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Counsel’s Corner: Redemption Period Has Benefits For All Parties In a Foreclosure

Michael Woods 2015

Michael Woods

Mike Woods joined Potestivo & Associates in 2006 and is the Supervising Attorney of the Foreclosure and Loss Mitigation Departments. He assists in a variety of matters, including reinstatement quotes, redemption calculations, deeds in lieu of foreclosure, affidavits of abandonment, waivers of redemption, and quitclaim deeds. Mike is active in several industry and professional associations, including the Committee for Actual Real Estate Solutions, Detroit HOPE, Michigan Mortgage Lenders Association, and the Macomb County Bar Association. Mike recently spoke with DS News about a statute passed in Michigan to shorten the post-sale redemption period on properties that are in foreclosure.

What current default servicing issues is Detroit facing?

Last year, our legislature passed an inspection bill which significantly changed purchasers' rights during the redemption period of foreclosure. This bill allows purchasers at the foreclosure sale to conduct interior inspections during the property's redemption period. Prior to this legislation, there wasn't an option to do that. The whole purpose behind this bill is to give the purchaser at the foreclosure sale – which is typically the mortgage servicer – the ability to deal with properties that are run down or have abandonment issues. In Michigan, we have a post-sale redemption period which can be anywhere from six months to 12 months. We do have the ability to shorten it if the property has been abandoned. During that time, the mortgage servicer doesn't have many rights in the property if they're the winning bidder in the foreclosure sale. The homeowner still gets to occupy the property or the homeowner can lease the property out or sell the property during this redemption period.

What has happened in Michigan--and what is really happening nationwide—is that sometimes when these borrowers leave the properties, there are maintenance issues with the property, or the property can be susceptible to blight. The legislature passed this statute to allow the winning bidder at the foreclosure sale to take some action during that redemption period to try to take some responsibility for that property and make some repairs. Servicers now are allowed to do some inspections, and if the inspections reveal issues with the property or the inspections are refused, then the servicers can actually approach the evictions court in Michigan to try to allow the court to grant them possession of the property and shorten the redemption period. It really seems to be catching on as an option for these foreclosure sale winners to protect their interest in the property, in addition to protect the subdivisions and the neighborhoods.

How has the law been received since it was passed?

It's taken a little bit of time to catch on. It's certainly been a learning process for everyone across the board, from the winning bidders to understand their rights, to the property owners who have been foreclosed on to understand how it impacts them, as well as for the courts to understand how the whole situation is going to play out. It's something that is still developing, but all the firms in Michigan that are in our industry have been on board since the beginning, watching the legislation develop prior to being enacted and working with our servicing clients on recommending processes. It's something that is still relatively new, so we've taken the approach of working with it to make sure there is complete understanding across all parties. There's a specific purpose for the legislation, which is to protect the servicer's interest in the property and protect the neighborhoods from these properties that become run down or invite squatters because they realize the properties are vacant. The statute serves to reduce that. The idea is ultimately to be able to work with a homeowner who is having issues with the property so that they can make the necessary repairs and they can take the appropriate action to get these properties updated and in compliance in order to enjoy the property during the remainder of the redemption period.

The statue provides for a mechanism of informing the homeowner that the house has been sold, as well as providing details about the sale itself and about homeowners' rights as they relate to the redemption period and the inspection of these properties. It's a great  mechanism for communication with some of these borrowers who are in the home to make them aware of the situation. It also makes them aware of what their obligations may still be in this property, and is a way of establishing communication with some of these people who may not have been reachable prior to the foreclosure sale.

Do you think the law has been beneficial to both the homeowners and the winning bidders in the foreclosure sale?

I think so. Establishing and promoting communication between everybody is beneficial, and this law provides that opportunity. It'll be interesting to see how the law shakes out and who is taking advantage of the law and the opportunities it provides to get this communication going to possibly get possession of the property, or if it's run down, to make the necessary repairs themselves. It's always a touchy subject when you're talking about shortening the redemption period on the homeowner's property, but to the extent that the homeowner understands that they can make these repairs and clear up the situation themselves and live in a nicer property for the remainder of the redemption period.

Do you think this law has helped reduce blight around Detroit?

We've definitely seen more awareness of what can be done to possess these properties more quickly. We also have an abandonment statute here in Michigan that's been around for quite some time. It's interesting how even that abandonment statute is getting more attention as it relates to the inspection statute, because a majority of the time, these properties that are in disrepair and having issues are vacant and abandoned. In situations such as this, the abandonment statute allows us to do similar things, like shorten the redemption period to get possession of that property sooner for the purpose of rehabilitating it and selling it to somebody that is going to use it as their home. Since this inspection statute has come out, it's definitely raised awareness across the board for different options, and it's been helpful in working with our servicers when they're the winning bidders to explain that there is a mechanism to help fight some of these blight issues. Detroit itself is doing a lot of nice things. It's a city that we think is on the rebound, and there's a lot of opportunity in grass roots efforts that are popping up to retake the city and develop it and encourage a lot of younger people to move down to the city. New businesses are working to open up doors. Quicken Loans, which has its headquarters in Detroit, has been a big part of the revitalization. There are a lot of things going on in Detroit and these statutes are a part of that, and it certainly helps with the process.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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