Understanding the foreclosure process in MI is an important part of navigating your own home foreclosure.
Before we dive in…
Understanding the Foreclosure Process in MI
What is foreclosure anyway?
Foreclosure is the legal process that lenders use to take back property securing a loan, generally after the borrower stops making payments.
Foreclosure is no fun. But just know that it’s not the end of the world.
When you know how foreclosure in MI works… it arms you with the knowledge to make sure you navigate it well and come out the other end as well as possible.
The Basic Stages of A Foreclosure
There are a few stages that are important to any foreclosure process.
Foreclosure works differently in different states around the country.
The two ways different states use to foreclose upon a property are: judicial sale or power of sale.
Connect with us by calling (248) 949-1224 or through our contact page to have us walk you through the specific foreclosure process here locally in Metro Detroit.
In either scenario, foreclosure typically doesn’t go to court until 3-6 months of missed payments have elapsed. Usually (but not always), a lender will send out many notices that you are in arrears – overdue or behind in your payment.
Under Judicial Foreclosure:
- Your mortgage lender must file suit in the court system.
- You’ll get a letter from the court demanding payment.
- Assuming the loan is valid, you’ll have 30 days to bring payment to court to avoid foreclosure (and sometimes that can be extended).
- If you don’t pay during the payment period, a judgment will be entered and the lender can request the sale of your property – usually through an auction.
- Once the property is sold, the sheriff serves an eviction notice and forces you to immediately vacate the property.
Under Power of Sale (or Non-Judicial Foreclosure):
- The mortgage lender serves you with papers demanding payment, and the courts are not required – although the process may be subject to judicial review.
- After the established waiting period has elapsed, a deed of trust is drawn up and control of your property is transferred to a trustee.
- The trustee can then sell your property to the lender at a public auction (notice must be given).
Anyone who has an interest in the property must be notified during either type of foreclosure.
For example, any contractors or banks with liens against a foreclosed property are entitled to collect from the proceedings of an auction.
What Happens After A Foreclosure Auction?
After a foreclosure is complete, the loan amount is paid off with the sale proceeds.
Sometimes, if the sale of the property at auction isn’t enough to pay off the loan, a deficiency judgment can be issued against the borrower.
A deficiency judgment occurs when a borrower faces foreclosure, and the proceeds from the foreclosure sale are insufficient to cover the remaining balance on the loan. In other words, if you owe $200,000 on your mortgage, and your home is foreclosed with the sale proceeds only amounting to $150,000, the remaining $50,000 is the deficiency. The lender can seek a deficiency judgment to collect the outstanding amount.
Here’s a more detailed explanation:
- Original Loan Amount: $200,000
- Foreclosure Sale Proceeds: $150,000
- Deficiency: $50,000
- Foreclosure Process:
- When a borrower is unable to make mortgage payments, the lender initiates foreclosure proceedings to reclaim the property and sell it to recover the outstanding loan amount.
- Foreclosure Sale:
- The foreclosed property is sold at an auction or through other means. The sale proceeds are used to cover the outstanding mortgage debt, including any fees associated with the foreclosure process.
- If the sale proceeds are less than the total amount owed on the loan, a deficiency arises. In the example above, the deficiency is $50,000.
- Deficiency Judgment:
- The lender has the option to pursue a deficiency judgment against the borrower to recover the remaining amount. This involves taking legal action to obtain a court judgment for the deficiency.
- Collection Methods:
- Once the deficiency judgment is obtained, the lender can employ various methods to collect the outstanding amount. This may include wage garnishment, bank account levies, or placing liens on other assets owned by the borrower.
- Wage Garnishment:
- If the lender obtains a deficiency judgment, they may seek to garnish the borrower’s wages. A portion of the borrower’s income is automatically withheld to satisfy the judgment.
- Bank Account Levies:
- The lender might pursue a levy on the borrower’s bank accounts, seizing funds to cover the deficiency.
- Liens on Other Assets:
- The lender may place liens on other properties or assets owned by the borrower, hindering their ability to sell or transfer ownership without satisfying the deficiency judgment.
It’s essential for borrowers facing foreclosure to be aware of the potential for deficiency judgments and to seek legal advice to understand their rights and options. In some jurisdictions, anti-deficiency laws or regulations may limit a lender’s ability to pursue deficiency judgments, offering some protection to borrowers.
Some states limit the amount owed in a deficiency judgment to the fair value of the property at the time of sale, while other states will allow the full loan amount to be assessed against the borrower.
Here’s a great resource that lists the state by state deficiency judgment laws, since every state is different.
Generally, it’s best to avoid a foreclosure auction. Instead, call up the bank, or work with a reputable real estate firm like us at 3D Property Solutions to help you negotiate discounts off the amount owed to avoid having to carry out a foreclosure.
Experienced investors can help you by negotiating directly with banks to lower the amount you owe in a sale – or even eliminate it, even if your home is worth less than you owe.
If you need to sell a property near Metro Detroit, we can help you.
We buy houses in Metro Detroit MI like yours from people who need to sell fast.
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Another Foreclosure Resource For Metro Detroit MI HomeOwners: