Claiming Surplus Funds After A Michigan Foreclosure

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Sometimes when homes are foreclosed upon, there are surplus funds that result from the proceeding sheriff’s sale. This happens if the property ended up selling for more than the borrower owed on the mortgage at the time of the sale.

In cases such as these, the question that lingers is who is entitled to those surplus funds? In this situation those funds will go to the borrower, since it is essentially the equity that they have built in the home. When this happens, the borrower will be entitled to recoup the surplus funds even though their home has been taken away from them.

This doesn’t always happen though, as the borrower after the foreclosure has the obligation to take the necessary steps to recoup the surplus funds and there are some instances in which other parties may be entitledto the surplus funds that result from a foreclosure.

Below, we will dive into what happens in these situations, and how to claim surplus funds after a Michigan foreclosure.

Who is Due Surplus Funds from a Foreclosure?

If a property sells at sheriff’s sale for less than what was remaining on the mortgage, a delinquency occurs. This amount of money is essentially written off as a loss for the mortgage company that foreclosed on the property, although the mortgage company does have the right to pursue the borrower for the deficiency balance.

There are times, though, when the property will sell for more than what is left on the mortgage, which results in a surplus. How that surplus is handled depends on the order in which people have claims to the property.

Who Has First Claims to Foreclosure Proceeds?

When a property sells at sheriff’s sale during a foreclosure, the first entity to be paid will be the primary lienholder. In most cases, this is the mortgage company. Their debt must be satisfied first before it’s determined whether there are surplus funds.

Let’s look at two examples, both revolving around a property that sold at sheriff’s sale for $50,000. 

In the first example, the outstanding mortgage remaining at the time of the sale – including fees incurred by the lender – was $85,000. In this case, there will be a deficiency of $35,000. The lender will take a loss in this situation.

In the second example, the outstanding mortgage was $35,000, which means there will be a surplus of $15,000.

These surplus funds will go to the borrower in most cases, unless there are other lienholders on the property. This might occur if another creditor has attached a lien to the property, which could happen if you took out a second mortgage or had a judgment lien from a delinquent credit card bill.

If this is the case, then those lienholders would be paid next before the borrower. Whatever money is left after the liens are satisfied goes to the borrower.

How Are Surplus Funds Handled?

In judicial foreclosures, surplus funds are handled in a very straightforward fashion. Since these foreclosures go through the court system, the judge issues an order that directs who the surplus funds are to be paid to.

This is what happens in cases such as a tax foreclosure, which is a different process than a traditional mortgage foreclosure by advertisement. In 2020, the Michigan Supreme Court ruled in Rafaeli, LLC v Oakland County that any government entity that forecloses on a property must return any surplus funds to whoever the title owner was when the foreclosure happens. 

Later that year, the Michigan Legislature passed a law to amend the General Property Tax Act so that procedures would be in place for any property owner to claim their surplus funds if the property was foreclosed for tax reasons. 

However, a majority of foreclosure cases in Michigan are non-judicial and conducted by means of foreclosure by advertisement. This means that the lender proceeds with the foreclosure without going through the court system, opting instead to schedule a sheriff’s sale with proper advertised notice, as laid out pursuant toMichigan law.

Even in these cases, though, an officer is assigned to handle the proceeds of a foreclosure sale, including any surplus funds. This means that even though a judge won’t be handing down the legal edict in the case, Michigan law allows for the borrower to recoup the surplus funds.

How Can You Claim Surplus Funds After a Michigan Foreclosure?

After the foreclosure proceedings have completed, don’t expect a check to be sent to you automatically if you are due surplus funds. There is action that you will have to take to ensure you get the money that is rightfully yours.

Some jurisdictions may require that you file an official petition with their circuit court. This petition would need to follow whatever rules and regulations the local jurisdiction sets for how to file, when to file and what information and proof needs to be included.

Other jurisdictions might allow you to simply file a written demand to whatever entity that is holding the sheriff’s sale to make your claim to the surplus funds. This is a very important step, as there are deadlines in place as set by Michigan law to when you need to file your claim in order to ensure you get your money.

One of the big benefits to claiming these surplus funds is that you could potentially use it to redeem your property rights and remain the homeowner even after the property has been auctioned off. That’s because Michigan foreclosure law provides in most cases a six-month redemption period following the sheriff’s sale, during which the borrower may redeem the property if they’re able to satisfy the entire outstanding balance owed.

Work with a Trusted and Experience Real Estate Law Firm

If your home is being foreclosed upon or if you are within your redemption period after the foreclosure then, you could have significant surplus funds that are due to you. While Michigan law now prohibits equity theft from taking place, borrowers must take action to ensure they recoup their surplus funds.

It’s not easy to do this on your own, though, as it requires filing legal paperwork and meeting specific deadlines. That’s why if you find yourself in this situation, you should work with the trusted and experienced attorneys at Babi Legal Group.

Our team of legal professionals has a combined 20 years of real estate experience, and can help you get the surplus funds that are rightfully yours. Contact us today to find out how we can serve you.

HOA Foreclosure Vs. Bank Foreclosure

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When most homeowners think of foreclosures, they think of the bank being the entity that initiates that process. While that is the most common form of foreclosure — for when homeowners fall behind on their mortgage payments — it’s not the only form.

In Michigan and some other states, homeowners’ associations and condominium associations can also obtain a lien against your property if you fail to pay their assessment dues. The HOA foreclosure process is similar in many ways to a traditional bank foreclosure, but there are some differences, too.

It’s important to understand what you could be facing if you don’t pay your HOA or COA dues. As such, we’ll outline the process below.

Can an HOA Foreclose on Your Home?

The simple answer to this is that, yes, an HOA or COA has the legal right to foreclose on your home. In Michigan, this is established under The Condominium Act.

The law states that if a homeowner falls behind on their HOA or COA assessments, the association may take legal action against the homeowner. This action can include obtaining a lien on the property and, eventually, foreclosing on the home if it makes sense to them.

In this regard, an HOA or COA acts similarly to a taxing entity such as the town, county and state in which you reside. By purchasing a home or unit that has an HOA, you have agreed to pay the assessment fees on a predetermined schedule — just as you have agreed to pay your mortgage to your bank and your property taxes to the local governments.

If you fail to pay these fees, then the HOA has a right to take legal action.

How Can an HOA Foreclose on Your Home?

If you’re behind on your HOA assessment fees, the association has the right to foreclose on your home. They can’t begin to take action in this regard until you’re delinquent for 30 days, though. This is slightly different from the bank, which can consider you delinquent on your mortgage payments if you’re one day past due.

It’s important to note that an HOA has the ability to foreclose on your home even if you’re current with your mortgage payment. The same holds true for government taxing entities: If you’re current with your mortgage but behind on your tax payments, those entities can foreclose, too.

The first step that an HOA will take in the foreclosure process is to serve a lien notice to the homeowner. The association will need to record the lien on the property with the county in which the property is located. Notice of this lien then must be sent to the homeowner at least 10 days before they’re able to proceed with the foreclosure process.

In this aspect, an HOA foreclosure can move faster than a bank foreclosure in Michigan — even though an HOA foreclosure process can’t start as quickly as a bank foreclosure can.

What the lien does is serve as a public notice that the HOA has a monetary claim to the property.

How an HOA Foreclosure Proceeds

Once the HOA foreclosure process begins, it will proceed the same as a bank foreclosure will. The HOA must set up a date for a sheriff’s sale and advertise in a local publication that date for four consecutive weeks.

Then, the home will be sold at auction during the sheriff’s sale, at which the HOA has a right to bid on the home. No matter who the new owner of the home is following the sheriff’s sale, the homeowner will still have a redemption period of six months

This redemption period provides the homeowner the chance to reclaim the home in question if they’re able to pay back all of their delinquent HOA assessment dues, plus any extra fees, interest charges and attorneys’ fees associated with it.

The only exception to this timeline is if the homeowner abandons the home in the process. If they do, then the redemption period is shortened to one month.

If the homeowner doesn’t redeem the property within this timeframe, then the new owner will officially take possession of the property and be allowed to do with it what they want.

Will an HOA Actually Foreclose on Your Home?

Just because an HOA has the legal right to foreclose on your home doesn’t mean they actually will. The challenge for HOAs in regard to foreclosures is what’s known as lien priority. This is what determines how all liens on a property are handled during the foreclosure process.

The lien priority will determine which entity gets paid first after a foreclosure sale is complete. Most liens will follow a rule known as “first in time, first in right.” This says that whatever lien is first recorded is the one that has a higher priority than others for payouts.

This means that the first lienholder will get their money first. If there are any proceeds left after that, they will go to any subsequent lienholder. It’s possible, then, that secondary lienholders may not get paid at all.

In Michigan, an HOA lien will serve as first priority to all others, except for federal or state tax liens or a first mortgage. In other words, if the homeowner has a mortgage on the home, the bank will receive what it’s due before the HOA would receive any money.

Because of this, some HOAs will pursue judicial foreclosures. That’s because their goal in a foreclosure is to collect their past dues — not to necessarily take ownership of a property. This would allow them to receive a court judgment on the property, which could lead to garnishment of wages so they can recoup their money.

Work with a Trusted HOA Foreclosure Lawyer

Michigan law can be quite complicated when it comes to HOA foreclosure vs. bank foreclosure. So, if your HOA is threatening legal action against you because you’re past due on assessment fees, it’s important to have experienced attorneys on your side.

The lawyers at Babi Legal Group have a combined 20 years of real estate experience that they use to represent homeowners who are in situations just like this. Contact us today to learn more about how we can help you.