There has been so much talk this year about foreclosures and it seems like most people really don’t understand the foreclosure process. There is also an alarming mindset right now in that a lot of people seem to be willing to just throw up there hands and say “I’ll just give it back to the bank.” The thing here is that the bank never bought the house. So, it’s not “giving it back.” You bought the house and agreed to pay the bank loan back over time. It’s more like not living up to your obligations. I guess that’s a whole different issue (oops, seems like my banker side is showing a bit).
Anyway, foreclosure is a very serious issue. You want to avoid being foreclosed on at all costs because of the severe damage to your credit history and credit score. A foreclosure can stay on your credit report for up to 10 years and can lower your credit score by 100 points and more. Your credit score is used by credit card companies, auto lenders, insurance companies and many others to determine the rates you’ll be required to pay. So, a low credit score is going to cost you money in many other areas of your life for a long time to come. Of course, you’re going to be unable to get new mortgage money for a minimum of 2 years (and only then if the rest of your credit is perfect) and generally not for at least 4 years. Probably the most important reason is that being foreclosed on, and losing the house, is a terrible experience for a family to go through.
In Michigan there are two ways to foreclose: by lawsuit or by advertisement. The standard mortgage document used by lenders in Michigan contains a “Power of Sale” clause that allows foreclosure if there is a breach in the terms of the loan and this clause makes foreclosure by advertisement possible. This is easier than filing a lawsuit, so almost all foreclosures in Michigan are by advertisement and that’s what we’ll cover here. The basic process goes like this:
- Homeowner is 90 days past due on their mortgage payments. Any time you’re late on your mortgage payment it’s technically a default, but generally a lender would not foreclose until you are at least 90 days late.
- Notice of Foreclosure Sale is published. The notice must be published once a week for 4 weeks in a newspaper that circulates in the county where the property is located. The notice must also be conspicuously posted at the property and the lender has a right to enter the mortgaged premises for this purpose. The sale is typically 30 days after the notice is given to borrower.
- Homeowner’s Rights at this Point. The borrower can cure the default and keep the existing financing prior to the sale if they pay all of the payments that are past due prior to the sale date. They could also sell the house and pay the loan off in full (or ask for a “Short Sale” – another topic for another discussion).
- Sheriff’s Sale. The sale is handled by the circuit court and is called a sheriff’s sale. It’s an auction and the house is sold to the highest bidder. The lender will buy the property at this time unless an outside bidder offers more than what is owed on the house. This is unlikely and in most cases the bank owns the house.
- Sheriff’s Deed is recorded. A deed is recorded transferring the title to the bank. The amount of the sale is typically the principal balance of the loan plus interest, late charges and legal and court costs.
- Redemption Period. The rules can vary, but in most cases the redemption period is 6 months (this can be reduced by the court to as little as 30 days if the property is abandoned). During this time the homeowner may continue to occupy the home (no payments are made) and has a right to redeem the property by paying the full amount of the sheriff’s sale plus interest at the rate of the original mortgage. This could be done by getting a new mortgage (not likely in today’s mortgage world) or by selling the home for at least the amount needed to pay off the sheriff’s deed and interest due.
It’s a long and arduous process which puts a lot of stress on the homeowner. If you are having trouble making your house payments the best thing to do is to be honest about it with your lender. Call them and be prepared to explain your situation in detail. The bank does not want to foreclose so they are generally willing to try to create a workout plan. If you’re having trouble making your house payment the best thing to do is to face up to it early and you can probably work things out!
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Written by Ken Mascia
Oxford Financial, 248.644.1200
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andrew 03.13.08 at 8:35 am
Really , we have to know the complete details about the foreclosure that helps us in taking a wrong step that leads to loss of home in foreclosure.
Linda 04.28.08 at 7:50 am
You say the bank doesn’t want the house? Really. I had unfortunate situations arise and my home is currently in foreclosure. I knew that this could more than likely happen and contacted my lender immediately telling them of the situaion. I provided them with every bit of information they requested and they still denied any loan modification, payment plan, etc. And now, there is a sheriff’s sale set and the lender still isn’t willing to work with me. My opinion…they really don’t care about buyer situations, they just want their money. Well, they can have the house. I’m not a bum, I busted my butt to keep bills current and I’m a victim of the economy in MI. So, people can think whatever they want. I’m a firm believer that all things happen for a reason.
Ken Mascia 04.28.08 at 9:59 am
Linda, I am truly sorry about your financial problems. These cases are all handled by banks on an individual basis so the outcomes of every case are different. Good luck to you.
William 07.09.08 at 12:10 pm
I agree with Linda,
Banks could care less and I’m done jumping through hoops to keep my house.
William
Russ 08.20.08 at 4:51 pm
Ken,
I am looking at buying the house across the street from me. The Notice of Foreclosure went on the door and the mortgage says it’s for $112,000. I have been in contact witht the realtor and the asking price is down to $59,000. My problem is that I don’t think this property will continue to appraise at even that level as it has fallen into a terrible state of disrepair, needs a furnace, appliances, etc. It is a house that would really only qualify as a renter - 2 bdrm, 1 bath, no basement or garage. Here’s my question:
Should I go to the Sherrif’s auction and make a bid or should I wait until it’s an REO and deal with the bank? Someone needs to realize this place is a dump and needs at least $20,000 of fixing up even to rent. I was going to go and make a bid of $500 to start, but I am guessing that until the bank owns it, they are going to protect it. Is that right?
Ken Mascia 08.20.08 at 5:15 pm
Russ,
All of these deals are unique so there is no way to know exactly what the bank may do. Typically, the bank will buy the house at the sheriffs auction unless there is a bid that is high enough to get them out of the property with a loss that they find acceptable. It’s impossible to say what that amount may be, however, I think we can be fairly certain that $500 is not going to be that number. Can’t hurt to attend the sale, throw out an offer, and see what happens though. Good luck with it
Steve S 09.23.08 at 4:57 pm
Ken,
I’m currently living in my late mother’s home.
I moved back to Michigan when my mother fell ill.
Her reverse mortgage lender is due to start
foreclosure proceedings on 10/11.
With her prior credit cards bills and now her medical bills, the value of the house is not enough to try
and go through probate. The house appraised for
$90k she owes $87k on the motgage and another $20k-$25
in unpaid credit card debt and unpaid medical bills.
I guess my question is, how long can I stay in the house? Do to my own financial situation, moving,
up to now, has not been an option.
Thank you.
Joe 09.30.08 at 11:10 pm
I have bought a new house that I have just moved into. My brother was suppossed to be moving to Michigan and renting my old house for the amont of my mortgage payment. Now he is not and will not be able to make the payment for my old house after purchasing a new one. What do I do? What are my options?
Ken Mascia 10.01.08 at 11:21 am
Steve S - sorry I did not get notification of your question. Unfortunately, your question is beyond my ability to provide an answer. You’ll need to consult an attorney.
Joe - my recommendation is that you hire a real estate agent to find you a qualified tenant to rent out your home.
Tim 10.11.08 at 12:29 am
My son and his family are relocating back to Oakland County after 4 years in the military. Their financial situation is fairly strong. They have a serious interest in a house listed as a short sale. The listed price for the home is about half the price of other listings in the neighborhood. The house is only 3 years old but has not been well maintained and needs some work. The question: How long can a home linger in a short sale status before it moves to the Sheriff’s Sale and ultimately foreclosure? It seems like a short sale is kind of in a twilight zone….neither here nor there. The home is currently occupied by the homeowners. Thanks, Tim
Ken Mascia 10.13.08 at 9:50 am
Hi Tim,
The house can be listed as a short sale indefinetely. As long as the homeowner continues to make the house payment the house may never go into foreclosure. It’s a matter of opinion, but, you may be better off buying the house before it goes into foreclosure. The foreclosure process takes a long time (over 6 months) and the house will not be listed for sale by the bank until the process is complete. You could be waiting a long time. Maybe you should consider making an offer on it and see what happens?
Maureen Francis 10.13.08 at 10:11 am
Tim,
I put up a blog with another response for you.
http://mioaklandcounty.com/blog/2008/10/13/from-the-mailbag-a-short-sale-question/
EMR 10.22.08 at 7:47 am
We are also victims of the economy in Michigan. We just received notice of foreclosure proceedings. We have contacted the bank on numerous occasions to work out a modification and they are simply not interested. Our property values have plumetted. We are currently trying to short sell for more than 50% of what the house was appraised at 3 years ago and still nothing! My question is once it goes to sheriff sale, obviously it will sell for less than the mortgage amount. What happens to the balance of the mortgage? Is it considered a write off or will we be sued for that? If so, are there options? We have nothing.
Ken Mascia 10.22.08 at 9:23 am
Dear EMR,
Very sorry to hear of your financial ills. It really is a tough time for everyone. The answer to your question is that from a technical perspective the bank may have recourse to try and collect the shortfall but they generally don’t. The bank writes off the loss. For you it is a major hit to your credit. Good luck. In time things will improve for you.
Sarah 10.27.08 at 3:58 pm
We are in the process of foreclosure and were waiting to hear when we would have to be out of our home. Today we received a posting on our home that says it will be auctioned off this friday. That is in 5 days! Do we have to be out by then or do we still have time to find somewhere else to live. We are soon to be homeless.
Ken Mascia 10.27.08 at 4:27 pm
Hi Sarah,
This is what’s known as the Sheriffs Sale. After the sale you will be given a redemption period (set by the court - typically 6 months) and during this time you can occupy the house. I suggest that you make some plans on where you are going to go though because unless you buy the house out of redemption you will be moving in the next few months. Good news is you don’t have to move out right now!
Mary 11.28.08 at 11:09 pm
I also agree with Linda..I bought my first home as a single parent, with 3 kids, and I also had 3 jobs to pay for the mortgage..9 yrs later , remarried, and still in the same house, Never ever late on my mortgage payment and the bank wouldn’t do a modification. I sat down and wrote that hardship letter, and that was very hard emotionally for me to do. I’m the type that doesn’t ask for help, I do what i gotta do , but I did ask for help for once and they didn’t even care! …Now you hear about all theses banks that are in trouble..guess what…Who Cares!!!!!!