Effective July 5, 2009, Michigan’s foreclosure by advertisement statute was amended to afford greater relief to homeowners.  In Public Acts, 29, 30 and 31, the Michigan Legislature created a statutory right for homeowners facing foreclosure to meet with their mortgage companies to discuss loan modification alternatives.  And, to alleviate homeowners’ concerns that the mortgage companies hold all of the power, the new law even provides a remedy for homeowners who are wrongfully denied a loan modification by their mortgage company.

The new law provides that before they start the foreclosure process, a mortgage company must send a notice to homeowners giving them the opportunity to request a meeting with the mortgage company to discuss ways to avoid foreclosure.  The homeowners, however, must request this meeting – in writing – within 14 days of the date that the notice was sent.  This notice will also be published in the legal newspaper for the county where the property is located.  If the homeowners do not request the meeting, the foreclosure will proceed as usual.  If, however, the homeowners do request the meeting, the mortgage company is prohibited from beginning foreclosure for 90 days.  In preparation for the meeting, the homeowners will be asked to fill out paperwork and to provide proof of current income and expenses. 

For a homeowner in financial distress, the most exciting aspect of the new law is that it provides actual guidelines that a mortgage company must consider in assisting a borrower with a loan modification.  The statute provides that the mortgage company should target a monthly housing payment of no more than 38% of the borrower’s gross monthly income.  The housing payment includes principal, interest, homeowners’ insurance, property taxes, and any association dues.  To reach the 38% threshold, the mortgage company is required to consider the following:

  • An interest rate reduction, as low as 3% for a fixed term of at least 5 years;
  • A term extension, as long as 40 years from the date of the modification;
  • Deferral of the payment of up to 20% of the loan balance until the end of the loan; and/or
  • Reducing or eliminating late fees.

If the loan is owned by FNMA or FHLMC, or is government insured, the guidelines that have been adapted by those entities apply – the statutory guidelines do not apply. 

If the borrower acts in good faith, answers all questions and requests for documents fully, and signs any necessary paperwork, and the mortgage company refuses to modify the loan, then the borrower has a statutory right to bring suit against the mortgage company.  Alternatively, the mortgage company can still foreclose, however they must bring a judicial foreclosure, a much more time consuming and expensive process than the standard foreclosure by advertisement.