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Mortgage Foreclosure

by Clark A. Andrews, O'Reilly Rancilio P.C.

A person obtaining financing for property through a bank, financial institution, or private individual is often required to give to mortgage to the lender that allows the lender to take ownership of the property and sell it if the borrower does not repay the loan. The enforcement of the lender’s rights under the mortgage is ordinarily done by foreclosure of the mortgage.

Michigan law contains two different ways for a lender to foreclose a mortgage: by judicial action (court proceedings) or by advertisement (newspaper publication). The procedure to be followed in each case is determined by the terms of the mortgage, and the applicable Michigan statutes and court rules.

All mortgages in Michigan may be foreclosed by judicial action. Judicial action involves the lender filing a lawsuit in the county circuit court requesting that the court rule that the borrower has not fulfilled his obligations (“defaulted”) and permitting the lender to sell the property in order to be repaid. If the amount received at the sale is not enough to pay back the loan and all costs incurred in the foreclosure, the lender may obtain a “deficiency” judgment that orders the borrower to pay the balance due after the sale proceeds have been given to the lender.

If a mortgage document includes language that gives the lender a “power of sale”, the lender may “foreclose by advertisement” without court involvement. In such cases, the lender may advertise the property for sale for four consecutive weeks in a newspaper of general circulation in the county where the property is located instead of using court proceedings. If the borrower does not repay the loan, the property is sold by the county sheriff at a public auction to the highest bidder, with the proceeds applied to the outstanding loan balance.

In all instances, the borrower has rights to recover (“redeem”) the property by paying the amount due and associated enforcement costs within the time period specified by the foreclosure statute. The redemption period during which the borrower can regain ownership of the property varies from 30 days after sale to 6 months after sale, depending on when the mortgage was given, whether the property is residential, multiple family, commercial or industrial, what percent of the loan has been repaid, and whether the property has been abandoned. Because the foreclosure procedure is based on statutes, the foreclosure statute should be carefully reviewed to make sure that the proper procedure is followed.

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