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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.

When banks initiate the foreclosure process for failure to make payments, they must follow specific requirements as outlined by the state in which the property is located. These requirements are guidelines that tell the bank what it has to do, when it has to do it and what it has to do to complete the step.

During the entire foreclosure process, the borrower still retains rights in all states. Banks can’t simply seize the home, evict the borrowers and sell the home to someone else whenever they want. They must follow the process the state outlines in its foreclosure rules and regulations.

There are times, though, when banks may try to fast-track the process so they can evict a borrower quickly to regain their asset and unload it to someone else. When this occurs, they may change the locks on the home to ensure that the borrower doesn’t have access to the property anymore.

But, what can you do if the bank has changed the locks before they’ve reached the proper stages of the foreclosure process? We’ll examine borrowers’ foreclosure rights in Michigan below.

Can the Bank Change Your Locks?

Eventually, the bank has the right to change the locks on your home during a foreclosure. But, in Michigan, this can’t happen until the borrower officially abandons the home. When this happens, the bank has the right to change your locks so that it can protect what’s now their asset.

A borrower can be determined to abandon the home three ways – if they choose to leave the property voluntarily, if they agree to a “Cash for Keys” deal, or if they’ve been evicted.

The first of those three options is simple to understand. It happens when you decide to leave the home on your own to find other housing. In this situation, the bank simply changes the locks to prevent unauthorized people from accessing it as they take control of it and try to sell it.

The other two options are a little more complicated.

Cash for Keys

In a “Cash for Keys” agreement, the bank will provide the borrower with cash in exchange for leaving the home before the redemption period has ended. This allows the bank to attempt to sell the home without having to wait the typical six-month redemption period before they can proceed, allows the new owner to take possession of the home after a sheriff’s sale and/or eliminates the need for a costly eviction process.

In exchange for this courtesy, the bank will pay the borrower an agreed-upon sum. The amount of money is usually negotiable on a case-by-case basis.  This money will help the borrower pay for the up-front moving costs, to find new housing, or pay for other expenses.

Eviction

If the bank and the homeowner can’t come to an agreement on abandoning the home, then the bank has the right to proceed with an eviction. In Michigan, this is an official court process that can’t even begin until the redemption period is over.

In order to evict a borrower from a home, the bank must file a complaint and summons with the local district court. If the home has been sold to a new owner at sheriff’s sale, then the new owner must file this paperwork with the court after the redemption period has expired.  If the eviction is filed during the redemption, then the eviction will be dismissed..

Once this happens, the borrower receives a notice that an eviction has been filed. It’ll include a timeline for when a hearing will take place, and when you must respond if you wish to. 

If a court were to order an eviction after the hearing, then the borrower typically has as many as 10 days to vacate the home. If there is a new owner of the home, you could always work out an arrangement for a longer period if you need to. 

Should you attempt to stay in the home beyond that date, the court can order the local sheriff to force the eviction and physically remove you and all your belongings.

When Can a Foreclosure Eviction Happen in Michigan?

In Michigan, an eviction as part of a foreclosure cannot proceed until after the redemption period has ended – and the redemption period won’t even start until after the home has been sold at a sheriff’s sale.

What’s more, a sheriff’s sale can’t even be scheduled until 120 days after the borrower first missed their payment. Even then, the sheriff’s sale date must be published for four weeks before it is held.

Here is the typical timeline for foreclosures in Michigan …

Days 1-120

Borrowers are considered delinquent on their payments if they miss their payment by one day. During the early stages following the delinquency, the bank will notify the borrower that they are late – with live contact – and provide options for making good.

On Day 45, the lender has to assign one contact point for the homeowner and also provide them a written notice that they’re delinquent on their mortgage, along with options for loss mitigation.

From that point until Day 121, borrowers are able to work with the lender to work out options for making up for the delinquency. 

Day 121-Four More Weeks

At Day 121, if the borrower and lender are unable to come to an agreement, the lender is able to start the foreclosure process. In Michigan, this can be done in two ways: either through foreclosure by advertisement or judicial foreclosure. 

Before the sale is allowed to be held, if foreclosure is being sought by advertisement, a notice must be published in a county newspaper for four weeks in a row. Notice of the sale also has to get posted on the property itself within two weeks of the first notice of publication.

Six More Months

After the sheriff’s sale has finished, the foreclosure enters what’s known as the Redemption Period. In most cases, this lasts six months in Michigan.

During this time, borrowers have various options depending on their situation.  Borrowers have the right to redeem the property by paying the entire amount paid at the foreclosure sale, plus interest and fees, to redeem the property. If they’re able to do so, they will take back ownership of the home.  The borrower also has the right to sell their home through a traditional sale such as the Multi-Listing Service to obtain fair market value for the home.  This can be risky as the borrower is limited on the time frame to actually sell the property.  Finally, if the borrower believes the foreclosure was done improperly they can file a suit and petition the court to set-aside the sale and force the lender to start over or workout an alternative resolution.

Only after all of this time has passed can the lender even begin the eviction process.

Work with an Experienced Law Firm if the Bank Has Changed the Locks

As you can see above, a bank can’t simply change the locks before a foreclosure in Michigan. They must follow set processes and procedures that will take months to complete. At the very least, it will take nearly 150 days from the time of the first missed payment for the bank to even hold a sheriff’s sale. Even then, the borrower will have six more months to redeem the property.

The lender can then only start the eviction process  after that point. Remember, the only time a bank can change the locks on a property in foreclosure is after the borrower has abandoned the home.

If the bank has changed your locks before they’re allowed to in a foreclosure, it’s important you work with an experienced law firm that can protect your rights. Babi Legal Group has more than 20 years of combined real estate experience, and can help you defend yourself against a bank that has changed the locks on you during foreclosure.

Contact us today to learn more. 

When individuals are facing economic struggles, they may proceed with filing for bankruptcy protection to get them back on the right foot. If these individuals are homeowners, the process gets a little more complicated.

Chapter 7 bankruptcy allows individuals to not include their home and associated mortgage in the bankruptcy proceedings, provided they are current on the loan obligation and have the ability to pay for the mortgage to remain in the home. It’s also possible for the individual to include the home and mortgage in the bankruptcy proceedings, which could result in the mortgage being discharged along with other debts.

Unfortunately, this process can be complicated and confusing. Some individuals may believe that when they’re mortgage is discharged, they are no longer financially responsible for paying it. And while that’s technically true, it doesn’t mean the borrower gets the home free and clear of the mortgage and that the mortgage company won’t foreclose on the home.

Below is an explanation of what typically happens when a lender forecloses on a discharged mortgage.

How Chapter 7 Bankruptcy Works

Through Chapter 7 bankruptcy, individuals can have their debts wiped out (i.e., discharged), if they meet various bankruptcy criteria as well as the economic standards set by the state they live in. The process will go through the bankruptcy court system, which will have to approve the bankruptcy.

Individuals will have to list all of their outstanding debts that they have  in bankruptcy. The Chapter 7 bankruptcy proceeding will conclude with the courts discharging the debts that are included — assuming the bankruptcy is approved, of course and the debts that the borrower (i.e., the Debtor) will keep by reaffirming in bankruptcy .

A bankruptcy discharge removes the individual’s responsibility from paying the debt in the future, essentially wiping out the amount they owe. The creditors in this case are often left empty-handed, though the bankruptcy Trustee may use the individual’s assets if unprotected in the bankruptcy to distribute to the creditors to make them as whole as possible.

In this sense, Chapter 7 bankruptcy provides individuals with the opportunity for a financial fresh start. However, it doesn’t provide them with assets free and clear of any debt obligation.

How Bankruptcy Affects Mortgages

As mentioned, if the mortgage is discharged through bankruptcy, the homeowner will no longer be responsible for the mortgage debt. This doesn’t mean that they have a free home to live in, though.

The bankruptcy will only eliminate the mortgage debt. What it doesn’t do is clear the lien on the property. 

All mortgages consist of two sections.

The first part is the promissory note, which is the personal assurance from the homeowner that they’ll repay the money they are borrowing. This is what ends up being discharged during a bankruptcy.

The second part is the actual mortgage itself, or the deed of trust. This is what puts a lien on the property. The lien remains on the property until the home owner pays off the mortgage.

The bankruptcy proceedings don’t discharge the second part, meaning that the lender still holds the lien on the property. Because of this, they still hold a legal right to foreclose on the property to reclaim their asset.

Will Foreclosure Always Follow a Discharged Mortgage?

Surprisingly, lenders won’t always foreclosure on a home after the mortgage has been discharged through bankruptcy. If the homeowner is able to remain current on mortgage payments, and if they don’t have much equity in the home, then the lender may decide it’s not worth their time or effort to foreclose and can continue to accept payments.  However, this does not prevent the mortgage company from foreclosing at any time they may deem it necessary.

In essence, the lender could decide to allow a homeowner in this situation to remain in the home, as long as they keep paying the mortgage. Since there isn’t much equity in the home, the lender might make out better by collecting monthly mortgage payments rather than trying to take ownership of the home.

However, if the homeowner doesn’t make mortgage payments, or if they have a lot of equity in the property, the lender would be more likely to foreclose on it. That’s because they could reclaim a most if not all of the money they were owedwhen the mortgage was discharged during bankruptcy.

How Foreclosure on a Discharged Mortgage Works

Even though the mortgage debt has been wiped out by the bankruptcy, a lender simply can’t kick an individual out of the home. They’ll still technically remain the owners of the home until the lender completes the legal process of foreclosing on the home.

That’s because foreclosure is the legal process that’s necessary for the lender to reclaim ownership of their property. Until this process is complete, the homeowner will remain the legal owner of the property. Foreclosure will formally remove their name from the home and transfer it to the bank, giving them legal rights to the home itself and the ability to re-sell it.

There are very specific steps that all mortgage companies must take to foreclose on a home. Each state has its own rules and regulations for this, and these don’t change just because the mortgage has been discharged in a bankruptcy. 

In other words, a lender can’t simply show up at the property, kick the homeowner out and change the locks. They need to follow the same legal proceedings that are set out by the state in which the property is located.

Work with a Trusted Law Firm

Even if your mortgage has been discharged through a bankruptcy proceeding, you still hold rights to the property until the mortgage company completes the foreclosure process. Many homeowners may not know this, and mortgage companies may try to take advantage of them as they’re in a vulnerable position — forcing them out of the home before they have to.

It’s important to know your rights if you are facing foreclosure on a discharged mortgage. Working with a trusted law firm such as Babi Legal Group will help you avoid being taken advantage of.

At Babi Legal Group, we have more than 20 years of real estate experience, as well as more than 15 years in business law, criminal, bankruptcy, debt collection and debt settlement experience. Our attorneys have the knowledge about what rights you have in this situation, and we ensure all of our clients are always protected.

Contact us today to find out how we can help you.