In recent years, delinquent payments and the number of Michigan homeowners entering foreclosure have subsided from their recession-era peak. Although these trends suggest a success story, state leaders and advocates continue to look for ways to improve the foreclosure process. Since that time, there have been several other bills passed to fine-tune the foreclosure process.
The foreclosure process varies widely from state to state. Some states require mortgage lenders to go through a court process to obtain the right to sell the property after default before the property can be sold. Other states allow the mortgage lender to foreclosure “by advertisement,” requiring no judicial oversight of the foreclosure process. Michigan law permits mortgage lenders to foreclose on a property in default by using both the “foreclosure by judicial action” or “foreclosure by advertisement” method. The former is the most secure and costly, while the latter is the fastest, easiest, and least expensive. Michigan is among the few states that permit non-judicial mortgage foreclosures. Because foreclosure by advertisement is a faster and less cumbersome process for mortgage lenders, it is the most common method of foreclosure in Michigan. Chapter 32 of the Revised Judicature Act (the “Act”), MCL 600.3201 through 600.3285, governs foreclosures of a mortgage by advertisement, sets forth the steps that must be taken, and establishes the rights of the mortgagee and the mortgagor. Under Chapter 32 of the Act, mortgage lenders can use the foreclosure by advertisement method for any mortgage, except those held by the Michigan State Housing Development Authority, that contains a power of sale and has been recorded, provided that the mortgage lender has not instituted another collection action against the borrower for repayment of debt secured by the mortgage. MCL 600.3201. Because most mortgages in Michigan contain a “power of sale” clause giving the mortgage lender the power of “sale by advertisement” or to “sell at public sale,” most mortgages are eligible for this truncated process.
To use the foreclosure by advertisement method, the foreclosing entity must either be (1) the owner of the mortgage debt or of an interest or (2) the servicing agent of the mortgagee (collectively the “mortgage lender”), and the mortgage must be recorded with the register of deeds in the county in which the property is located. MCL 600.3204(1)(c)-(d). The mortgage lender can commence the foreclosure by advertisement process by publishing a notice that the real property will be foreclosed in a newspaper of general circulation in the county where the property is located for four successive weeks, at least once each week. If the county where the property is located does not have a local newspaper, the notice of foreclosure must be published in a newspaper published in an “adjacent county.” Additionally, within 15 days after the first publication of the notice of foreclosure, the mortgage lender must also post a “true copy” of the notice “in a conspicuous place upon any part” of real property (usually on the front door) being foreclosed. MCL 600.3208.
The mortgage lender can have a sheriff’s sale any time after the notice of foreclosure is published for the required four-week period. If the real property is sold at a sheriff’s sale, the homeowner can redeem the property by paying the amount the property sold for at sheriff’s sale, plus any interest at any time during the six-month redemption period. If the homeowner manages to redeem the property, she will own the real property free and clear, and the mortgage will be extinguished.
On December 12, 2019, Governor Whitmer signed into law Public Act 142 of 2019 (PA 142), formerly titled House Bill 4306, which amends section 3212 of the Revised Judicature Act of 1961 (MCL 600.3212) to require mortgage lenders and servicers to include additional information in each notice of foreclosure they publish and limit newspapers in which notice of foreclosure may be published. The amendment, which became effective on January 11, 2020, adds more transparency around the foreclosure auction process and helps delinquent borrowers better understand their rights to make more informed decisions.
Before the enactment of PA 142, MCL 600.3212 required that a notice of foreclosure include: (1) the names of the mortgagor, mortgagee, and foreclosing assignee (if any); (2) the date of the mortgage and the recording date; (3) the amount due; (4) a description of the mortgaged premises that conforms to the description in the mortgage; (5) the length of the redemption period; and (6) a statement that if the property is sold at a foreclosure sale, the mortgagor will be liable to the buyer or the mortgage holder for damaging the property during the redemption period.
Section 3212 of the Act, as amended, now requires a notice of foreclosure to include the following additional language: (1) a description of the property by giving its street address; (2) the name, address, and telephone number for the attorney representing the foreclosing party; (3) for residential mortgages, the following statement: “Attention homeowner: If you are a military service member on active duty, if your period of active duty has concluded less than 90 days ago, or if you have been ordered to active duty, please contact the attorney for the party foreclosing the mortgage at the telephone number stated in this notice.”; and (4) a statement in the following form: “Notice of foreclosure by advertisement. Notice is given under section 3212 of the revised judicature act of 1961, 1961 PA 236, MCL 600.3212, that the following mortgage will be foreclosed by a sale of the mortgaged premises, or some part of them, at a public auction sale to the highest bidder for cash or cashier’s check at the place of holding the circuit court in ________ County, starting promptly at (time), on (date). The amount due on the mortgage may be greater on the day of the sale. Placing the highest bid at the sale does not automatically entitle the purchaser to free and clear ownership of the property. A potential purchaser is encouraged to contact the county register of deeds office or a title insurance company, either of which may charge a fee for this information.” Additionally, as amended, Section 3212 of the Act now prohibits the foreclosing mortgagee from publishing a notice of foreclosure in a newspaper in which it, or its agent, has a majority ownership interest. It also provides that in instances where the street address was incorrect or missing, the validity of the notice and eventual sale of the property would not be affected.
Moreover, there had been a long-standing practice in the housing industry to include language in the notice of foreclosure that was not specifically required by the Act to assist homeowners, mortgage lenders, potential bidders, and other members of the public in being more well-informed. Uncertainty during the past few years, however, regarding the proper content for notices of foreclosure resulted in many mortgage lenders removing any language that was not statutorily required from their published notices. In the past few years, there have been a series of lawsuits against attorneys over the content of the notice of foreclosure. The lawsuits allege that the notices of foreclosure violate the Fair Debt Collection Practices Act (FDCPA) when the notices include non-statutory language, even if the language was helpful to the homeowner. Before the lawsuits, notices of foreclosure frequently included information on how to contact the mortgage lender and the attorney representing the mortgage lender and information for active military service member homeowners who have specific statutory rights to stop a foreclosure. On March 20, 2019, however, the US Supreme Court unanimously held in Obduskey v. McCarthy & Holthus LLP, No. 17-1307, slip op. (Mar. 20, 2019), that a business engaged in foreclosure by advertisement is not a debt collector, except for limited purposes, under the federal FDCPA. The Obduskey case provided some guidance on whether the FDCPA applies to mortgage lenders seeking to utilize the foreclosure by advertisement method but did not clarify what language should be included in notices of foreclosure. PA 142 codifies the required elements for a notice of foreclosure and provides clarity on what information must be included in the notice of foreclosure to alert property owners to the implications of a foreclosure by advertisement. Legal practitioners now have specific statutory guidance that incorporates recognized best practices on the language that should be included in notices of foreclosure.