If you are behind on your mortgage payments the note-holder may institute foreclosure proceedings against you. At any time prior to the sheriff’s sale, Michigan recognizes the law of equitable redemption meaning that if you can pay the full amount past due and the costs associated with the process you may “equitably redeem” your mortgage. This means that they cannot foreclose on your house (the amount may change if you have an acceleration clause, and the law is very different with respect to land contracts). However, even if the sheriff’s sale has already occurred Michigan recognizes an additional protection for residential homeowners: Statutory redemption. But How long is Michigan’s statutory Redemption Period? Under Michigan statute a homeowner usually has six months during which if they are able to pay the full amount that the house was bought for at the sheriff’s sale, they can “redeem” or get the house back. Further, this right of redemption is alienable.
Now though, the Michigan legislature is considering reducing the statutory redemption period from six months to 60 days. Despite the fact that it is reported than less than 1% of eligible former homeowner’s take advantage of the redemption period, this is still not a popular suggestion. However, its proponents suggest it will serve as a means to deter blight and get abandoned homes back on the market. Others suggest that this will hurt a fragile housing market, despite an amendment the period to four months if there is proof of a listing to appease real estate agents who argued that 60 days is insufficient time to process a short sale. The Senate may vote on the legislation as early as this week.
Have you been thinking about “walking away” from your home? Many people, especially those who bought between 2004 and 2006 at the top of the market, now find that even with the dust settling on the housing market, they still owe more on their home then it is worth. This is called being “underwater” on your home. In some circumstances it can make good financial sense to walk away from the home. This means to just take the negative credit reporting of a foreclosure on your record, and let the house go into foreclosure. Especially where only one of two spouses has their name on the mortgage, and no one is too emotionally invested in the house this type of “strategic exit” can make a lot of financial sense for everyone involved. Everyone that is, except for Fannie Mae and Freddie Mac. These government corporations lose out big every time a family walks away from a house secured by a note they hold. As more and more people recognize the value of walking away, they face a trend of loss. As such, the two have come together to offer a program to decentivize walking away from a property.
This program allows a homeowner to offer a deed in lieu of foreclosure. This program applies to homeowners who are current, and unlike many previous systems that required a homeowner to be in default. The homeowner gets to leave the property with limited liability, and Fannie Mae and Freddie Mac avoid the cost of foreclosing. The homeowner will release all rights to the property. One big advantage to the homeowner is that Fannie Mae and Freddie Mac waive any rights to pursue you on a deficiency. Generally if you are foreclosed on and the bank makes less then you owed them re-selling the house, the mortgage holder can pursue you for the remaining amount you owed them, which is called a deficiency. The deficiency is often thousands of dollars and the lender can pursue you for up to six years in Michigan. By taking advantage of the new program, effective March 1, 2013 you can avoid all of the hassle.