Home Foreclosure and Michigan Foreclosure Law

• Pay-off all delinquent amounts owed including legal fees and penalties, in full, by the date designated by your mortgage company.
  • Benefits: Monthly mortgage payment remains unchanged.
  • Disadvantages: Most people do not have a lump sum of money available to make this large payment. We typically do not recommend incurring additional debt with a 401K or retirement loan or borrowing money from a friend or family member to bring the mortgage current. This only creates an additional debt and burden on your budget and may create unexpected tax consequences and debt servicing fees.

• Chapter 13 Reorganization
  • Benefits: Prioritizes your mortgage above all other debts so you can focus on catching up on the mortgage first then pay the other obligations later. Legally stops the foreclosure sale and set ups reasonable repayment terms .
  • Disadvantage: If you are planning to incur future debt over $1,000, you would need to obtain court authorization.

• Negotiated Forbearance Agreement
  • Benefits: Mortgage company electively agrees to set up repayment terms.
  • Disadvantages: The agreement is typically very rigid and requires large payments over a short period of time. If a payment is missed, your home will usually be put back into foreclosure immediately. The mortgage company typically requires an accelerated timeframe to make up missed payments - usually over a six to12 month time period. This short timeline can really create a steep monthly increase that usually creates other budgeting problems. The mortgage company typically still continues to apply late penalties and interest charges during the forbearance.

• Loan Modification
  • Benefits: Missed payments are added to the end of the mortgage contract.
  • Disadvantages: Extends the terms of the mortgage and increases the amount of interest you will be paying over the life of the loan. The lender may require an increased interest rate or other fees to accommodate this modification.

• Cash for Keys and Deed in Lieu of Foreclosure
  • Benefits: Bank voluntarily takes home back without following through on foreclosure proceeding and/or provides you with a payment for vacating the home quickly and peacefully.
  • Disadvantages: You may have a tax liability for the dollar amount or value that the mortgage company "forgave" as a part of this program via a 1099 income form. Check with a tax professional to understand the implications for your situation.
    
    You may forego all or part of your redemption period . Cutting this short will accelerate your timeline to find other living arrangements.

• Short Sale
  • Benefits: Bank voluntarily agrees to sell the home to a third-party for less than what you owe on it.
  • Disadvantages: You may have a tax liability for the dollar amount or value that the mortgage company "forgave" as a part of this program via a 1099 income form. Check with a tax professional to understand the implications for your situation.

Home Valuation and Second Mortgages

Another side effect of the increase in home foreclosures is the depreciation of home values . Many homeowners are finding that between their first and second mortgages they owe more on their home than what it is worth, or have "negative equity." If this is your situation and you are facing a foreclosure, we can explore removing the second mortgage or "Lien Stripping" through the Chapter 13 plan. This will basically convert the second mortgage to unsecured debt. The benefits of this are as follows:

• This will create a lower monthly payment, overall, going toward your mortgage.
• Under the terms of a Chapter 13, we can often eliminate a portion of the unsecured debts, including the stripped lien.
• The stripped lien would then convert to 0% interest.
• In addition, all payments are deferred to your unsecured creditors (including the stripped lien) until you are caught up on your secured obligations such as your first mortgage, vehicle, etc.

If you have secondary liens on your home and determine that you do not want to stop a foreclosure sale, you will still be responsible for the second mortgage or home equity loan after the sale. This debt could be eliminated if you file a Chapter 7 Fresh Start along with your other unsecured debts.

Adjustable Rate Mortgages

Sub-prime lending practices have created a flood of adjustable rate mortgages. This can be a real challenge to the monthly budget. Due to property valuations decreasing, refinancing to a fixed-rate loan is sometimes difficult based on your current appraised value. It can also be difficult to get a new loan if your credit is compromised due to missed mortgage payments.

Under the terms of the Chapter 13, our attorneys can propose a fixed or lower interest rate. Under the current laws, the mortgage company is not bound to our proposed terms. But, their leverage of foreclosure is removed with the filing of the reorganization so they are typically more likely to negotiate. You lawyer can also propose to modify the loan to a fixed rate for the duration of the plan.

Another option is to use the Chapter 13 to improve your credit with the goal of refinancing your home and completing the program early. It is possible to refinance out of the Chapter 13 at any time. Typically, we find lenders are looking for a 12 to 24 month period of consistent payments in order to consider refinancing a home. The Chapter 13 actually helps you to improve your credit and credit score by lowering your overall debts and re-establishing a regular payment history. Read a testimonial from one of our clients regarding how the Chapter 13 plan helped her to re-finance and establish better terms with her mortgage. Monique from Fenton, Michigan

Michigan Foreclosure Law

In Michigan, there are two basic ways for the mortgage company to approach a foreclosure. The majority of the time, they use the "Posting" method. This occurs when the mortgage company physically posts a notice to your door and in a legal newspaper. They provide you with a five-week period to pay the deficiency in full or stop the sale via other means, such as the Chapter 13 Reorganization. This method is less time consuming and more efficient that the alternative method, a Judicial Foreclosure.

With the Judicial Foreclosure, your lender actually sues you to take back the home. After a Judicial Foreclosure and the home are sold by the bank, they are allowed to come after you for any deficiency balance remaining. This type of foreclosure can also be stopped by the filing of a Chapter 13.

"Posting" Foreclosure

With the "Posting" foreclosure, a bank will post a notice in a legal newspaper for five (5) weeks. The sale of the property will happen on the 5th week at the local county courthouse. If the sale occurs you will be in the 6 - 12 month redemption period . The redemption period may be shortened to 30 days if the property is vacant. Depending on the results of the foreclosure and the subsequent sale of the property you may or may not be responsible to amounts owed to the bank for any shortfall that may occur. Our office would need to look over the terms of the sale of the property after the foreclosure to determine if there will be amounts owed to the bank. A homeowner would still be responsible for any secondary liens or home equity loans. However, any debts owed to the bank under the first or subsequent mortgages could be eliminated if you filed a Chapter 7 Fresh Start along with your other unsecured debts.

Judicial Foreclosure

If the mortgage company pursues a judicial foreclosure and the house is not taken out of foreclosure or redeemed, you would liable for any loan deficiency resulting from the sale of the property. The mortgage company could pursue collections for the deficiency. However, like secondary liens, once the house is turned back to the bank the mortgage debt is converted to unsecured debt and can be eliminated with the filing of a Chapter 7 Fresh Start program.

Either type of foreclosure sale can be stopped through filing Chapter 13 reorganization as long as the case is filed before the sale takes place.

Redemption Period

The redemption period is the six to 12 month time period after the foreclosure sale occurs to sell or redeem the property. Your redemption period is based on the amount of equity you have in your home. If your equity is under 50% of the total value of the home, the redemption period is six months. If you have over 50% equity in your home, your redemption period is 12 months. Your assigned redemption period should be indicated on the notice posted to your door at the time that the foreclosure starts.

Under Michigan Foreclosure law, you have the following options during the redemption period:

• You may sell your home to a third party as long as the lien holders are paid in full before the expiration of the redemption period.
• You can get a replacement mortgage with a new lender and pay off the previous lien holder in full. It can be difficult to obtain "distressed financing" and often the terms are unfavorable, so proceed with caution.
• You can simply live in the property for the duration of the redemption period without making further payments. In order to prevent a disruption in you utility services you would still need to maintain payments to the utility companies during this period. You would also want to consider having insurance for the contents of the home, but you would not be required to maintain homeowner's insurance for the dwelling.

The home must be occupied during the redemption period, or the mortgage company has the right to take it back early. Another consideration, if you attempt to sell or refinance the home during the redemption period, ensure that you obtain an accurate pay-off from your lender(s), as the balance will continue to increase as payments are not being received. The lender(s) can still assess you the principal payments, interest charges and late penalties for the duration of the redemption period.

Your Credit - Foreclosure is Worse than Bankruptcy

Experiencing a completed foreclosure on your home can be one of the most damaging factors for your credit. People are often times under the impression that filing a bankruptcy is detrimental to your credit and worse than undergoing a foreclosure. This is simply not true. If you are behind on mortgage payments, your credit has already been negatively impacted. If you elect to stop the foreclosure with the Chapter 13 Reorganization, your credit will be improved through regular payments into the program. This improved credit allows you the opportunity to refinance the loan for better terms - something that is typically not possible when you are behind on payments and facing foreclosure.

Mortgage lenders indicate that filing a Chapter 7 prior to the foreclosure sale occurring will create a more favorable credit rating than having a foreclosure. For future lending, it is more favorable to have a bankruptcy on your record than a foreclosure. Within two years of your Chapter 7 discharge you would qualify for a conforming home loan or an FHA (Federally backed) loan. With a foreclosure on your record, it typically takes three to four years before you would qualify again for these types of loans.

Escrow Acceleration and Lowering Your Payment

Many times people fall into foreclosure because of an increased mortgage payment that they cannot afford or that creates issues elsewhere in their monthly budget. This could be due to an adjustable rate mortgage or escrow acceleration.

Escrow acceleration occurs when the mortgage company advances or pays for property taxes and/or homeowners insurance they have not previously collected through the monthly mortgage payments. In this circumstance, the mortgage company typically wants to recoup the funds they advanced within a six to 12 month time period. This can often dramatically increase a monthly mortgage payment and for most people, makes their budget impossible. In this instance, through the Chapter 13 plan, we can not only stop a pending foreclosure sale but also spread this escrow deficiency over the life of the plan (36 - 60 months), which will lower the monthly payment. In addition to this extended time, the escrow deficiency is paid back at 0% interest with no continued penalties.

Resolving Unpaid Property Taxes

If you have property taxes that are owed outside of an escrow, they can also be resolved through a Chapter 13 program. Unpaid taxes can be paid in increments over the life of the plan at 1% interest per month with no continued penalties. They take priority over your unsecured debts.

Tax Forfeiture sale occurs when the taxing authority begins foreclosure proceedings due to unpaid property taxes. This type of foreclosure can also be stopped with the filing of Chapter 13 reorganization. The unpaid taxes will be spread over the life of the plan (36 - 60 months) and be paid back at 12% interest with no continued penalties.

Unlike a mortgage foreclosure sale, you can still file a Chapter 13 after a Tax Forfeiture sale and protect the home. If the filing occurs after the sale, the unpaid taxes will be spread over the life of the plan (36 - 60 months) and be paid back at 18% interest with no continued penalties.