Michigan's new Mortgage Foreclosure Law

Michigan's new foreclosure law becomes effective on July 5, 2009. The new law has some very good features such as:

1. Lenders must send a new notice to borrowers. In this notice, the lender must cite the reason for the foreclosure, the identifying information for the mortgage holder as well as the contact information of the person who, on behalf of the lender, has the authority to enter into any loan modification.
2. The notice referred to above also will include a list of housing counselors. This list is prepared by the Michigan State Housing Development Authority. Within 14 days after the notice is sent, a homeowner may request a meeting with the bank's contact person to discuss a loan modification. If the homeowner requests such a meeting, then foreclosure may not be started until after 90 days from the date of the original notice.

3. The homeowner can contact a housing counselor within 14 days of the letter, and the housing counsel will contact the lender's representative to set up a meeting. If the homeowner requests a meeting, then foreclosure may not start for a period of 90 days from the date of the letter. The meeting has to take place in the county where the property is located.

4. Beware, however, that after the borrower has requested a meeting, the lender has the right (and most likely will) ask the homeowner to produce certain financial information. The borrower must provide the requested docs. Most likely, this document request, at a minimum, will include tax returns, pay check stubs and bank account statement statements for the past three years.

5. If no agreement is reached between the lender and homeowner on the loan, then a separate analysis must be prepared to show whether the homeowner may have otherwise qualified for loan modification under a modified version of President Obama's Home Affordable Modification Plan (HAMP). Under this analysis, a homeowner may qualify for a loan modification if one's housing related debt ("HRD") is 38% or less of one's gross income, on an aggregate basis. HRD is determined by:

a. The interest rate may be reduced to a floor of 3% for a period of 5 years;

b. The loan may be amortized over a period of up to 40 years from the date of the loan modification;

c. Part of the unpaid balance of the loan may be deferred, up to 20%, until maturity, refinancing of the loan or sale of the property;d. Late fees may be reduced or eliminated.