As of July 5, 2009, homeowners with mortgages finally have some rights in Michigan.  In the past, if the home went into foreclosure, the lender could just advertise for four weeks in a legal newspaper that only went to attorneys, and the house could be sold at a sheriff's sale.  While the lender was required to post the notice of sale on the property (e.g., nailing it to a door), homeowners often had no actual notice that they were about to lose their homes.

Meanwhile, if a homeowner had problems paying the mortgage and wanted to discuss a loan modification, that was like arranging an appointment to talk to the real Santa Claus in person.  Calls went unanswered or homeowners were transferred from phone number to phone number with little success.  Some spent hours listening to phone menus that led them to nowhere.  Since mortgages are often assigned from one lender to another, or are placed with companies whose duty was to "service" them, it was often impossible to find your way to anyone with information about the loan or the authority to deal with you and your loan.

All that changed when the Michigan Legislature enacted new provisions to the foreclosure law in Michigan.  Under the new provisions (contained at MCLA 600.3404 through 600.3205e), before foreclosure proceedings can be commenced on a primary residence, the lender must actually give you the name, address, and telephone number of someone you can contact with authority to discuss a loan modification with you.

In addition, the lender must give you the names of housing counselors who can help you navigate your way to a loan modification.  If you request a meeting with the person in authority, then no foreclosure proceeding can be commenced for 90 days.  If you reach an agreement and comply with it, the foreclosure cannot go forward.  If the lender will not agree to a loan modification, you have a right to go before a judge.

The lender even has to advise you of your right to an attorney and give you the number of a lawyer referral service of legal aid.  All of these notices must be mailed to you by first class mail and certified mail.  In addition, the lender has to publish a notice in the newspaper that the homeowner has the right to contact an attorney, and/or the lender, and/or a housing counselor.  The homeowner has a right to go to court.  That notice must also provide contact information for the lender and advise the homeowner that if an agreement is reached to modify the loan and the homeowner complies with the agreement, there will be no foreclosure. The notice must advise the homeowner that if he/she requests a meeting with the lender, foreclosure proceedings cannot be commenced until 90 days after the date that notice was mailed to the borrower.

Under MCLA 600.3205b, if a homeowner wants to discuss a loan modification, he must contact a housing counselor from the list provided within 14 days after the list of counselors is mailed to him by the lender. Then the counselor has 10 days to contact the lender.  After that, financial information regarding the homeowner is provided to the lender and an in person meeting between the homeowner and the lender is arranged.  The counselor may attend if the homeowner requests that.  If a loan modification agreement is not reached, then the lender must work with the homeowner to determine if he is "eligible" for a loan modification.  To be eligible, the total housing costs (including the house payment, property taxes, insurance, and any homeowner fees) must not exceed 38% of the homeowners' gross income.   This ratio could be reached if, for example, the lender reduced the interest rate or extended the length of time for repaying the loan or stalled payment of part of the loan until the end of the loan.  The lender has to provide any calculations that it did to the homeowner.

If the homeowner is "eligible" for the modification under the guidelines above and in good faith and the lender has offered a loan modification to the homeowner (but the homeowner does not agree to it), or if the homeowner is not eligible for loan modification, then the lender can proceed with a typical out-of-court sheriff's sale. 

Unfortunately, this law has a "sunset" provision.  It will expire on July 5, 2011 if it is not extended by the Legislature.  Meanwhile, this law is certainly good news for homeowners in Michigan, especially those whose houses are "under water" or those who have become unable to pay their housing costs in full each month.