State Legislature Finalizes Bills Reforming 90-Day Foreclosure Delay (Misc News: December 18, 2011)
On Thursday, the Michigan state House of Representatives concurred in changes made by the Senate to House Bills 4542, 4543, and 4544 which would provide reforms to the current 90-day foreclosure delay. The Legislature was working to finalize the bills before recessing for the end of the year since the program was set to expire on Jan. 5.
In 2009, Gov. Jennifer Granholm in her State of the State Address called for the Legislature to pass the “Home Foreclosure Prevention Act,” Public Acts 29-31. These laws revised Michigan’s “foreclosure by advertisement” process to develop a 90-day foreclosure prevention workout program to provide borrowers additional time to discuss with their lenders possible alternatives to home foreclosure. Under the program, the lending institution that holds the home mortgage in question is required to send a written notice to borrowers before foreclosing on a principal residence. If a borrower decides to work with the lender, the two parties have 90 days to participate in “pre-foreclosure” meetings in the effort to discuss alternative possible solutions. The goal was to encourage greater communication between borrowers and members of the mortgage industry.
The MCUL & Affiliates supported the original act because of the rise in foreclosures and because it had a 2-year expiration date, set for July 5, 2011. However, with the law being in effect for more than 2 years now, the MCUL worked with lawmakers to seek reforms to the current process. Many of those reforms include the following:
- More clear timelines as to which actions must occur at various points during the process for both lenders and borrowers, thereby allowing a lender to proceed immediately to foreclosure if a borrower is unresponsive to requests for certain documents. This takes the process to a more clear 30/60/90 day timeline. Borrowers will now have 30 days to contact their lender (or housing counselor) if they want to try to make a possible modification (under current law, they have 14 days). Now under the bill, within 60 days of the lender sending the notice, if the lender has not received the requested documents from the borrower in order to consider a modification, the lender can proceed to foreclosure. Previously, there was no timeframe in the law for borrowers to send those documents.
- Holding borrowers responsible for damaging the property during the redemption period. Every notice of foreclosure by advertisement must now include language stating that if the property is sold at a foreclosure sale, the borrower will be held responsible to the person who buys the property or to the mortgage holder for damaging the property during the redemption period.
- Reducing the redemption period for properties larger than three acres from 1 year to 6 months, if the property is not deemed to be for agricultural use. To qualify for the agricultural-use exemption, borrowers will be required to provide an IRS schedule F from their prior year tax return. This will now align the redemption periods for any residential property, regardless of size, to the 6-month period.
- Extending the sunset to Dec. 31, 2012. The bill as introduced originally proposed a July 2015 sunset.
Part of the reason the sunset was shortened to December of 2012 instead of 2015 is because the Legislature wanted to continue discussions on how to recognize the burdens placed on community lenders by the 90-day law. Credit unions and community banks lobbied hard for legislation that would have shortened the redemption period for portfolio loans by 90 days, which would have helped offset the additional burden of 90 additional days added to the front end of the process provided by the 90-day law. A shorter sunset will ensure these discussions continue in the coming months. While that bill, House Bill 5176, was passed out of the House Banking Committee, it continued to receive opposition from a number of groups including the Michigan Association of Realtors who argued it could cut down the number of short sales completed. The Realtors stated the average short sale is about 179 days, and they often need the entire redemption period to complete these sales. The Michigan Foreclosure Taskforce, representing housing counselors and consumers during the foreclosure process, also opposed to HB 5176 stating the bill is unfair to homeowners because it will create two different redemption periods for homeowners based on if they have a portfolio or nonportfolio loan.
Lawmakers recognized they would like to continue to look into helping credit unions and community banks in this process, since these lenders engage their borrowers earlier on, and therefore supported extending the sunset only until December of 2012 in order to ensure that those conversations will continue to take place in the upcoming year.
During Senate consideration of the legislation this week, several amendments were offered. Amendments sponsored by Sen. Tupac Hunter, D-Detroit, to extend the sunset to 2014 and 2015 as opposed to 2012 were defeated largely along party lines. The MCUL, along with the Michigan Association of Community Bankers, strongly supported the December 2012 sunset and worked with lawmakers to educate them as to why a longer sunset would be harmful to smaller, community lenders. An amendment was offered by Sen. Gretchen Whitmer, D-Lansing, to extend the redemption period to 18 months for an individual who is receiving Social Security and has lost their spouse. Sen. Whitmer stated this would target a few specific cases of unusual hardships for a small group of people. The MCUL opposed this amendment as well, which was narrowly defeated 18-20. Another controversial amendment that was offered was sponsored by Sen. Bert Johnson, D-Highland Park, to allow circuit court judges in the state to reduce a borrower’s principle if the amount due on the mortgage exceeds the fair market value of the property (cramdown). The MCUL opposed this amendment and it was defeated along party lines.
The bills will now go to Gov. Rick Snyder’s desk for approval. The bills would take effect Feb. 1.