SUMMARY OF MICHIGAN HOUSE BILLS 4453-4455

(FORECLOSURE PREVENTION LAW)

May 27, 2009     

The bills were signed by the Governor on May 20, 2009 and will become effective 45 days after signature. The legislation will be repealed two years after its effective date.

The bills amend the chapter of the Revised Judicature Act, which governs foreclosure by advertisement. After its effective date, the legislation requires that prior to the initiation of foreclosure by advertisement on a mortgage loan, secured by a dwelling claimed as a principal residence, the holder/servicer must give any borrower who requests it an opportunity to work out a modification of the loan. The legislation prohibits the commencement of foreclosure by advertisement if the required procedures had not been followed or the relevant time limits had not expired. "Principal residence" status is established or claimed by the homeowner under MCL 211.7cc of the General property Tax Act.

HB 4453 (Public Act 29 of 2009)

The Act prohibits a holder/servicer or its agent from commencing foreclosure by advertisement of a principal residence mortgage if the foreclosing party had not mailed notice to the borrower as required under Section 3205a of HB 4454 (Public Act 30 of 2009). The written notice to the borrower must be sent by first class mail and by certified mail, return receipt requested, to the borrower's last known address and must include the information as paraphrased below:

•(a)    The reasons that the mortgage loan is in default and the amount that is due and owing under the mortgage loan.

•(b)   The names, addresses, and telephone numbers of the mortgage holder, the mortgage servicer, or any agent designated by the mortgage holder or mortgage servicer.

•(c)    A designation of the person named in the notice to contact who has the authority to make agreements under sections 3205b and 3205c.

•(d)   A list of approved housing counselors, including their addresses and telephone numbers, prepared by the Michigan State Housing Development authority, and that within 14 days after the notice is sent, the borrower may request a meeting with the named designated person to attempt to work out a modification of the mortgage loan and that the borrower may also request a housing counselor to attend the meeting.

•(e)    That if the borrower requests a meeting with the designated person foreclosure proceedings will not be commenced until 90 days after the date the notice is mailed to the borrower.

•(f)    That if the borrower and the designated person reach an agreement to modify the mortgage loan, the mortgage will not be foreclosed if the borrower abides by the terms of the agreement.

•(g)   That if the borrower and the designated person do not agree to modify the mortgage loan but it is determined that the borrower meets criteria for a modification under section 3205c(1) the foreclosure by advertisement is not allowed and that the foreclosure of the mortgage will proceed before a judge instead of by advertisement.

•(h)   That the borrower has the right to contact an attorney, and the telephone numbers of the state bar of Michigan's lawyer referral service and of a local legal aid office serving the area in which the property is located.

The Act also prohibits a holder/servicer or its agent from commencing foreclosure by advertisement of a principal residence mortgage if:

1. After notice was mailed to the borrower, the time for a housing counselor to notify the designated contact person of the borrower's request to work out a modification had not expired.
2. Within 14 days after notice was mailed to the borrower, he or she had requested a meeting with the designated contact person and 90 days had not passed after the notice was mailed.
3.  The borrower had requested a meeting with the designated contact person and provided necessary documents if requested, and the designated person had not met or negotiated with the borrower.
4. The borrower and mortgagee had agreed in writing to modify the mortgage loan and the borrower was not in default under the agreement.
5. Calculations under section 3205c(1) show that the mortgagor is eligible for a loan modification and foreclosure by advertisement is not allowed under section 3205c(7).

House Bill 4454 (Public Act 30 of 2009)
In addition to the aforementioned pre-foreclosure notice requirement, HB 4454 requires the foreclosing party or its agent within 7 days after mailing the notice, to publish a notice informing the borrower of the borrower's rights. The notice must be published once in the same manner required for publishing notice of foreclosure sale. The published notice must contain all of the following:

(a) The borrower's name and the property address.

(b) A statement that informs the borrower of all of the following:

(i) That the borrower has the right to request a meeting with the mortgage holder or mortgage servicer.

(ii) The name of the designated person to contact and that has the authority to make agreements under sections 3205b and 3205c.

(iii) That the borrower may contact a housing counselor by visiting the Michigan state housing development authority's website or by calling the Michigan state housing development authority.

(iv) The website address and telephone number of the Michigan state housing development authority.

(v) That if the borrower requests a meeting with the person designated under subsection (1)(c), foreclosure proceedings will not be commenced until 90 days after the date notice is mailed to the borrower.

(vi) That if the borrower and the designated person under subsection (1)(c) reach an agreement to modify the mortgage loan, the mortgage will not be foreclosed if the borrower abides by the terms of the agreement.

(vii) That the borrower has the right to contact an attorney, and the telephone number of the state bar of Michigan's lawyer referral service.

 A foreclosure proceeding on a loan, previously modified pursuant to Public Acts 29-31, would be exempt from Public Acts 29-31 if the date of the modification was less than a year prior to commencement of the foreclosure proceeding.

A borrower who opts to participate in negotiations to work out a loan modification must contact a housing counselor from the list provided under section 3205a within 14 days after the list is mailed to the borrower. Within 10 days after being contacted by a borrower, a housing counselor must inform the designated person in writing of the borrower's request. (It could be deduced that if the designated person for the holder/servicer is not notified of the borrower's request for a meeting within 24 days after the mailing of the notice, the holder/lender could proceed with foreclosure by advertisement. Any decision on such action should receive the advice of legal counsel)

After being informed of a borrower's request for a meeting, the holder/servicer or its agent may request that the borrower provide any documents that are necessary to determine whether the borrower is eligible for a modification. The borrower must provide the holder/servicer or its agent copies of the requested documents

A housing counselor contacted by a borrower must schedule a meeting between the borrower and the holder/lender or its agent to attempt to work out a modification. At the request of the borrower, the housing counselor will attend the meeting. The meeting or meetings shall be held at a time and place that is convenient to all parties, or in the county where the property is situated.

HB 4455 (Public Act 31 of 2009)

  Public Act 31 provides that if the meeting specified in Public act 30 does not result in an agreement to modify the mortgage loan, the lender/servicer or its agent shall, with some exceptions, work with the borrower under Section 3205c to apply a loan modification program or process that complies with subparagraphs (1)(a) and (1)(b) of Section 3205c, and includes the following features:

(a) The loan modification program or process targets a ratio of the borrower's housing-related debt (including principal and interest, taxes, insurance and association fees) to the borrower's gross income of 38% or less, on an aggregate basis.

(b) To reach the 38% target specified in subdivision (a), 1 or more of the following features must be applied:

(i) An interest rate reduction, as needed, subject to a floor of 3%, for a fixed term of at least 5 years.

(ii) An extension of the amortization period for the loan term, to 40 years or less from the date of the loan modification.

(iii) Deferral of some portion of the amount of the unpaid principal balance of 20% or less, until maturity, refinancing of the loan, or sale of the property.

(iv) Reduction or elimination of late fees.

Loans, which are pooled for sale to an investor that is a governmental entity, or have been sold to a government-sponsored enterprise, are exempt from the aforementioned modification process, but must comply with the modification guidelines dictated by the governmental entity or the government-sponsored enterprise. Additionally, the act does not prohibit a loan modification on other terms or loss mitigation strategy, agreed to by the servicer/holder and the borrower.

If the modification program or process reveals that the borrower is eligible for a modification, the holder/servicer could not foreclose by advertisement and could only proceed with judicial foreclosure. However, the holder/servicer could commence foreclosure by advertisement if the borrower was offered a modification agreement and the borrower had not executed and returned the modification agreement within 14 days after having received it. If the modification process or program reveals that the borrower is not eligible for modification the holder/servicer could proceed with foreclosure by advertisement.

This summary is prepared by Murray Brown, MMLA Director of Development, and is not meant to be a legal opinion or an alternative to a full review by legal counsel of Public Acts 29-31 of 2009.