Michigan Foreclosure Process: Soup to Nuts

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Michigan Foreclosure

Process: Soup to Nuts

Presented By:

Michael I. Rich, Esq.

2 | Michigan Foreclosure Process _{WELTMAN, WEINBERG & REIS CO., LPA}

Michigan Foreclosure

• Michigan allows foreclosures by advertisement or by judicial action

• Foreclosure by advertisement has historically been the favored approach by lenders as it is usually quicker and less expensive (do not need to pay attorneys to go to court)

• Changes enacted in 2009, lengthened and made it more expensive to proceed to foreclose by advertisement. This has caused lenders to reconsider their best strategic options in the foreclosure process

Foreclosure Alternatives

• The most popular alternative to a

foreclosure is a Deed in Lieu (DIL) of foreclosure

• When considering a DIL, the ability to pursue a deficiency and the condition of the title are most important

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4 | Michigan Foreclosure Process

WELTMAN, WEINBERG & REIS CO., LPA

Foreclosure Alternatives Deed in Lieu

• Many people are under the impression that if a DIL is

accepted, the debt is wiped out

• While that may be the law in some states, it is NOT the law in Michigan

– Example: If the debt is $100,000 and the house is only worth $75,000, you may accept the DIL, and unless agreed to otherwise, pursue the $25,000 difference

– One caveat, there must be some consideration given to the Borrower for giving the DIL

– The Borrower is giving up their right to remain in the property through a foreclosure

Foreclosure Alternatives Deed in Lieu

• Best recommendation is to waive some

portion of the deficiency in exchange for the DIL

• Waiving a small portion, should still leave the lender ahead, as they can save the cost of a foreclosure, eviction, and not worry about the property depreciating further due to a vindictive borrower

• Time is the biggest money saver, as the property may be able to be re-sold quickly and not have to wait for months while a foreclosure and eviction occur

Foreclosure Alternatives Deed in Lieu

• When a DIL is considered, title work should be obtained • It is possible that since the mortgage was taken out, the property has been transferred into a Trust or someone has been added or deleted from title (marriage, divorce, death, etc.)

• Everyone that has an interest in the property needs to sign off on a DIL

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Foreclosure Alternatives Deed in Lieu

• If there is a junior lien holder,

a DIL does not eliminate their lien • Unless you can get them to agree

to release their lien (not the indebtedness), you will still have to foreclose on the property to eliminate their interest

Foreclosure Alternatives Deed in Lieu

• Similarly, if there is a condo

association or an IRS or Justice Department Lien, releases (Certificate of Non-Attachment from IRS) or a foreclosure will still be necessary, unless you wish to pay the lien

Foreclosure Alternatives Short Sales

• Short sales are another popular alternative to foreclosure • While everyone knows a short sale is allowing the

property to be sold without paying the lender’s lien in full from the closing, there is the same popular

misconception about the difference

• A lender may agree to release its lien on a property in exchange for some amount, but that does NOT automatically mean the rest of the debt goes away • Similar to the DIL, you may work out a repayment for the

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Foreclosure Alternatives Short Sales

• When there are other liens on title,

first mortgage holders are sometimes even asked to allow some payment to go to junior lien holders, in order to get the juniors to release their liens as well

• In those cases, it may be more likely to get a deficiency agreement, as the lender is paying other creditors on behalf of the Borrower

Foreclosure Alternatives Short Sales

• When considering a short sale, specific terms should be in the short sale letter

• Among these

– that the Borrower receives nothing from the closing;

– that any escrowed funds at the closing may NOT be returned to the Borrower, but must be surrendered to the lender;

– the amount, if any, that junior creditors may receive; – that this is an arm’s length transaction (the new buyer is not

related to the Borrower); and

– the amount that will be credited on the loan.

Foreclosure Alternatives Short Sales

• You may consider a restriction

against the Borrower

remaining on the property for more than a limited time (up to 90 days)

• A violation of any of the above could result in any amount waived to be reinstated or for

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Foreclosure Alternatives

Foreclose or Not to Foreclose?

• An area that is getting more consideration is whether it is even worth foreclosing in the first place

• Property values have dropped so significantly, it may not be worth foreclosing

• The costs of foreclosing, eviction, trash out, carrying costs and then the costs of disposition, usually end up running over $10,000

• Frequently the largest part of this is the property taxes, water bills and/or other utilities

• If the property cannot be sold for at least $10,000, it may be better to just sue on the Note or charge off the loan altogether

Foreclosure Alternatives

Foreclose or Not to Foreclose?

• There is no requirement in Michigan

that you must foreclose first, before suing on the deficiency

• The same analysis applies when considering foreclosing on a HELOC

• What is the Equity available if a senior lien would need to be paid off?

– If you are not likely to have a positive return, the foreclosure should not be pursued.

Foreclosure and Bankruptcy

• A bankruptcy filing can affect the strategy of foreclosure in numerous ways

• Did all borrowers file bankruptcy, or just 1 (some)? • Did they file Chapter 7, 13 or even an 11 or 5? • At what point did they file the bankruptcy, before sale,

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Foreclosure and Bankruptcy

• How do they plan treating the

mortgage loan in bankruptcy? • Have they filed before or is their

first time?

• Was the bankruptcy filed primarily to stop/delay the foreclosure?

Foreclosure and Bankruptcy

• There are certain terms that have a different meaning in bankruptcy than in real estate or in common meaning • Discharge

– Discharge in Bankruptcy means that the Debtor has been released of personal liability for the debt. The debt still exits, as does the lien.

– Some borrowers believe their property cannot be foreclosed because they obtained a bankruptcy discharge.

– Unless other relief from the bankruptcy stay is obtained, a lender must wait until the bankruptcy discharge is obtained to proceed. – Some lenders are also confused as to how they can proceed after

a discharge.

Foreclosure and Bankruptcy

• Surrender

– Surrender in bankruptcy means the Debtor is not going to try and keep the property

– Essentially if the property is to be surrendered, you should be able to get Relief from the stay – You may then proceed with your

state rights or foreclosure – The surrender does NOT mean

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Foreclosure and Bankruptcy

• Many bankruptcies are filed to delay the foreclosure process

• Most are filed shortly before the scheduled foreclosure sale

• Bankruptcy law prohibits the continued efforts to collect on the debt

• Therefore, the foreclosure should not be adjourned, but canceled

• Unfortunately, if the Borrower then dismisses their bankruptcy, we must start all over

Foreclosure and Bankruptcy

Chapter 7

• In a Chapter 7, a trustee is appointed who is to determine if the borrower has any unsecured assets to be liquidated and have the proceeds distributed among the unsecured creditors

• Trustees have become less accommodating to secured creditors

• The Trustee can object to a motion for relief from the stay, (MFR), by claiming there is equity that could be recovered and distributed to unsecured creditors ne if ured ured have ong ured ong y, edd edd

Foreclosure and Bankruptcy

Chapter 7

• In backwards logic, if the lender has already gone to foreclosure sale, and bid a deficiency, the Trustee believes they may be able to sell the property and obtain excess proceeds

• If a lender bid the full debt at the sale, then the Trustees’ usually believe there is no equity to be obtained and have not been objecting to the creditor’s motion for relief from stay

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Foreclosure and Bankruptcy

Chapter 7

• For a borrower to keep their property in a Chapter 7, they need to reaffirm the debt

• Most debtors are reluctant to reaffirm mortgage debt because:

– property values are not yet stable;

– there is a potential for personal liability if the debtor later defaults; and

– borrowers know that creditors are reluctant to foreclose on a performing loan;

Foreclosure and Bankruptcy

Chapter 13

• In a Chapter 13, the debtor files a plan to pay creditors and provide for assets they wish to retain

• If they wish to keep the home, they must account for it in the plan

• Regular payments should resume plus some monthly amount towards the arrearage

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Foreclosure and Bankruptcy

• Borrowers are almost always represented by an attorney • If you wish to discuss a loan workout or mitigation,

contact the attorney directly

• Recommend that if a repayment plan is worked out, that language be put in, that if the plan is broken, the original loan terms remain

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Foreclosure and Bankruptcy

• HELOC’s and other junior liens are

now eligible for “lien stripping” in bankruptcy

• If there is no equity at all to be used towards payment of a junior lien, then the Bankruptcy Court may consider the HELOC to be an unsecured loan and essentially order the lien be released from the property

Foreclosure and Bankruptcy

• There are also repeated attempts to change bankruptcy law to allow “cram downs”

• This is essentially forcing lenders to write down the amount of their mortgages to the current market value, and the rest is discharged (charged off)

• Disputes as to valuation are the inevitable result if those changes are made

Foreclosure

Judicial v. Advertisement

• Once it has been decided

that a foreclosure needs to proceed, the decision as to how to proceed needs to be made

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Foreclosure

Judicial v. Advertisement

• Factors that affect the decision as to what is the best course of action

– Status of title; – Size of the property; – Occupancy status; – Bankruptcy history; – Likelihood of pursuing a

deficiency; – Other creditors

Foreclosure

Judicial v. Advertisement

• Title – Before foreclosing title needs

to be reviewed for the following

– Verify the priority of the lien (senior, junior, etc.),

– Whether the property more than 3 acres; – Whether a homestead is filed on the

property;

– Who the current owners are; and – To make sure the mortgage is properly

perfected.

Foreclosure

Judicial v. Advertisement

• Senior Lien considerations

– When the title is reviewed, the lien positions need to be determined

– If there is a question, as to priority, then care should be taken as to whether a judicial foreclosure should be filed

– If the lender believes they are in 2nd position, but find out they are in first position, they may not wish to foreclose judicially

– They would need to serve the other lien holder and allow them to counter sue to show they deserve to be in first position

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Foreclosure

Judicial v. Advertisement

• If we are not in the position we

expected to be, we may wish to proceed to proceed judicially to determine the priority

• This may be especially true when we believe we are in first,

but something happened that may jeopardize our lien position

Foreclosure

Judicial v. Advertisement

• Name the other lien holder and have the Court grant an Order that our lien has priority

• If we expected to be in 2nd and the title work shows we are in first, we may want to wait on a judicial action and let the other lender start the fight

– Michigan does NOT currently follow equitable subrogation – Equitable subrogation is when a first mortgage is refinanced, and

they neglect to get a subordination from the second lien holder

Foreclosure

Judicial v. Advertisement

– The 2nd is not hurt by the refinance, so the refinanced first mortgage is still determined to be in first position

– Even in the states that allow for equitable subrogation, major complications arise if the refinanced first mortgage is for more money or has other terms that could jeopardize the second mortgage from being paid back

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Foreclosure

Judicial v. Advertisement

– Michigan is a race/notice state

Whomever records their lien first (wins the race to the court house), has priority UNLESS they had notice of another lien that was intended to be superior

– This eliminates the problem of mortgages being recorded out of order, as it is usually obvious which is intended to be first and which second

– Notice has recently been expanded to include information from credit reports

– Information on loan applications can be considered notice

Foreclosure

Judicial v. Advertisement

• Residential property over 3 acres has a 12 month redemption period

• If a homestead has been filed, then to foreclose by advertisement would require following the Michigan modification process (discussed later), which could delay the foreclosure by another 3 months

Foreclosure

Judicial v. Advertisement

• Combined these eliminate the

advantage of a faster foreclosure and increase the likelihood of wanting to foreclose judicially

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Foreclosure

Judicial v. Advertisement

• If the property has been transferred

to a 3rd party, you need to also check their bankruptcy status • If the mortgage has not been

properly perfected (errors in the

legal description, not properly executed (missing a spouse’s signature), then the mortgage needs to be corrected

Foreclosure

Judicial v. Advertisement

• It may be possible to do this by an Affidavit of Scrivener’s Error, but sometimes a Declaratory/Quiet Title action is needed

• Since a Court filing is proceeding anyway, it may be best to foreclose judicially, or at least leave that option open, by filing for the judicial foreclosure with the

Declaratory/Quiet Title action

• If a deficiency is going to be pursued, it may be obtained as part of the judicial action with no additional work

Foreclosure

Judicial v. Advertisement

• All judicial foreclosures have a

6 month redemption period that cannot be accelerated by abandonment

– Foreclosures by advertisement usually have a 6 month redemption period, but can be 12 months.

– They may be accelerated to 1 month if abandoned, but the IRS always gets a 4 month (120 days) redemption period.

– If the property has been abandoned, then foreclosing by advertisement may be shortened by abandonment.

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Foreclosure

Judicial v. Advertisement

• One of the more interesting

considerations occurred with the • 2009 law changes

• If the property has a homestead filed on it, then you must either foreclose judicially or offer the Borrower to go through the Michigan modification process (discussed later)

Foreclosure

Judicial v. Advertisement

• If there is a question as to whether there is equity, determine whether the first has started foreclosure • You may wish to foreclose on the second and then see if

you can sell it for enough to pay off the first plus recoup something on the second

• If not, then you are only out the costs of the foreclosure • While increased monitoring of the asset is necessary, it may be smartest to NOT advance funds to pay off senior liens until you must

Foreclosure

Judicial v. Advertisement

• If the first has already gone to sale,

and there is equity, will they consider assigning the Sheriff’s Deed interest? or will the first require you to pay them off and do your own foreclosure?

• If there are any issues as to the perfection of your mortgage, having the senior lien interest assigned to you could eliminate the need to file the Declaratory/Quiet

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Foreclosure

Judicial v. Advertisement

• Junior Lien considerations

– Valuation again comes into play.

– If the property is worth significantly more than what you are owed, then you may want to contact the junior lien holder and see if they wish to buy your lien.

– Selling the Note (without recourse) and assigning the Mortgage could assist the 2nd and result in you being paid off sooner.

Foreclosure

Judicial v. Advertisement

– If there is a junior lien and there are deed-in-lieu discussions, then a foreclosure may be required. – A deed-in-lieu does not eliminate

junior liens.

Foreclosure

Bid Amounts

• Foreclosure bid amounts:

– The amount realized at sale is applied against the amount owed and determines the deficiency.

• Example: If you are owed $100,000, and bid $80,000, but a 3rd party bidder pushes the winning bid to $85,000, the deficiency amount is $15,000.

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Foreclosure

Bid Amounts

• The bid should have some correlation to the value of the property UP to the amount that is owed on the debt.

– If the property is worth $100,000, and you are owed $100,000, you do not need to bid the whole $100,000.

– You may discount the redemption period, the costs expected to be incurred in disposing of the asset, etc.

– If you bid too low, a Court could rule you did not bid a fair amount and rule you are not entitled to ANY deficiency.

– No rules have been established, but 80% of current market value is usually acceptable.

Foreclosure

Bid Amounts

• Some lenders bid less in the hopes of attracting 3rd party bidders

• This results in getting funds immediately, but again may negate the ability to get a deficiency

• If no 3rd party bids, the borrower has a lower amount for which they may redeem the property

• If that is your intent, that is fine, but realize, you are not being paid in full and the borrower is keeping the property in this instance

Foreclosure

Redemption Periods

• In judicial foreclosures, ALL

redemption periods are 6 months • All commercial property has a

6 month redemption period,

whether foreclosed by advertisement or judicially

• In foreclosures by advertisement, residential

redemption periods very from 1 month to 12 months

– Most are 6 months

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Foreclosure

Redemption Periods

• History of the redemption rules:

– Anyone owning more than 3 acres was a farmer.

– Farmers needed to wait for the crop harvest in order to pay the bank.

– For the first time, there is finally proposals to eliminate this exception to the redemption rules.

Foreclosure

Redemption Periods

• If someone had paid off more than 1/3 of their original loan amount, they had usually lived there at least 15 years • Something had gone wrong but it was

assumed that property appreciation combined with principal reduction would leave significant equity in the land

• The bank could wait for the borrower to straighten their finances out or sell the property

Foreclosure

Redemption Periods

• There were no loans such as HELOC’s or reverse mortgages. Now, a lender cannot look at the face value of the mortgage and the current principal balance and determine if more than one third has been paid down • The loan history should be reviewed to see if the entire

loan amount had ever been borrowed. If not, it would be whether 1/3 of the maximum amount drawn was paid off

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Foreclosure

Redemption Periods

• If a property is deemed abandoned, the redemption period can be accelerated to 1 month

• Remember the IRS must always gets a minimum 120 day redemption period

• If the borrower gets a longer time frame, the IRS also gets the longer time frame

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Foreclosure

Michigan Modification Procedure

• To foreclose an owner occupied, residential property by Advertisement, the following procedures are required:

– Mail a new notice, both by regular mail and certified mail – return receipt requested, informing the Borrowers that they may contact a designated person at the lender to try and reach a mortgage modification instead of being foreclosed upon.

– For many lenders, determining and giving out contact information for a specific person may be the most onerous part of the new rules.

– The notice MUST include the name, address and phone # of a designated individual (not a group or a pseudonym) who has the authority to negotiate a modification AND can meet with the Borrower, potentially in the county where the property is located. – Within 7 days of mailing the notice, a one- time notice informing

the Borrowers of their right to contact the designee must be published.

Foreclosure

Michigan Modification Procedure

• The statutes require the Borrower to contact the

designee within 14 days and the Housing Counselor to contact the designee within 10 days after contact from the Borrower

• Therefore, if no one contacts the designee within the first 14 days, you may commence foreclosure

• It is our expectation that if a housing counselor has contacted the designee within 24 days of the letter, many courts will require the lender to go through the

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Foreclosure

Michigan Modification Procedure

• If the Borrowers, and/or a housing

counselor on the Borrowers’ behalf, contact the designee to work out a modification within the 14 and 24 days respectively, of the letter being mailed, then foreclosure proceedings may NOT commence for 90 days from the date the letter was mailed.

• The designee should then request financial information from the Borrowers in order to determine if they qualify for a modification.

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for s mailed

Foreclosure

Michigan Modification Procedure

• This information should be similar to that information used to currently underwrite a loan for the lender

• To use other criteria could lead to charges of bad faith by the lender

• There is nothing in the statues that dictate how fast the Borrowers must comply with the request or a penalty for failing to comply with the request

Foreclosure

Michigan Modification Procedure

• Upon receipt, the designee is to

calculate if the total housing-related payments can be reduced to a 38% (or less) debt ratio to gross income

• Total housing related payments, include principal, interest, property taxes, insurance, association fees and apparently principal and interest on other liens on the property

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Foreclosure

Michigan Modification Procedure

• Unless the loan is pooled for sale to a governmental entity or has been sold to a governmental sponsored enterprise, the lender’s modification program MUST include one or more of the following in order to reach the targeted 38%:

– Interest rate reduction as needed, subject to a floor of 3%, for a fixed term of at least 5 years.

– Extend the amortization period to 40 years or less from the date of the modification.

– Deferral of some portion of the principal balance of 20% or less, until maturity, refinancing or sale.

– Reduce or eliminate late fees.

Foreclosure

Michigan Modification Procedure

• If the loan was pooled or sold to

the government entity or

enterprise, then their modification program must be followed • Nothing prohibits the lender and

borrower from agreeing to a modification under different terms

Foreclosure

Michigan Modification Procedure

• If the Borrower does not provide the requested

documentation or does not qualify for a modification, the lender may proceed to foreclose after the 90 days • If the Borrowers do qualify and the lender and they agree

to a modification, the foreclosure will not begin unless the borrower does not follow the terms of the modification • If the Borrower does not sign the modification within 14

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Foreclosure

Michigan Modification Procedure

• If the Borrower qualifies for a

modification, but the lender will not offer a modification in good faith, the lender may still foreclose, but must foreclose judicially after the 90 days

• Once the designee has received the information, they are to meet with the Borrowers within the 90 day time period

• If the meeting has not taken place, foreclosure proceedings are delayed until it occurs

Foreclosure

Michigan Modification Procedure

• Common Questions

– Q: Can I send out the Notice letter and then start judicial proceedings if the Borrower responds?

– A: No foreclosure proceedings may commence for 90 days, after the letter is mailed, if the Borrower timely requests a meeting to discuss a modification.

Foreclosure

Michigan Modification Procedure

– Q: The Borrower has broken previous workout agreements. Do I still need to follow the new procedure?

– A: If you wish to foreclose by advertisement, you must follow the new rules. If a new modification is reached and the Borrower defaults on the new modification within 1 year, then you may foreclose, without going through this procedure again.

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Foreclosure

Michigan Modification Procedure

– Q: Can we keep our calculations and guidelines secret?

– A: The statutes REQUIRE providing the Borrower a copy of any calculations made by the designee and if requested by the Borrower, a copy of the program, process or guideline under which the determination of eligibility for a modification was made.

Foreclosure

Michigan Modification Procedure

– Q: What are the penalties for non-compliance with the new rules?

– A: The Borrower may request a restraining Order stopping the foreclosure and making it convert to a judicial proceeding

Foreclosure

Abandonment v. Vacant

• An area of significant confusion is whether a vacant property is abandoned

• Abandonment generally means the borrower does not expect to return to the property OR to exert any dominion over the property

• If the property is not being maintained (snow removal in winter, grass cutting in summer), utilities are off, mail is

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Foreclosure

Abandonment v. Vacant

• These need to be balanced, by

whether the type of property • If this was a 2nd home loan

(vacation property), it may be expected that it is vacant for long stretches of time

– Snow may not need to removed or grass cut

• Whether the property is furnished or not can often determine if it has been abandoned or not

Foreclosure

Abandonment v. Vacant

• One area that causes lots of disputes is having the property listed for sale

• This usually indicates the borrower is continuing to exercise their dominion over the property

• Further complications arise when the listing agent is contacted and it is found the list price is less than what would be necessary to redeem the Sheriff’s Deed

Foreclosure

Abandonment v. Vacant

• Informing the realtor that you will not accept anything less than the full redemption amount and already have a new realtor lined up may result in them giving up and removing their sign

• Offering to list the property with them, should be contingent on getting them to have the Borrowers sign something stating the property has been abandoned

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Foreclosure

Abandonment v. Vacant

• If a DIL has been accepted, but a foreclosure is still proceeding due to needing to eliminate junior creditors, abandonment becomes an issue

• When a DIL has been accepted, the lender is the owner. If the lender is now foreclosing, the lender has not abandoned their interest, so how can abandonment be done?

• The Borrower has given up their interest, but they

conveyed it in the DIL, they did not voluntarily abandon it. • It is possible no one would challenge the abandonment,

but legally, it probably does not meet the rules.

Foreclosure

Abandonment v. Vacant

CASH FOR KEYS DURING REDEMPTION • The goal of getting the property back as

soon as possible in reasonable condition has led to an increase in offering cash to the borrowers to vacate before the redemption period expires.

• The closer to the end of the redemption period the less that is usually offered.

Foreclosure

Abandonment v. Vacant

• Similar to earlier discussions, if there are junior lien holders, does a cash for keys eliminate the redemption rights of junior creditors?

• Anyone claiming by through or under the borrower has the right to redeem.

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Foreclosure

Abandonment v. Vacant

• Considering the junior lien

holder already has an interest in the property, the Borrower cannot shut off their rights with the cash for keys deed, anymore than they do with a DIL.

• All of the issues of a DIL should be taken into consideration on a cash for keys file

Foreclosure

Short Redemptions

• The redemption amount is determined by the amount of the Sheriff’s Deed plus filed Affidavits for amounts allowed to be advanced during redemption (taxes, insurance, senior liens, but not repairs or maintenance) • A lender may agree to issue a redemption certificate for

less than the full amount of redemption, which is similar to a short sale

Foreclosure

Short Redemptions

• The major difference is that a short redemption has ABSOLUTELY NO EFFECT on the deficiency amount.

– The deficiency is determined at the Sheriff’s sale, it is not affected by the price for which the property eventually sells. – A short redemption is more akin to an

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Foreclosure

Short Redemptions

• Any difference between the Sheriff’s Deed amount and the amount accepted for the redemption MUST be CHARGED OFF

• The same rules as to what should be in a short sale letter as to arms length transaction, how funds are to be disbursed, etc., should be in a short redemption letter

Foreclosure

Property Taxes

• The terminology used in regards to Michigan taxes causes confusion.

• Taxes are categorized as:

– Current; – Delinquent; – Forfeit; and – lost.

Foreclosure

Property Taxes

• Taxes are generally assessed in July and December of each year • On March 1 of the following year,

the local municipality stops collecting the taxes (limited exceptions for Flint and Kalamazoo), and they are

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Foreclosure

Property Taxes

• On the following March 1, if the delinquent taxes have not been paid, they are “forfeited”

• This results in additional penalties and an increase in the interest rate

• Notices will be sent to all parties with an interest in the property. They have until March 31 of the following year to “redeem” the forfeited taxes

Foreclosure

Property Taxes

• If not paid by that time the property is lost with no further right to redeem (Wayne County usually accepts late redemptions in violation of state statutes)

Foreclosure

Property Taxes

• Example: Taxes assessed July 1 & December 1, 2009

– On March 1, 2010, the taxes were transferred to the county for collection – On March 1, 2011, the taxes

would be forfeited and the penalties and interest increase

– At some point we will receive a notice of the forfeiture. If we do not redeem the

taxes by March 31, 2012, we are out

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Foreclosure

Best Practices

• Vacant and abandoned property present a significant challenge to lenders until the property ownership is transferred back to the lender

• The property is not yet the lender’s, but it is not secured • You can try and accelerate the process via

abandonment, but it still takes time

• Additionally, if the property is not maintained (lawn mowing) the city may maintain it and assess the costs against the property for which the lender will ultimately be responsible

Foreclosure

Best Practices

• Legally, the lender has limited options

• While a mortgage contains clauses that the Borrower is to maintain the property and if they do not, the lender may, the mortgage is extinguished by the Sheriff’s Deed and is no longer controlling

• It is recommended that if the property is secured, have a 24/7 number posted to allow access to those legally entitled to access the property

• Additionally, instead of changing all the locks, secure the property and only change 1 lock, so the borrower can still get in if they have a key

Foreclosure

Best Practices

• Many cities are starting to enact Foreclosure Registration rules • If you begin a foreclosure or go

to Sheriff’s sale or when the foreclosure is complete, you may be required to register with a local entity

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Foreclosure

Best Practices

• Turn that to your advantage by asking them to notify you if the property is not being maintained and you will arrange for the grass cutting

• That may save significantly compared to the amount the municipality charges

Foreclosure

Best Practices

• Contact neighbors and ask them to contact you if the borrowers vacate the property

• The neighbors do not want a vacant blighted property next to them, so they may assist you

• You may also get leads on potential buyers

Questions & Answers

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Thank you

• Contact Me

Michael I. Rich

Associate, REDG Practice Group Weltman, Weinberg & Reis Co., LPA (248) 786-3137

[email protected] www.weltman.com

www.thatcreditunionblog.com www.ciicu.com