Michigan Foreclosure: Mortgage Companies Changing Policy

     The following notice appeared in the Detroit Legal News last week:

Attention Third Party Bidders:  Please be advised that some foreclosing parties represented by Trott & Trott intend to bid less than the foreclosing parties’ opinions of market value on several properties this week.  These particular properties will be identified in their particular notice in bold each week that the notice appears . . .

Most foreclosures in Michigan are by publication, a sale held by the county sherriff, noticed for four consecutive weeks in a local newspaper,  almost always the Legal News for the area, Detroit for Wayne County, the Macomb Legal News for Macomb county, and so on.

Alternatively, there is a judicial foreclosure process, through the Circuit Court for the county in which the property is located, but it takes longer and is more expensive for the mortgage company, so rarely used.            In almost all foreclosure by publication the mortgage company bids the amount due on the mortgage, and no one else bids higher.  Even if someone does, there would be no deficiency, as the sherrif’s deed transferring the property 6 months after the foreclosure sale effectively is for the amount bid.  This means, you have lost the home, but you owe nothing.

The significance of the announcement is the potential deficiency balance that will still be owing if the mortgage company bids less than what is owed on the mortgage, and no one bids higher.

For example, if you owe $150,000, and the mortgage company bids $150,000, and you do not redeem the property in the six months after the sale, the mortgage company gets title to the property and you owe nothing.

Same fact situation, only the mortgage company bids $100,000.  After six months without redeeming, you lose title to the property, and still owe $50,000.

This is a debt that can be discharged in a Chapter 7 or resolved in a Chapter 13 bankruptcy case

There are some defenses, if you can show the property was worth more than the $100,000 bid, you can defend a state court action by the mortgage company against you.

If you have the time and can afford a lawyer.

Michigan’s declining economy,  jobs and people leaving the state, decreasing the demand for houses, and foreclosures increasing, adding to the supply of houses for sale,   portends more homes sliding to be worth less than what is owed on them.   This sets up for more foreclosure sales with bids lower than the mortgage balance, and people not only losing their homes, but losing their homes and still owing thousands, tens of thousands, of dollars to their mortgage companies.