Foster Swift Finance Real Estate & Bankruptcy Law News
November 13, 2019
Across the country, commercial and residential real estate has generally been strong. The real estate market’s strength is reflected in the fact that, according to the property database ATTOM Data Solutions, the number of foreclosures nationwide dropped to a 13-year low in 2018.
However, the same data showed that, in Michigan, the foreclosure rate increased by 15 percent last year. While today’s numbers are a far cry from the foreclosure frenzy that took place during the depths of the “Great Recession,” foreclosure is an ever-present (and, in Michigan, an increasing) reality.
Foreclosure is a remedy that allows a lender or other lien holder to recover a debt, secured by real property, owed by a borrower who defaults on its loan obligations. The process often leads to a foreclosure sale involving property being sold at auction.
A foreclosure sale can result from a party exercising their rights under a number of different underlying instruments, including a construction lien, mortgage, land contract, condominium lien, or writ of execution. Foreclosure is an important legal process and a fairly complex one.
There are two types of foreclosures in Michigan:
- Judicial foreclosure, which is governed by MCL §600.3100; and
- Foreclosure by advertisement, which is governed by MCL §600.3201.
In both processes, there are specific timelines that must be adhered to by the parties involved. In addition, there are a number of actions, as well as restrictions on actions, that foreclosure law imposes. This article will summarize the judicial foreclosure process generally, and address a few of the most important issues that purchasers of foreclosed properties must keep in mind to protect their interests.
What Form of Deed Will I Receive Upon Purchasing Foreclosed Property?
In Michigan, as in most states, foreclosure sales are referred to as “sheriff’s sales,” as county sheriffs are charged with conducting public auctions of foreclosed properties. Sheriff’s sales typically occur on a weekly basis, are open to the public, and are commonly held in the county courthouse or another county building.
A list of properties up for auction is made available to potential bidders before the sale. The sheriff or his/her designee auctions off one property at a time, and anyone can bid. The starting bid is typically the initial “credit” bid of the instigator of foreclosure, which is submitted to the auctioneer in advance. When property is purchased at auction, the buyer receives a “sheriff’s deed.”
What Steps Must I Take after the Sheriff’s Sale to Record the Deed?
In a judicial foreclosure, a sheriff’s deed must contain a number of details, including the names of the parties in the action, the date of the land contract or mortgage, and the amount for which each parcel of land described in the deed was sold. Michigan law requires that a deed of sale be deposited, with the register of deeds of the county in which the property is situated, within 20 days after the sale (although the Michigan Supreme Court has carved an exception to this strict time requirement in cases where the previous buyer made no attempt to redeem the property and was not prejudiced by the late filing).
A county register of deeds is not required to determine the amount necessary for redemption. Rather, the purchaser must also provide the register an affidavit with the sheriff’s deed to be recorded that states both:
- (1) the exact amount required to redeem the property, including any daily per diem amounts; and
- (2) the date by which the property must be redeemed as stated on the certificate of the auctioneer.
Will I Own the Property Free and Clear after the Sheriff’s Sale?
Unlike typical deeds, a sheriff’s deed is subject to a redemption period, which allows the party that defaulted (under a mortgage or other instrument) an amount of time in which to cure its default. If redeemed, the property reverts back to the previous owner. If not timely redeemed, ownership of the property immediately vests with the buyer holding the sheriff’s deed.
The date of the sheriff’s sale triggers the start of the redemption period for a property. In most situations, the redemption period runs for six months. In less common scenarios, such as when the amount claimed to be due on a foreclosed mortgage is less than ⅔ of the original indebtedness, or when farm property is involved, the period can be up to 12 months. By contrast, properties that are shown to be abandoned only have a redemption period of one month. In either case, if you buy property at foreclosure, there will be a waiting period before you own the property free and clear. During the redemption period related to a judicial foreclosure, the parties eligible to redeem a property include:
- The mortgagor (i.e., the borrower in a mortgage, which is typically a homeowner), the mortgagor’s heirs or personal representative, or any person that has a recorded interest in the property lawfully claiming from or under the mortgagor or the mortgagor’s heirs or personal representative;
- The vendee (i.e., the buyer or purchaser) of a land contract, the vendee’s heirs or personal representative, or any person lawfully claiming from or under the vendee or the vendee’s heirs or personal representative; and
- A junior mortgagee.
What if I Incur Expenses Related to a Property that is Redeemed?
Anyone seeking to redeem the property must, within the applicable redemption period, pay either the purchaser directly or through the register of deeds the amount of the winning bid at the sheriff’s sale, with interest from the date of the sale at the interest rate provided by the mortgage or land contract. A court may also require the payment of certain expenses, such as taxes, insurance and fees associated with recording the deed, incurred after the sale and before redemption, to be added to the amount due to redeem the property. To seek repayment of such expenses, the purchaser of the property must file an affidavit, with supporting records, with the register of deeds. The foreclosure statutes also provide procedures to permit the buyer to inspect the foreclosed property during the redemption period.
There are benefits to buying foreclosed property — principal among them being the opportunity to obtain property for less than true market value. However, such transactions are not without risks. Buyers must adhere to strict statutory requirements related to recording a sheriff’s deed, and they must wait out redemption periods before having assurance that they will own the property free and clear.
If you have any questions about the process of buying foreclosed property in Michigan, please contact Scott Hogan in Grand Rapids at (616) 726-2207 or firstname.lastname@example.org, or Steve Smith in St. Joseph at (269) 983-1400 or email@example.com.