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Mortgage Foreclosure Michigan

I am facing foreclosure in Michigan. Is Michigan a recourse state? What are my alternatives to foreclosure?

We have a home in Michigan and due to job loss we have fallen 18 months behind on the mortgage. We have had our home for 20 years and have refinanced twice. We had a bankruptcy in 2003 and a new HELOC in 2005. This HELOC was through Countrywide as well as the mortgage (now Bank of America). Bank of America keeps saying there is a auction sale date every 2 weeks. (for 1 year now) My husband lives in the home in Michigan and I am working out of state. We do not remember doing a reaffirmation for our mortgage when we had the bankruptcy discharge. Recently the HELOC was passed off to Greentree lenders. Now what do we do? Can the 2nd mortgage sue? Why has it taken them so long to foreclose? I am reading on the internet now that maybe because of the lack of reaffirming the mortgage, the house is included in the bankruptcy and maybe we are not responsible for the balance. What happens with the 2nd?

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Bill's Answer
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Updated: Oct 20, 2014

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You are asking me to speak on behalf of the servicers of your senior and junior mortgages, which I cannot do. You do not mention if you have attempted to negotiate a short sale or deed in lieu of foreclosure with Bank of America.

It is unfortunate you did not mention the balance of your mortgage loans, the market value of the property, or if you have a desire to remain in the property. Nevertheless, you include enough information in your message to identify the main issues in your question, which includes foreclosure, deed in lieu of foreclosure, short sale, and resolving a second mortgage. My answer assumes the balances on your mortgages exceed the market value of the property.

Foreclosure

Foreclosure is the legal process through which a lender (most typically a mortgage lender) repossesses an asset from the consumer borrower who has defaulted on their mortgage payments. Because foreclosure is expensive and usually results in a poor return, lenders do not like foreclosure any more than homeowners do. Accordingly, learn more about the Home Affordable Foreclosure Alternatives (HAFA) program, which is a federal program that offers financial incentives to lenders and homeowners to avoid foreclosure.

Michigan Mortgage Foreclosure

Under the Michigan Act 210 of 1933, a mortgagee can foreclose judicially or non-judicially. A mortgagee can collect a deficiency if the lender uses either judicial or non-judicial foreclosure, but the mortgagee's rights are limited under non-judicial foreclosure. If the mortgagee participates in the HAFA program, then according to the federal guidelines, the mortgagee may not pursue you for the deficiency balance.

For the benefit of readers residing in other states, see the Bills.com resources on mortgage foreclosure in California, Georgia, Illinois, Nevada, and Virginia.

Quick Tip

Each state legislature created unique foreclosure and anti-deficiency laws. Follow the links just mentioned to learn the foreclosure rules relevant to you.

Home Equity Line of Credit

Home Equity Line of Credit (HELOC) is a loan, similar to revolving credit and secured by the property, where the lender agrees to loan a maximum amount of funds that the homeowner may use at his/her discretion. With a HELOC you only pay back what you spend, plus interest. The interest rate on HELOC is variable. Some HELOCs are convertible to a conventional loan with a fixed term. The HELOC is considered a like a second mortgage and in a subordinate position to the first mortgage. Thus, if the property goes into foreclosure, then the HELOC will become an unsecured debt and the only alternative for the lender is to sue for a deficiency balance.

Home Affordable Foreclosure Alternatives Program (HAFA)

The foreclosure process is expensive for all parties concerned, and the cumulative effect of many foreclosures can depress housing prices. To stabilize the housing market, the Obama administration created the Making Home Affordable (MHA) initiative. One program in MHA is Home Affordable Foreclosure Alternatives (HAFA). HAFA sets guidelines for short sales and deeds in lieu of foreclosure for distressed homeowners. If your servicer (the financial institution collecting your mortgage payments) participates in HAFA, then the servicer must follow HAFA's guidelines and deadlines. The guidelines provide financial incentives for both servicers and homeowners. The homeowner must also be eligible for the Home Affordable Modification Program (HAMP) as set forth by the program guidelines.

Under HAFA, junior mortgages are included with the first in short sales and deeds in lieu of foreclosure. All mortgagees share in the loss on the property, and all share in the federal HAFA incentive to participate in the program.

Recommendation

My guess is the reaffirmation of the senior mortgage is a red herring because you constructively reaffirmed the mortgage by paying the mortgage for seven years and continuing to occupy the property. I have personal knowledge of a similar set of circumstances involving a Countrywide/Bank of America mortgage in another state. Like in your situation, there has been no foreclosure after two years of non-payment of the mortgage. My guess, note my word choice, is that Bank of America's takeover of Countrywide has not gone smoothly and there are a few files that have not been processed properly.

What does this mean to you? Your free ride will not last forever, and you should be prepared to quit the property. Speak to Bank of America now about the possibility of your participating in a HAFA short sale or deed in lieu of foreclosure.

Quick Tip

Debt distressing you? The Bills.com Debt Coach is a no-cost online tool that will analyze your debts and show you the options available to resolve them and the costs and benefits of each.

Regarding the junior mortgage (the HELOC), if Bank of America agrees to a HAFA-compliant resolution of the mortgage, then you will have an excellent outcome because the deficiency balances will be erased. If not, and Bank of America forecloses, the junior mortgagee will have no security in the property. The balance of the junior mortgage will become unsecured. Unsecured debt can be resolved though debt settlement or bankruptcy.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com