On May 19, 2009, the Michigan Legislature passed a package of three bills designed to give homeowners facing foreclosure a ninety-day window to meet with their lender and modify the terms of their mortgage. With the state facing one of the highest foreclosure rates in the nation, lawmakers hope these new laws will ease the strain on distressed homeowners and allow them to stay in their homes. These laws may not be permanent. Some of the provisions will be in effect for a period of only two years unless the “sunset” provision is amended. Governor Granholm signed the bills on May 21, 2009, and the laws will take effect on July 5, 2009.
Under the legislation, a lender may not foreclose on a property claimed as a principal residence unless the lender first provides written notice to the borrower stating the reasons that the mortgage loan is in default and the amount due. The written notice must also designate an agent of the mortgage holder whom the borrower can contact to attempt to rework the terms of the loan, and a list of housing counselors prepared by the Michigan State Housing Development Authority whom the borrower can request to attend a meeting with the agent of the mortgage holder to assist in modifying the loan.
The law further provides that foreclosure proceedings may not be commenced until ninety days after the initial notice was mailed if the borrower chooses to meet with the mortgage holder. If the borrower and the mortgage holder reach an agreement to modify the terms of the loan within the ninety-day period, the mortgage cannot be foreclosed. Potential modifications include an interest rate reduction, extension of the amortization period, deferral of up to 20% of the unpaid balance of the loan, and reduction or elimination of late fees.
If the homeowner meets minimum financial standards specified in the law, but the mortgage holder refuses to modify the terms of the loan, the lender is required to go before a judge to attempt to complete the foreclosure. Additionally, if notice is not mailed to the borrower as required, the borrower may bring an action in the circuit court to enjoin the foreclosure.
The new restrictions apply only to property claimed as a principal residence by the property owner. They do not apply to second homes, rental properties or other commercial properties.
For the full text of the new laws, click here (PDF format).
Michigan Legislature Website – House Bill 4453
Michigan Legislature Website – House Bill 4454
Michigan Legislature Website – House Bill 4455