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THE
FORECLOSURE PROCESS IN MICHIGAN When the homeowner misses a payment, their file goes to
the Collections department. You will receive a reminder, letter or short note
asking for your payment. Your account stays in the collection department for
the next 90 to 180 days. Each lender has their own timeframe. The letters,
notes and phone calls will continue asking you where your payment is. The
clerks in the collection department will be asking about what is happening
with you, your situation and when they are going to see their payment. As
time goes on the calls and the letters become more frequent and the tone
becomes harsher. Many people have told me that they send a partial payment
or maybe even a full payment in during the collection process but the lender
sends it back. Why is that? Well, if they take a partial payment or one
payment when you owe multiple payments and they apply it to your note, then
they must start the entire foreclosure process over again. This lengthens the
process for the lender. However, if your escrow account is in arrears, they
may apply that payment to the escrow account. Since they are not applying it
to the note, this will not lengthen the process for them. As long as they do
not put it, or any part of the payment toward the note, then their process is
not shortened. |
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At some point, one of those clerks may actually offer you
a plan to remedy your situation and theirs. There are four plans that may be
offered. We discuss them in the Options for Homeowners section. They are
forbearance, loan modification, deed in lieu and a short sale. If nothing is resolved while your account is in
collections, it will then be sent to the Loss Mitigation department. This
department can be called other things such as workout department, homeowner
assistance or loan servicing. The job of this department is to try to
mitigate or reduce the bank’s losses on your loan. You will be assigned a
mitigator, negotiator or workout specialist who will contact you to see if
some solution can be worked out. Again, this person will try to get you to
bring your loan up to date and may again try offering you one of those four
options that we mentioned above. If nothing is resolved in this department, then the loss mitigation
department will refer your account to a local attorney. That attorney will
file the foreclosure papers against your property. These papers are called
the Notice of Default. At this time, the Notice of Default will be posted to
your door and the lender will post notice of your sheriff’s sale in the legal
news or another local newspaper. These postings will continue for five weeks.
At the end of the five weeks, your sheriff’s sale (foreclosure auction) will
take place. At the sheriff’s sale there will be a sheriff’s deputy or
maybe a deputy and a helper sitting at a table in the courthouse in the
county that the property is located in. They will have a stack of
foreclosures on the table and yours will be one of them. In Oakland County,
Michigan, the sheriff’s sale is usually on a Tuesday morning. It starts at
10:00am and is over by 11:30a.m. This time and date will vary based on the
county and state you’re located in. At the sheriff’s sale, your lender will have certified
funds for the amount of monies due on your note at that time. Your lender
will decide what the minimum bid on your property will be. Sometimes that
amount is the full amount that you owe plus missed payments, late fees and
legal fees. Sometimes, instead, of bidding the full amount that you owe, the
lender bid might be 2/3 of the current market value of your house as
determined by an appraisal done by the bank in advance of the sheriff’s sale.
How they determine which amount will be the minimum bid is anyone’s guess.
About 70% of the time, the minimum bid is the full amount that you owe
including the additional costs rather than the reduced amount. If someone in
attendance wants to bid on your property more than that minimum bid they will
have an opportunity to do so. If there is more than one person who is
interested in bidding on your property, then it becomes a real auction. The
highest bidder will get the property. They have to pay for it in full with
cash that day but cannot take possession of the property. A sheriff’s deed is
issued to the buyer which gives them the opportunity to own the property
after your redemption period is over. In Michigan, very seldom will your home
be sold to anyone other than your lender. This is for 2 reasons. The first is
because you probably have no equity in your home and no one is going to bid
on buying your house when they will probably be buying it for more than what
it is worth in today’s market. And secondly, because Michigan is a redemption
state, so the buyer would have to pay cash for your house on the day of
sheriff’s sale but could not take possession until your redemption period is
over. Their money would be tied up for this entire time. At this point, the foreclosure process has just ended and
you are now in foreclosure. Your redemption period begins that day and goes
for either six or twelve months. Most redemption periods are six months but
if you have over 3 acres, then your redemption is usually 12 months. After
the sheriff’s sale, you will receive a letter from the attorney with the amount
that you can redeem your house for during your redemption period. That amount
will be the amount bid on your house at the Sheriff’s Sale. But interest will
continue to accrue on that amount daily. That’s right, you are still the
owner of the property right through the redemption period. You still have all
the rights as the owner and can continue to live in the property until your
redemption period is over. The lender or other bidder cannot take your
property at this point. You still have the right to purchase your home back
from the successful bidder at the sheriff’s sale for whatever they paid for
it plus interest. You still have the right to sell the property on a short
sale. If you do not redeem or sell your house during the
redemption period, when your redemption period is over the property will then
go to the high bidder from the Sheriff’s Sale. If the bank was the high
bidder, as usually will be the case, the property will move out of the Loss
Mitigation department into a new department called REO. That stands for Real
Estate Owned. Your lender now owns the property and must put it up for sale.
If you have not vacated the property at this point, they will evict you.
Then, they will put it up for sale through a licensed real estate broker and
sell it as a bank-owned property. The foreclosure process is now complete. |