Across the country, commercial and residential real estate has generally been strong. The strength of the real estate market is reflected in the fact that, according to real estate database ATTOM Data Solutions, the number of foreclosures nationwide fell to a 13-year low in 2018.
However, the same data showed that in Michigan the rate of foreclosures increased by 15% last year. While today’s numbers are a far cry from the foreclosure frenzy that took place during the depths of the “Great Recession,” foreclosure is a pervasive reality (and, in Michigan, on the rise).
Foreclosure is a remedy that allows a lender or other lien holder to collect a debt, secured by real estate, owed by a borrower who defaults on their loan obligations. The process often leads to a foreclosure sale involving property sold at auction.
A foreclosure sale may result from the exercise by a party of its rights under a number of different underlying instruments, including a building lien, mortgage, land deed, co-ownership lien or brief execution. Foreclosure is an important and quite complex legal process.
There are two types of foreclosures in Michigan:
- Foreclosure, which is governed by MCL §600.3100; and
- Foreclosure by advertisement, which is governed by MCL §600.3201.
In both processes, there are specific deadlines that must be met by the parties involved. In addition, there are a number of actions, as well as restrictions on actions, that foreclosure law imposes. This article will summarize the legal foreclosure process in general and address some of the most important issues buyers of foreclosed properties should keep in mind to protect their interests.
What form of deed will I receive when purchasing foreclosed property?
In Michigan, as in most states, foreclosure sales are called “sheriff’s sales” because county sheriffs are responsible for conducting public auctions of foreclosed properties. Sheriff’s sales are usually held once a week, are open to the public, and are usually held in the county courthouse or other county building.
A list of auctioned goods is made available to potential bidders prior to the sale. The sheriff or his delegate auctions one property at a time, and anyone can bid. The starting offer is usually the foreclosure initiator’s initial “credit” offer, which is submitted to the auctioneer in advance. When property is purchased at auction, the buyer receives a “sheriff’s deed”.
What steps do I need to follow after the sheriff’s sale to register the deed?
In a court foreclosure, the sheriff’s deed must contain a number of particulars, including the names of the parties to the action, the date of the land deed or mortgage, and the amount for which each parcel of land described in the deed was sold. Michigan law requires that a bill of sale be filed, with the deed registry for the county in which the property is located, within 20 days of the sale (although the Michigan Supreme Court has provided an exception to this requirement time limit in cases where the previous buyer made no attempt to redeem the property and was not harmed by the late deposit).
A departmental register of deeds is not necessary to determine the amount necessary for redemption. Instead, the buyer must also provide the registry with an affidavit with the sheriff’s deed to be registered which states both:
- (1) the exact amount required to redeem the property, including per diems; and
- (2) the date on which the property must be redeemed as indicated on the auctioneer’s certificate.
Will I own the property free and clear after the sheriff’s sale?
Unlike typical deeds, a sheriff’s deed is subject to a redemption period, which grants the defaulting party (under a mortgage or other instrument) a period of time to remedy its default. In the event of redemption, ownership reverts to the previous owner. If not redeemed in a timely manner, ownership of the property immediately vests in the buyer holding the sheriff’s deed.
The date of the sheriff’s sale triggers the start of the property redemption period. In most situations, the redemption period lasts six months. In less common scenarios, such as when the amount claimed on a foreclosed mortgage is less than ⅔ of the original debt, or when dealing with agricultural property, the period can be up to 12 months. In contrast, properties that turn out to be abandoned only have a repayment period of one month. In either case, if you buy a property on foreclosure, there will be a waiting period before you become the free and clear owner of the property. During the redemption period related to a judicial foreclosure, the parties eligible to redeem a property include:
- The mortgagor (i.e. the borrower of a mortgage, who is usually a landlord), the mortgagor’s heirs or personal representative, or anyone who has a registered interest in the property legally claiming mortgagor or by virtue of the mortgagor or the mortgagor’s heirs or personal representative;
- The acquirer (meaning the purchaser or acquirer) of a land contract, the acquirer’s heirs or personal representative, or any person legally claiming from or under the acquirer or heirs or the personal representative of the purchaser; and
- A junior mortgagee.
What happens if I incur expenses related to a property that is redeemed?
Any person wishing to redeem the property must, within the applicable redemption period, pay to the purchaser either directly or through the Deeds Registry, the amount of the winning bid at the sheriff’s sale, together with interest at from the date of the sale at the interest rate provided for by the mortgage or the land contract. A court may also require payment of certain costs, such as taxes, insurance and deed registration fees, incurred after the sale and before the redemption, to be added to the amount owed to redeem the property. To request reimbursement of these expenses, the purchaser of the property must file a sworn statement, with supporting documents, in the register of deeds. Foreclosure laws also provide procedures for the buyer to inspect the foreclosed property during the redemption period.
Conclusion
There are advantages to buying a foreclosed property – the main one being the possibility of obtaining a property for less than the actual market value. However, such transactions are not without risk. Buyers must comply with the strict legal requirements of registering a sheriff’s deed, and they must wait for redemption periods before they can be sure that they own the free and clear property.
