MCUL & Affiliates Governmental Affairs
State Issue Brief
2014
Foreclosure Process Reforms
Effect
Background
In 2009, the Michigan legislature enacted the “Home
Foreclosure Prevention Act” which implemented the
90 day pre-foreclosure workout program. The preforeclosure workout period was only intended to be
in effect for two years after enactment, but has been
extended every year since. While there were some
positive features to the initial legislation and
subsequent amendments, over time, the law became
overly burdensome and duplicative, particularly in
light of pre-foreclosure activity that most credit
unions undertake with borrowers as a matter of
course, and in light of soon-to-be-effective federal
regulations created by the Consumer Financial
Protection Bureau (CFPB) under the Dodd-Frank Wall
Street Reform and Consumer Protection Act.
In June, just prior to summer recess and the
expiration of the 90-day law’s sunset, the state
Legislature passed significant foreclosure process
reforms in SB 380 and 383, and HB 4765 and 4766.
These bills repeal the servicing regulations, and
provide for a new right of inspection for foreclosed
properties after the sheriff sale and periodically
throughout the redemption period. If damage is
discovered or appears imminent through those
inspections, the purchaser may commence an action
for summary possession and extinguish any
remaining redemption if successful. With passage of
these reforms in quick fashion to meet legislative
deadlines, though, all sides understood that “cleanup” legislation would be necessary to address certain
process and “borrower dignity” concerns. Legislation
is expected in the near future to address these
concerns.
Even though drastic steps were needed during the crisis to assure that both lenders
and borrowers communicated and worked toward reasonable mortgage loan
modifications where circumstances supported such actions, foreclosures remain very
expensive to the lender. With increasing frequency, struggling borrowers are
damaging property prior to and during the statutory redemption period (removing
appliances, plumbing, lighting and other fixtures). Often foreclosed properties can
only be sold to cash buyers as the damage left by the homeowner disqualifies the
home from traditional financing. This inexcusable destruction of property affects
lenders, neighborhoods and communities, and resonates to negatively affect tax
revenues.
Elimination of the 90-day law prevents a two-tiered state and federal system for
borrower mitigation, and the right of inspection and related remedies will help deter
damage to properties and hold borrowers accountable for the condition of the
property as they transition from it.
Status/MCUL Position
While the bills were enacted, the limited time frame at the end of the spring session
period did not allow for several possible and beneficial amendments, to better define
the rights of purchasers and homeowners. Some concerns from consumer groups
centered on a need to provide reasonable notice of inspections or perhaps place a
reasonable cap on the number of regular inspections, with exception for emergency
situations where damage or imminent damage is reasonably suspected. Others
suggested that simple notice to the homeowner that a sale has occurred would be
appropriate, and would assist both sides in a foreclosure situation in facilitating
necessary notices and communications. From the industry side, the homeowner’s
right to cure damage prior to the summary possession action needs to be reworked,
and stronger liability provisions against those borrowers who abandon a property
without notice to the purchaser would be very beneficial.
To begin the process of addressing any remaining concerns, Governor Snyder had
requested that lawmakers, legislative staff, and interest groups involved in the
passage of the original legislation convene to discuss any necessary or desirable
changes to the recently passed law. The MCUL participated in the workgroup to
protect the efficacy of the new remedy provided by SB 383, while keeping an open
mind toward reasonable protections that will benefit the consumer as well as the
credit unions that must deal with the properties in question.
Representative Mike Callton (R-Nashville) introduced House Bill 5277 in the House.
The MCUL & Affiliates feels HB 5277 addresses the concerns raised during the
workgroup process. This bill was voted out of the Senate Banking and Financial
Institutions committee, and currently awaits a vote on the Senate floor.