By Jeffrey L. Vollmer

Undoubtedly, the spate of mortgage foreclosures in Michigan over the last few years has adversely impacted almost every association in the state.  From strained budgets to burst pipes to diminished property values, associations must be prepared to deal with significant challenges created by circumstances out of their control.

Adding to those challenges are amendments to the foreclosure by advertisement process that became effective July 5, 2009.  Prior to these amendments, a foreclosing party was only required to publish notice of its foreclosure for four consecutive weeks and post notice of the foreclosure on the property prior to the sale.  However, in an effort to slow the number of foreclosures, the Michigan legislature instituted significantly more burdensome procedural requirements on foreclosing parties that will remain in effect until July 5, 2011.

At the outset, it is important to note that these procedural requirements only apply to principal residences, and not rental properties.  Now, prior to scheduling a foreclosure sale on a principal residence, the foreclosing party must provide written notice via first class, certified/return-receipt mail to the borrower advising of certain rights the borrower has to halt the  foreclosure process.  In addition to mailing this notice, the foreclosing party must also publish this list of rights one time, in the same manner that notice of the mortgage foreclosure will later be published.  Primary among the aforementioned list of rights is the ability of a borrower to request a meeting with the foreclosing party, through a recognized housing counselor, within 14 days after the notice is mailed.  Within this 14 day window, the borrower must contact a housing counselor listed in the accompanying notice.  That housing counselor must then contact the mortgage holder within 10 days to schedule a meeting to discuss a loan modification.  If such a meeting is requested, foreclosure proceedings may not commence for at least 90 days after  mailing of the notice.

If no voluntary agreement to modify the loan is reached, the borrower is still not out of options.  The mortgage holder must then determine whether the borrower qualifies for a loan modification based upon a specific debt-to-income ratio.  If the borrower meets the qualifications for a loan modification based upon the formula, the mortgage holder may do one of two things: 1) judicially foreclose on the property by filing a lawsuit, which means that the earliest date a foreclosure could occur is six months from the filing of the lawsuit; or 2) present the borrower the loan modification agreement, and if no response is received from the borrower in 14 days, proceed to foreclose by advertisement on the property.

While these amendments may be beneficial to borrowers seeking to avoid foreclosure, they will likely create more headaches and burdens for associations.  In many cases, borrowers trying to avoid a mortgage foreclosure are also avoiding payment of their assessments.  By allowing these individuals to delay the foreclosure process, an association may now face extended delinquencies that would have been lessened by the shorter foreclosure process. 

In addition, any further delays in the foreclosure process may extend the time in which properties sit unoccupied.  Associations may need to take a more aggressive stance in winterizing abandoned and unoccupied units to prevent damages to the common elements, rather than relying on mortgage companies to institute that action.

In considering these amendments, some may question how they affect lien foreclosure sales by advertisement instituted by an association for nonpayment of assessments.  Unfortunately, the 2009 amendments do not reference a specific exception for condominium associations.  Although the Michigan Condominium Act states that lien foreclosures are to be held in the same manner as mortgage foreclosures under Michigan law, it is our opinion that these amendments are still inapplicable to associations.  Our position is based on the fact that there are no “borrowers”, “mortgage holders” or “mortgage servicers” involved in community associations, as defined by the amendments.  Likewise, there can be no “loan modifications” or debt-to-income ratios used to qualify members for “loan modifications.”  Thus, we will proceed to schedule lien foreclosures sales in the same manner utilized prior to the amendments.

 While these amendments are only in effect until July 5, 2011, associations should be aware of their potential impact on the community.