Foreclosure by Advertisement Amendments

In 2011 PA 301, effective 12/22/11,  The Michigan Legislature has made some revisions to the Foreclosure By Advertisement Act that was initially effective July 1, 2009. Originally, the "loan modification law" was enacted as a response to homeowners' complaints that their requests for loan modifications were not being heard or processed. The homeowners stated that their attempts to apply for a loan modification were frustrated by not having one point of contact within their servicer's company to talk with or to hold accountable for the process not being completed properly. 

 

The Michigan Legislature passed the original law to create a point of contact for the homeowner and a definite meeting time to discuss their specific loan and possible modification. 2 1/2 years in, there are still some problems with connections being made due to a misunderstanding of the meaning of terms within the law. Just who should contact the servicer, is it only a HUD counselor or attorney or could it be the homeowner? Is the servicer, as an entity, a "person" that should be contacted or should a particular natural person at the servicer be named as the "person" with whom the borrow could contact?        

      

The recently amended act now provides that the foreclosure by advertisement procedure to (1) allow a borrower to contact a mortgage holder or servicer directly or through a housing counselor, rather than only through a counselor; (2) require the contact to be made within 30 days, rather than 14, after a notice of foreclosure is mailed to the borrower; (3) require the mortgage holder or servicer to designate a contact person who will attend meetings and facilitate negotiations with the borrower; and (4) provide that a borrower is liable for property damage that he or she causes during the redemption period following a foreclosure sale 
 

The clarifications were needed as some servicers and their agents were still making the loan modification request process difficult and frustrating for homeowners by not making a clear and concise avenue of communications to complete a loan modification. It appears from the amendments that in order to allow the clarification the terms, lenders and servicers were offered a gift in Sec. 3278. (1), whereby the foreclosing entity has a right to hold the homeowner liable for damage caused by the homeowner during the redemption period. While I do not agree that a homeowner should destroy property once the sheriff's sale is complete, I also do not agree that a separate law need be created to place liability on the homeowner.

Here we go again! Kim v JP Morgan Chase Bank Michigan

 The Michigan Court of Appeals has once again created upheaval in the Michigan foreclosure crisis by ruling that a mortgagee (lender or assignee of a note) may not foreclose upon a property unless it as recorded its interest with the county in which the property is located "prior to" the sheriff's sale taking place.http://www.icle.org/Modules/MLO/Cases/Display.aspx?filePath=/mlo/michapp/slip/O-302528.xml Kim v JP Morgan Chase Bank Michigan Court of Appeals No 302528 (01/12/12). This case may throw chain of title to Michigan's foreclosed property into limbo just as the Sauerman case from last Spring did until it was overturned by the Michigan Supreme Court in November 2011. The Sauerman case was based on whether or not MERS (the Mortgage Electronic Registration System) was a proper party to initiate a foreclosure by advertisement action against a borrower in default. In November, the Court held that it was a proper party. 

  The Appeals Court in this case, relying on case law which states that "When language is clear and unambiguous, we must apply the terms of the statute to the circumstances of the case, and judicial construction is unnecessary" Michigan Dep’t of Transp v Tomkins,481 Mich 184, 191; 749 NW2d 716 (2008) the court then applied M.C.L. 600.3204, which reads in part: 

(3) If the party foreclosing a mortgage by advertisement is not the original mortgagee, a record chain of title shall exist prior to the date of sale under section 3216 evidencing the assignment of the mortgage to the party foreclosing the mortgage. [Emphasis added.] 

the court held that the statute is clear and unambiguous in its requirements and that the foreclosing party must comply with the statute. The Court rebuffed an Attorney General opinion offered by Chase as non-binding on the court and also as not applicable to this set of case facts. Chase claimed it need not record its assignment since it obtained its interest in the note by operation of law. 

  The Appeals Court clarified its decision on Chase's argument that the chain of title transferred by operation of law and they were therefore not bound by the statute, by stating that Chases's interests did not, in fact, transfer by operation of law by rather were assigned from another party, The FDIC, who had acquired the interest by operation of law when it took over Washington Mutual.  


   Now that the foreclosure of this property has been declared void ab initio, just as it was in Sauerman, how many other cases will appear to have similar facts and standing to sue? It may be only that foreclosures by advertisement will merely be delayed a month or two in order to record the property assignment in the local Register of Deeds office. It may be that this takes longer, possibly much longer to record the proper assignments. Sadly, it may be that we in Michigan have more houses left vacant-abandoned by borrowers who have defaulted and chosen to walk away, while we all wait on mortgagees who are more reluctant to foreclose until all the documents, which they should have already recorded, are securely in place.

Cautionary Tale of Land Contract Sales

         The use of Land Contracts for the conveyance of real property has become more popular. A land contract is an agreement for the purchase of real estate on installment payments. This differs from the traditional earnest money deposit upon offer and lump sum at closing. Lately, there are more interested buyers who are able to pay but unable to find a lender from which to borrow money through the traditional methods. Some prospective borrowers may have suffered a temporary set back and been foreclosed on previously, but are now gainfully employed. Others may have a steady job, but at a lower income than before which put them into trouble with their previous lender. Both of these situations may require the borrower to wait at least two years before seeking a traditional home loan.
          While land contracts themselves do not pose a hazard - in fact they can be mutually beneficial to buyer and seller in a tough real estate market. However, There are some in Michigan who must tread lightly when taking part in such a transactions. Most notes for home loans contain a "due on sale" clause, which requires that if the property subject to the note and mortgage are conveyed or transferred that the entire remaining unpaid balance of the note is due. Most due on sale clauses require the borrower to get written permission from the lender before entering into a land contract on the subject property. Michigan State law imposes a penalty for any licensee who assists in avoiding the due on sale clause. (MC.L. 445.1628)http://legislature.mi.gov/doc.aspx?mcl-445-1628. This penalty is spelled out in subsection 2 as

"Any person licensed to do business in this state who, while carrying on that business, knowingly advises a person selling or transferring property securing a residential window period loan not to notify a lender as required by section 3 or who knowingly otherwise aids or assists a person in evading the enforcement of a due-on-sale clause enforceable under this act shall be liable for a civil fine not to exceed $5,000.00 for each offense and shall be subject to revocation of his or her license."  (emphasis mine)       

      Licensees in the State who should be wary include, but are not limited to, Real Estate Agents, Title Agents, Mortgage Brokers, and Attorneys. It has been suggested by the Michigan Association of Realtors (MAR) that while the licensee has no affirmative duty to contact the lender, they should still be cautious. MAR recommends that real estate agents should make their home owners aware that their loans may contain a due on sale clause and that the homeowner should seek the written approval of the lender before entering in to a Land Contract sale. MAR also suggest that real estate agents have the home owner sign an acknowledgment that they were advised to do so and keep it in the file.
     This signed acknowledgment is good advice for other licensees as well to keep in their files. While I am currently hearing through my available channels that more lenders are agreeable to written approval of a land contract, that this may not always be the case. Ultimately, if the lender chooses to enforce its due on sale clause, which may happen  if and when mortgage interest rates rise, it is best to be covered. I think all Michigan licensees would agree that it is best to avoid any penalties or threat of losing one's license over such an easily avoidable situation.

Cash From Lenders to Homeowners to complete Short Sales?

When I first read this article "Getting Cash in Exchange for a Short Sale"http://bucks.blogs.nytimes.com/2011/09/22/getting-cash-in-exchange-for-a-short-sale/ by Ann Carrns I could hardly believe my eyes. Upon first read, it seems like a dream for underwater homeowners. However, this article seems to focus on California where it is my understanding that a first mortgage holder does not have recourse against a borrower on a principle residence for any deficiency on the note if the borrower defaults. In California, it appears that the only hope the Lender has of recapturing its equity is to take back the property in good condition for resale or get it to a short sale buyer. Since home values appear to still be dropping in most of the Nation, I will assume the Lender would like those options to happen sooner rather than later.
This is not the case in recourse states, such as Michigan, where the Lender may take the borrower to court to recapture some or all of its losses. In Michigan, I have not seen any Lenders offering cash to borrowers beyond the token "cash for keys" $3,000 to move out or as an incentive for a short sale or a deed in lieu of foreclosure. I would like to hear from others who negotiate short sales on behalf of borrowers. Please comment if you have seen any activity that would indicate Lenders are more willing to participate in Short Sales or Deeds in Lieu of Foreclosure.

Federal Home Loan Assistance Program not as effective as hoped

    In Paul Kiel's article "One Obstacle to Obama’s New Plan to Help Homeowners: A Gov’t Regulator"   http://www.propublica.org/article/one-obstacle-to-obamas-new-plan-to-help-homeowners-a-govt-regulator. He states that the administration had expected to reach up to 4-5 million homeowners with Fannie Mae and Freddie Mac guaranteed loans with modifications for underwater property with the historically low interest rate offerings. However, only 838,000 homeowners had refinanced as of June 2011. In an attempt to increase the rate of homeowners who have been assisted by the program, the Obama Administration is suggesting that the Federal Housing Finance Agency (FHFA) back the modifications instead of leaving the risk in the hands of the original lenders.
     The argument for FHFA backing  is that original lenders are reluctant to make loan modifications based on the idea that homeowners who are already in trouble on their notes, will continue to be and more so, with a loan modification. If FHFA takes over the risk from the original lender, then more loan modifications may happen.
     The argument against this is coming from the FHFA director Edward DeMarco himself, and rightly so. Allowing FHFA to guarantee the risks for original lenders would, once again, shift the risk of possible inappropriate lending from the lenders and their mortgage brokers to the taxpayers. This puts too much risk and burden on the taxpayers which the article claims has already reached $141 Billion. There is no mention of whether Fannie Mae and Freddie Mac could continue to pursue lenders in court for reimbursement. Some lenders had agreed to home loans for borrowers who were not qualified for loans under the FHA guidelines, but whose notes were then turned over to Fannie Mae and Freddie Mac. There is at least one lawsuit filed http://stopforeclosurefraud.com/2011/05/03/complaint-u-s-v-deutsche-bank-mortgageit-for-reckless-practices/) on matters such as this to reimburse the taxpayers for payment on risks which should be the original lenders alone. Unless the Administration's suggestion to have FHFA guarantee the loan modifications under FHA guidelines comes with a reservation of rights for the U.S. Government to sue the original lender for recovery on the original note then further guarantees should be granted.