Mortgage foreclosure law in Michigan

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Michigan is a recourse state. That means that lenders can legally collect from you a deficiency resulting from the amount owed on a mortgage and the amount the lender realizes from the sale. This deficiency can result from a foreclosure, short sale or a deed in lieu of foreclosure. Thus it is important to get the lender to sign off in a short sale or deed in lieu that the deficiency is waived. Yes, even if the lender approves the short sale at an amount less than the amount owed, they can still attempt to collect the deficiency unless they specifically waive that right. The attempt to collect could come years after the transaction. The right to the deficiency could be sold to a collection agency.

This is not intended to be a legal interpretation of the foreclosure law in Michigan. Unlike some states, Michigan is not a judicial state where a foreclosure must go before the courts. Foreclosure in Michigan is by advertisement following the law. I am including three sections from the Michigan Compiled Laws ("MCL"). This is not all inclusive but I believe it addresses the major points.

Recently foreclosures in a number of judicial states have been challenged on various grounds. Some foreclosures have been delayed. Some foreclosure actions have been withdrawn.

I have highlighted some of the important aspects of the law in blue and bold.

Typically, there is a Note or an Adjustable Rate Note that spells out the amount, interest rate and other specifics. There is also a Mortgage that is the security interest for the Note. Mortgages are typically recorded with the County. In MCL 600.3205a.(1)(b), the term mortgage loan is used. This seems to be an attempt to classify two separate and distinct documents as one. This is clearly improper. As further evidence, mortgage loan is not spelled out in the section on Definitions. Clearly there is no definition that fits mortgage loan.

Over the past few years, some Notes and Mortgages have been separated. The Notes may have been sold and resold, bundled as part of a Mortgage Backed Security package of notes and then the MBS package could have been sold off in pieces as part of a number of different Collateralized Debt Obligations.

The Mortgage could be held by a company known as of Mortgage Electronic Registration Systems, Inc. ("MERS"). MERS acts as the nominee for lender and lender's successors and/assigns. Thus while the note may have been sold many times over, the mortgage typically remained with MERS.

After the Note and Mortgage were generated, the servicing of the Note could have been delegated to a Servicer. The Servicer was then responsible for managing the paperwork, mailing statements, collecting payments and if an escrow was involved, paying the property taxes and insurance, as applicable.

As is evident from reading the sections of the law that follow, the primary focus is the mortgage and not the note. I do not believe that to be the case in other States, particularly judicial states.

I have a number of questions on the MCL as written. Primarily, the use of the term "mortgage servicer". It seems to me this is limited to either the holder of the mortgage or someone appointed by the holder of the mortgage to service that mortgage. I don't believe that there is a mortgage servicer if MERS is basically the owner of the mortgage. Many believe MERS was created to avoid paying recording fees because while the Note may be sold many times, the mortgage remained with MERS. The notes are not recorded just the mortgage.

Under MCL 600.3204 (3) If the party foreclosing a mortgage by advertisement is not the original mortgagee, a record chain of title shall exist prior to the date of sale under section 3216 evidencing the assignment of the mortgage to the party foreclosing the mortgage.) prior to the sale, the mortgage must be the original mortgagee or assigned to the party foreclosing. This means that if a Sheriff's Sale is to take place following the Advertisement of Sale, the mortgage must first be assigned to the foreclosing party.

Other questions are then raised as to the validity of the Assignment. Much has been written about "robo-signers", particularly in judicial states. MERS while recording millions of mortgages only has a few employees. Thus the Assignment might be signed by an employee of the Servicer, acting a a Vice-President of MERS. Depositions in Florida have discovered that some employees signed thousands of documents in a week. Numerous questions have been raised about the propriety of the Assignment when the employee was serving in dual capacity.

I have attempted on numerous times to contact the Michigan AG (past and present) to investigate foreclosures in general and one specific example. I have yet to receive a response. I have just recently attempted to contact my State Representative. As yet no response.

I believe the law is poorly written and question whether some foreclosures in Michigan may have been or are improper.

For instance in the Notice of Sale was advertised but the Assignment of the Mortgage was not yet signed, was the sale proper?

If you have any questions, please feel free to email me or contact me from the Home page.

(1) Subject to subsection (4), a party may foreclose a mortgage by advertisement if all of the following circumstances exist:

(a) A default in a condition of the mortgage has occurred, by which the power to sell became operative.

(b) An action or proceeding has not been instituted, at law, to recover the debt secured by the mortgage or any part of the mortgage; or, if an action or proceeding has been instituted, the action or proceeding has been discontinued; or an execution on a judgment rendered in an action or proceeding has been returned unsatisfied, in whole or in part.

(d) The party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgage.

(2) If a mortgage is given to secure the payment of money by installments, each of the installments mentioned in the mortgage after the first shall be treated as a separate and independent mortgage. The mortgage for each of the installments may be foreclosed in the same manner and with the same effect as if a separate mortgage were given for each subsequent installment. A redemption of a sale by the mortgagor has the same effect as if the sale for the installment had been made upon an independent prior mortgage.

(3) If the party foreclosing a mortgage by advertisement is not the original mortgagee, a record chain of title shall exist prior to the date of sale under section 3216 evidencing the assignment of the mortgage to the party foreclosing the mortgage.

(4) A party shall not commence proceedings under this chapter to foreclose a mortgage of property described in section 3205a(1) if 1 or more of the following apply:

(b) After a notice is mailed to the mortgagor under section 3205a, the time for a housing counselor to notify the person designated under section 3205a(1)(c) of a request by the mortgagor under section 3205b(1) has not expired.

(c) Within 14 days after a notice is mailed to the mortgagor under section 3205a, the mortgagor has requested a meeting under section 3205b with the person designated under section 3205a(1)(c) and 90 days have not passed after the notice was mailed.

(d) The mortgagor has requested a meeting under section 3205b with the person designated under section 3205a(1)(c), the mortgagor has provided documents if requested under section 3205b(2), and the person designated under section 3205a(1)(c) has not met or negotiated with the mortgagor under this chapter.

(e) The mortgagor and mortgagee have agreed to modify the mortgage loan and the mortgagor is not in default under the modified agreement.

(f) Calculations under section 3205c(1) show that the mortgagor is eligible for a loan modification and foreclosure under this chapter is not allowed under section 3205c(7).

(5) Subsection (4) applies only to proceedings under this chapter in which the first notice under section 3208 is published after the effective date of the amendatory act that added this subsection and before 2 years after the effective date of the amendatory act that added this subsection.

(b) "Mortgage holder" means the owner of the indebtedness or of an interest in the indebtedness that is secured by the mortgage.

***** 600.3205a THIS SECTION IS REPEALED BY ACT 31 OF 2009 EFFECTIVE JULY 5, 2011 *****

(1) Subject to subsection (6), before proceeding with a sale under this chapter of property claimed as a principal residence exempt from tax under section 7cc of the general property tax act, 1893 PA 206, MCL 211.7cc, the foreclosing party shall serve a written notice on the borrower that contains all of the following information:

(a) The reasons that the mortgage loan is in default and the amount that is due and owing under the mortgage loan.

(b) The names, addresses, and telephone numbers of the mortgage holder, the mortgage servicer, or any agent designated by the mortgage holder or mortgage servicer.

(c) A designation of 1 of the persons named in subdivision (b) as the person to contact and that has the authority to make agreements under sections 3205b and 3205c.

(d) That enclosed with the notice is a list of housing counselors prepared by the Michigan state housing development authority and that within 14 days after the notice is sent, the borrower may request a meeting with the person designated under subdivision (c) to attempt to work out a modification of the mortgage loan to avoid foreclosure and that the borrower may also request a housing counselor to attend the meeting.

(e) That if the borrower requests a meeting with the person designated under subdivision (c), foreclosure proceedings will not be commenced until 90 days after the date the notice is mailed to the borrower.

(f) That if the borrower and the person designated under subdivision (c) reach an agreement to modify the mortgage loan, the mortgage will not be foreclosed if the borrower abides by the terms of the agreement.

(g) That if the borrower and the person designated under subdivision (c) do not agree to modify the mortgage loan but it is determined that the borrower meets criteria for a modification under section 3205c(1) and foreclosure under this chapter is not allowed under section 3205c(7), the foreclosure of the mortgage will proceed before a judge instead of by advertisement.

(h) That the borrower has the right to contact an attorney, and the telephone numbers of the state bar of Michigan's lawyer referral service and of a local legal aid office serving the area in which the property is situated.

(2) A person who serves a notice under subsection (1) shall enclose with the notice a list prepared by the Michigan state housing development authority under section 3205d of the names, addresses, and telephone numbers of housing counselors approved by the United States department of housing and urban development or the Michigan state housing development authority.

(3) A person shall serve a notice under subsection (1) by mailing the notice by regular first-class mail and by certified mail, return receipt requested, with delivery restricted to the borrower, both sent to the borrower's last known address.

(4) Within 7 days after mailing a notice under subsection (3), the person who mails the notice shall publish a notice informing the borrower of the borrower's rights under this section. The person shall publish the information 1 time in the same manner as is required for publishing a notice of foreclosure sale under section 3208. The notice under this subsection shall contain all of the following information:

(i) That the borrower has the right to request a meeting with the mortgage holder or mortgage servicer.

(ii) The name of the person designated under subsection (1)(c) as the person to contact and that has the authority to make agreements under sections 3205b and 3205c.

(iii) That the borrower may contact a housing counselor by visiting the Michigan state housing development authority's website or by calling the Michigan state housing development authority.

(iv) The website address and telephone number of the Michigan state housing development authority.

(v) That if the borrower requests a meeting with the person designated under subsection (1)(c), foreclosure proceedings will not be commenced until 90 days after the date notice is mailed to the borrower.

(vi) That if the borrower and the person designated under subsection (1)(c) reach an agreement to modify the mortgage loan, the mortgage will not be foreclosed if the borrower abides by the terms of the agreement.

(vii) That the borrower has the right to contact an attorney, and the telephone number of the state bar of Michigan's lawyer referral service.

(5) A borrower on whom notice is required to be served under this section who is not served and against whom foreclosure proceedings are commenced under this chapter may bring an action in the circuit court for the county in which the mortgaged property is situated to enjoin the foreclosure.

(6) If the borrower and the person designated under subsection (1)(c) have previously agreed to modify the mortgage loan under section 3205b, this section and sections 3205b and 3205c do not apply unless the borrower has complied with the terms of the mortgage loan, as modified, for 1 year after the date of the modification.