

The sheriff’s deed must be recorded within 20 days of the sale or the redemption period will begin to run at the date of recording and not the date of sale. Sec. 3232/Title Standard 16.28

Unless the premises are redeemed within the time prescribed by law, the deed shall become operative and vest title in the grantee, but will be subject to any lien dated prior to the date of the mortgage foreclosed. Sec. 3236

REDEMPTION OF PREMISES

Redemption of Premises

The purchaser’s deed (Sheriff’s Deed) is void if the mortgagor, the mortgagor’s heirs, executors/administrators, or any party lawfully claiming under the mortgagor, redeems the property. Sec. 3240 (1)

The Register of Deeds shall not determine the amount necessary for redemption. Sec. 3240 (2)

The purchaser shall attach an affidavit with the deed that states the exact amount required to redeem, including any per diem amounts, and the date by which the property must be redeemed. The purchaser may include in the affidavit the name of their designee and the purchaser must accept the amount computed by the designee. Sec. 3240 (2)

[Affidavit of Purchaser (Designee Affidavit)]

Redemption of Premises

If the purchaser at Sheriff’s sale (lender) pays taxes, amounts necessary to redeem senior liens, condominium or association assessments, insurance premiums, redemption shall be made only upon payment of the deficiency, the per diem and any sums paid under this section if evidence of the sums paid under this section are filed with the Register of Deeds. Thus, if you are redeeming at the Register of Deeds office, you must have them check for evidence of payments made under this section. If you are redeeming with the lender or their designee, it is to be presumed that such sums are calculated in the payoff amount in the payoff letter. Sec. 3204 (4)

REDEMPTION OF PREMISES

Redemption periods:– Mortgage executed on or after 1/1/65 on commercial,

industrial or more than 1-4 family residential in excess of 4 units – 6 months. Sec. 3240 (7)

– Mortgage executed on or after 1/1/65 on residential not exceeding 4 units and not more than 3 acres in size and the amount claimed is more than 66 2/3rds of the original indebtedness – 6 months. Sec. 3240 (8)

– Mortgage on residential not exceeding 4 units and abandoned under section 3241 the redemption period is 1 month unless less than 66 2/3rds of the indebtedness is still owed in which case – 3 months. Sec. 3240 (9) (10)

– In all other cases – one year. Sec. 3240 (12)

ABANDONMENT OF PREMISES

Abandonment of Premises

There are two sections in the Act addressing abandonment of foreclosed property: Section 3241 and Section 3241a. These sections shorten the redemption period after foreclosure to allow the lender to expedite the REO sale out.

[Affidavit of Abandonment] Section 3241, by inference may be used for

residential or commercial properties. Section 3241a is strictly for residential properties.

Section 3241 provisions

If within 30 days before commencement of foreclosure (start of advertisement) mortgagee mails, by certified mail, notice of default and intent to foreclose, abandonment of the premises is conclusively presumed if the mortgagee executes and causes to be recorded an affidavit that states:

– That the mortgage has mailed to the last known address of the mortgagor a notice of default and intention to foreclose and the mortgagor has not responded to the notice.

– That the mortgagee has made a personal inspection of the premises and the inspection does not reveal that the mortgagor or persons claiming under him are presently occupying or intend to occupy the premises.

– That the mortgagee mailed by certified mail a copy of the affidavit to the mortgagor at his last known address before commencement of the foreclosure proceedings.

– That the mortgagor, or any party claiming by or through the mortgagor has not provided, before the expiration of the redemption period, a written affidavit to the mortgagee stating the premises have not been vacated.

Section 3241a provisions

If foreclosure proceedings have been commenced against residential property not exceeding 4 units, abandonment is conclusively presumed if the following are met:

– That the mortgagee has made a personal inspection and the inspection does not reveal that the mortgagor or parties claiming under him are presently occupying or will occupy the premises.

– That the mortgagee has posted notice and has mailed, by certified mail, notice that the mortgagee considers the property abandoned and mortgagor will lose all rights ownership in 30 days.

– That within 15 days after the notice, the mortgagor, or parties claiming through the mortgagor have not provided the mortgagee written notice stating that the premises are not abandoned.

This section is the procedure used most often by lenders as abandonment is usually determined after advertisement has begun.

NON-MILITARY SERVICE AFFIDAVIT

Non-Military Service Affidavit

Both the State of Michigan and the United States government have restrictions on the ability of a mortgagee to foreclose on a borrower who is serving in the military and the tolling of the redemption period while actively serving. Sec. 3285 and The Servicemembers Civil Relief Act (SCRA)

The mortgagee shall record a Non-Military Affidavit averring that the borrower is not serving in the Military.

WRITTEN NOTICE OF FORECLOSURE RECIPIENTS

Federal Government

Foreclosure of property that is encumbered by a junior federal tax lien will extinguish the tax lien if:

– No notice of the federal tax lien was filed for record and indexed more than 30 days before the foreclosure sale.

– Proper notice of the sale (in writing sent by registered or certified mail or by personal service) was given to the United States not less than 25 days before the sale.

26 USC 7425(c)(1)/Affidavit of Mailing to the United States

– The United States consents to the sale free of the lien.

Condominium Associations

The mortgagee of a first mortgage as to a condominium unit shall give notice of the commencement of foreclosure of the mortgage by serving a copy of the published notice upon the Association of co-owners by certified mail addressed to the Resident agent. Failure does not invalidate the foreclosure but allows the Association legal recourse. Sec. 559.208(9) of the Condominium Act/Affidavit of Mailing to Condominium Association

DOCUMENTATION CHECKLIST FOR ADVERTISEMENT FORECLOSURES

Documentation Checklist for Advertisement Foreclosures

Sheriff’s Deed Affidavit of Auctioneer (Certificate of Redemption Period) Non-Military Affidavit Affidavit of Publication Affidavit of Posting Affidavit of MCL 600.3205 Notice (Affidavit of Compliance) Affidavit of Purchaser (Designee Affidavit) Affidavit of Mailing to United States, if applicable Affidavit of Mailing to Condominium Association, if applicable Affidavit of Abandonment, if applicable.

MORTGAGE FORECLOSURES AND CONDOMINIUM ASSOCIATION LIENS

Mortgage Foreclosures and Condominium Association Liens

As the result of a case entitled: Oakbrook Condominium Association v. Hubbell and Midfirst Bank, it was determined by a Michigan Circuit Court that a foreclosure initiated by an assignee of a mortgage created their priority position at the moment of the recording of the assignment and not the date of the recording of the original mortgage.

The condominium association was able to establish priority for their lien which was recorded after the original mortgage was recorded but before the recording of the assignment.

As a result, we would instruct you to take exception to all condominium association liens which are of record prior to the assignment of a mortgage when the assignee is foreclosing.

This holding only applies to condominium liens and not to any other junior interest recorded after the recording of the original mortgage. Stewart Bulletin MI2009008

REO SALES FROM THE FORECLOSING LENDER TO NEW

PURCHASERS

REO Sales From the Foreclosing Lender to New Purchasers

Because there have been serious questions raised as to the validity of many judicial foreclosures around the country involving large national lending institutions, the Company has established a number of steps that must be reviewed before insuring a sale out from a lender after foreclosure.

Stewart Bulletin SLS2010023

REO Sales From the Foreclosing Lender to New Purchasers

Before insuring such a sale, follow the identified steps of the Bulletin which, in Michigan, are:

– Verify that all foreclosure requirements under state law and our guidelines have been met [check list]

– Verify that the mortgagor or tenants are not in possession of the property [an affidavit or broker confirmation to that effect is sufficient]

– Make sure the right of redemption has expired– Determine that the amount owed on the foreclosed

mortgage exceeds the current resale price– Require, at a minimum, a covenant deed on the sale by the

foreclosing lender which obligates the lender to defend if there is a challenge to the validity of the foreclosure

INSURING SHORT SALES DURING REDEMPTION

Insuring Short Sales During Redemption

In the event that the borrower is attempting to sell the property during the redemption period on a short sale, it is preferable that you redeem with the Designee identified on the Affidavit of Purchaser/Designee Affidavit.

Under section 3240(2), the Purchaser is obligated to accept the redemption amount calculated by the Designee, even if incorrect. [There is no such assurance redeeming directly with the lender.]

The designee is also much more likely to record the Redemption Certificate creating a clean title.

If you redeem with the Register of Deeds make sure to ascertain from the Register any amounts paid under section 3240(4) in the calculation of the redemption amount.

If you are unable to close until after the redemption period has expired, secure a deed from the lender instead of a redemption certificate as title has passed. Contact the legal department for approval of any other option.

Thank you for attending!

Questions? Please call Doug Smith at 248-368-9900 or email at doug.smith@stewart.com

A recording of this webinar can be found on www.stewart.com/michigan