REDEMPTION OF FORECLOSED PROPERTIES: 

CALCULATION OF REDEMPTION AMOUNT

House Bill 5267 as enrolled

Public Act 303 of 2010

Sponsor:  Rep. Fred Miller

House Committee:  Intergovernmental and Regional Affairs

Senate Committee:  Banking and Financial Institutions     (Discharged)

Third Analysis (1-12-11)

BRIEF SUMMARY: The bill would allow (but not require) the registers of deeds in Oakland and Macomb counties to calculate the amount of money necessary to redeem a foreclosed property.

FISCAL IMPACT: The bill would have an indeterminate fiscal impact on state and local governments.  There will likely be increased administrative costs associated with the register of deeds determining the amount necessary for redemption.  The register of deeds would be allowed to charge up to $50 for determining the redemption amount, which could offset much, if not all, of the increased costs.

THE APPARENT PROBLEM:

Michigan's suffers one of the highest unemployment rates in the nation.  Nearly a million jobs have been lost during the past decade.  When workers lose their income they cannot pay off the debts they have incurred to own their homes. 

Michigan is reported to have the sixth highest rate of housing foreclosures in the nation.  Thousands of families have lost their homes--8,000 in 2009 in Oakland County alone.  The highest foreclosure zip codes in Michigan are located in Wayne, Livingston, Macomb, Oakland, Lapeer, and St. Clair Counties.  See Background Information.

Those who cannot make their house payments watch as their mortgages are foreclosed by lenders, and then their homes put up for sale at sheriffs' auctions.  Following the sheriff's auction, a homeowner has six months to redeem the home.  Redemption requires writing a check to the lender for the amount owed--including among other things, back taxes, insurance costs, per diem fees, and interest.  That check, tendered at the register of deeds office, preserves the foreclosed-upon homeowner's right to redeem his or her home.

According to committee testimony, about five percent of those whose homes are foreclosed upon find the money to redeem their homes within the six-month redemption period.  Some have missed the six-month window because lenders have not responded at all, or have responded inaccurately, when asked how much is owed.  Others report they have been charged fees by the lenders, ranging from $200 to $350, in order to learn how much they owe.

County Registers of Deeds have never had the authority under the law to calculate the redemption amount on foreclosed properties.  Nonetheless, many county registers did so for more than 50 years, without mishap.  When lenders were local to the community, registers typically calculated a redemption amount and informally checked its accuracy with the local banker before sharing it with the foreclosed upon borrower.  They seldom charged a fee. 

As local banks were subsumed by out-of-state operations and the number of mortgage foreclosures skyrocketed during the economic crisis, the Michigan Register of Deeds Association sought a change in the law that explicitly prohibited registers of deeds from calculating a redemption amount.  The association did so to relieve registers from the pressure exerted by lenders and title companies as the number of foreclosures mounted.  That prohibition went into effect in 2005.

Two county registers of deeds--those in Oakland and Macomb Counties--would like to once again provide their residents with service that includes the calculation of the amount needed to redeem a property in foreclosure. Legislation has been introduced to allow the registers of deeds in Oakland and Macomb counties to do so, if they are requested to provide that information by a person who is entitled to redeem the property, as specified under the law.

THE CONTENT OF THE BILL:

House Bill 5267 would amend Chapter 32 of the Revised Judicature Act, which deals with the foreclosure of mortgages by advertisement, to allow a register of deeds to calculate the amount of money necessary to redeem a foreclosed property; this would apply only in counties with a population of more than 750,000 and less than 1,500,000.  (This applies to Macomb and Oakland counties.)

Currently under the law, a person can redeem foreclosed property by paying the amount required within the applicable time limits to the purchaser or the purchaser's executors, administrators, or assigns, or to the county register of deeds in whose office the deed is deposited for the benefit of the purchaser.  While the law describes the amount that is to be paid (the sale price from the winning bid of the sheriff's sale plus daily interest through the date of redemption based on the mortgage interest, the amount of the sheriff's fee, and an additional $5 fee if the payment is made to the register of deeds), the law prohibits a county register of deeds from determining the amount of money necessary for the redemption. 

House Bill 5267 would allow the appropriate payment to the purchaser or the purchaser's personal representative or assigns, or to the register of deeds.  Further, the bill specifies that the register of deeds of a county having a population of more than 750,000 and less than 1,500,000 (that is, Macomb and Oakland counties) would be required to determine the amount necessary for redemption, at the request of a person entitled to redeem the property under this section of the law.  In determining the amount of money, the register of deeds could consider only the affidavits recorded under subsections (2) and (4) of the law. 

Under the bill, there would be no liability for damages against a county, a register of deeds, or an employee of a county or of a register of deeds that were caused by an incorrect determination of an amount necessary for redemption.  Finally, a register of deeds could charge not more than $50 for determining the amount necessary for redemption.

MCL 600.3240

BACKGROUND INFORMATION:

On the last page of the analysis is a list of the "Top 50 Foreclosure Rates" in Michigan as published in the Detroit Free Press on 10-22-09, listing foreclosures by county, city, and zip code.

ARGUMENTS:

For:

Proponents of this bill note that a 2005 law prohibits local Registers of Deeds from providing a redemption amount to homeowners who want to redeem a home from foreclosure.  Currently the only way homeowners in a foreclosure crisis can get this amount is by contacting the lender or the lender's agent--an agent who is sometimes of little help because he often has a financial interest in seeing the home foreclosed upon.  Consequently, many homeowners who are trying to save their homes have not been able to get the correct amount of money they owe their lenders.  Their lenders--often out-of-state now that the banking industry is deregulated and operates across borders and mortgages are routinely sold--have changing telephone numbers, and their phone calls are not returned. Some have missed the six-month window allowed as a redemption period, because lenders have not responded at all, or have responded inaccurately, when asked how much is owed.  Others report they have been charged fees by the lenders, ranging from $200 to $350, in order to learn how much they owe.

About five percent of those whose homes are foreclosed upon find the money to redeem their homes within the six-month redemption period.  For 50 years, until the 2005 prohibition went into effect, the registers of deeds in Oakland and Macomb counties calculated the redemption amount for their residents, without mishap. 

At a time when thousands of Oakland and Macomb county residents are having their mortgages foreclosed upon (See Background Information), the county commissioners and registers of deeds of both counties would like to offer this service again.  This legislation would allow them to do so.  They note that the legislation is permissive and not mandatory, and applies to only two counties.  They argue that this bill and other bills that will be introduced to solve this problem statewide are not mutually exclusive.  They note that the bills, taken together, will better allow county registers of deeds to serve their communities.

Against:

Although this bill applies to only two counties--Oakland and Macomb--many registers of deeds throughout the state oppose it.  According to committee testimony, they do so because they prefer other proposed legislation that would better protect the registers of deeds who would collect thousands of dollars and bear the personal liability in the event of gross negligence, for both that money's safe-keeping, and also the accuracy of their calculations.

Opponents of the bill also argue that the calculations tallied by the registers of deeds would seldom stand up under law, since they would be subject to audit and rejection by the lenders. They note that their calculations would undoubtedly fall short of the amount owed, because the fees charged by the lenders are not known.  Further, they ask: What happens when the check written by the foreclosed-upon homeowner is rejected by the lender because the amount is inaccurate?  And, how is the money that has been collected then returned to the foreclosed-upon homeowner? 

Instead of this legislation, opponents favor bills that would allow them to send a letter to the lender to ask, on behalf of the foreclosed-upon homeowner, the precise amount that is owed.  They say that lenders should be required to disclose all of their costs and fees associated with the redemption, including insurance, taxes, per diems, and interest.  They also favor a bill that sets fines on the lending institutions if their responses to foreclosed-upon homeowners are inaccurate or untimely.  They argue that registers of deeds have, historically, served as the disinterested third party in these kinds of transactions between lenders and borrowers.  Their office is the place a foreclosed-upon homeowner can tender a check to the lender, in order to preserve the right to redeem a home: no more, no less.  This stance of "disinterested third party" is jettisoned when registers of deeds are asked to calculate the amount owed on behalf of the foreclosed-upon homeowner.

Against:

The Michigan Bankers Association opposes the bill because it would set up two different foreclosure redemption systems in Michigan.  Under the bill, Oakland and Macomb Counties could adopt a policy allowing their registers of deeds to calculate the amount needed to redeem a foreclosed upon home. According to the association, the two different policies--one allowing calculation of the redemption amount, the other prohibiting it--could lead to confusion for borrowers, and cause banks that do business in several counties to face questions about their compliance with such a law.

 

Generally, the Michigan Bankers Association observes that "borrowers who are going through the foreclosure process have all the information that they need to determine a redemption amount.  But if there is a question, or the borrower does not know the redemption amount, the lender should determine that amount or the register could assist by using the registered document filed when the house is sold."

                                                                                           Legislative Analyst:   J. Hunault

                                                                                                  Fiscal Analyst:   Ben Gielczyk

This analysis was prepared by nonpartisan House staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.

County

City

Zip Code

Repossessions

Foreclosure Rate (1 foreclosure per # of households)

Wayne

Detroit

48205

4166

5.23

Wayne

Detroit

48224

3718

5.34

Wayne

Detroit

48228

4407

5.6

Wayne

Detroit

48219

3305

6.9

Livingston

Hamburg

48139

      6

7

Wayne

Detroit

48234

2377

7.06

Wayne

Detroit

48235

2816

7.27

Wayne

Detroit

48227

3067

7.34

Wayne

Detroit

48223

1723

7.88

Macomb

Warren

48089

1639

8.15

Oakland

Hazel Park

48030

 924

8.21

Macomb

Eastpointe

48021

1623

8.34

Wayne

Detroit

48221

2078

8.36

Oakland

Pontiac

48342

 912

8.69

Oakland

Pontiac

48341

 898

8.96

Wayne

Redford Twp

48240

 806

9.23

Oakland

Southfield

48075

1045

9.3

Oakland

Pontiac

48340

1027

9.98

Oakland

Southfield

48096

1100

9.98

Wayne

Redford Twp

48239

1518

10.04

Wayne

Harper Woods

48225

 636

10.4

Macomb

Warren

48091

1286

10.44

Wayne

Inkster

48141

1122

10.71

Wayne

Detroit

48238

1714

10.88

Wayne

Melvindale

48122

 438

10.89

Macomb

New Haven

48048

 182

11.14

Wayne

Ecorse

48229

 430

11.17

Wayne

Detroit

48213

1409

11.18

Wayne

Dearborn

48126

1511

11.19

Wayne

Dearborn Heights

48125

 813

11.24

Wayne

River Rouge

48218

 363

11.41

Wayne

Romulus

48174

1010

11.52

Wayne

Detroit

48206

1226

11.66

Wayne

Lincoln Park

48146

1427

11.72

Wayne

Highland Park

48203

1589

11.83

Wayne

Detroit

48294

1465

11.93

Macomb

Washington

48094

 419

12.09

Lapeer

North Branch

48461

 221

12.15

Lapeer

Otter Lake

48464

  71

12.15

Livingston

Fowlerville

48836

 333

12.45

Wayne

Westland

48186

1168

12.77

Oakland

Oak Park

48237

1006

12.81

Macomb

Roseville

48066

1625

12.92

St. Clair

Capac

48014

 101

13.46

Macomb

Mt. Clemens

48043

 572

13.54

Wayne

Detroit

48217

 316

13.57

Macomb

New Baltimore

48047

 908

13.65

Wayne

Detroit

48210

1070

13.71

Wayne

Hamtramck

48212

1251

13.71

Lapeer

Columbiaville

48421

 196

13.74