In response to the increasing number of mortgage defaults in the State, the Michigan House of Representatives has passed a series of bills designed to stem the number of foreclosures anticipated a result of such defaults. The bills are headed to the Senate and passage is likely in revised form.
In their current iteration, the bills provide a short window of relief on the optimistic assumption that the current mortgage and credit crises will pass in the near term. As drafted, the bills are set to expire two years from the date of enactment and do not apply retroactively.
The underlying impetus of the bills is that increased communication between the borrower and the lender will lead to fewer foreclosures. Since both parties lose when a foreclosure occurs, it is assumed that both parties will work together to avoid foreclosure if there is a set period for such negotiations. The bills seek to slow down the foreclosure by advertisement process so that the parties might be more willing to work toward a loan modification or other remedy to avoid foreclosure.
Michigan offers both judicial foreclosures and foreclosures by advertisement. On foreclosures by advertisement, the revised notice to borrowers would contain, among other things, a provision which informs the borrower that he or she may request a meeting with the lender to attempt a loan modification or other workout. In the absence of such notice, the borrower may bring an action in circuit court to enjoin the foreclosure proceedings. If the borrower requests a meeting pursuant to the notice, such request must be made by the borrower within 14 days, and the lender may not begin foreclosure proceedings until 90 days after the notice was sent. If the parties do not agree to a loan modification, but the borrower is determined to be eligible for a loan modification under the FDIC Workout Program, the lender may not proceed to foreclose by advertisement. Any foreclosure proceedings instituted thereafter against the borrower must proceed by judicial foreclosure.
The bills would also require the lender to provide a list of HUD-approved housing counselors to assist the borrower in negotiating a loan modification. If the negotiations did not lead to a loan modification, the bills would require a modified payment amount under the FDIC Workout Program to be calculated.