INTRODUCTION

The bills would modify provisions regarding the foreclosure notice process for residential properties of four units or fewer. They would require that before a notice was published, a copy of the notice would have to be recorded with the county register of deeds in the county where the property was located. The bills also would establish requirements for the sale or assignment of a home before and during the Revised Judicature Act's foreclosure process. Specifically, the bills would require a grantee or assignee in the conveyance to provide the seller with a notice of rights. The bills prescribe the language of the notices of rights, which generally describe to the seller of the residence the rights that the seller would be forfeiting by agreeing to convey the residence, such as the rights of redemption and occupancy. A grantee or assignee would be liable for specific damages to the seller if the grantee or assignee failed to provide the notice. A grantee or assignee also would have to afford the seller a seven-day cool-off period between the time the seller signed the notice of rights and the signing of the sale. These documents would have to be recorded with the register of deeds within 30 days of the transfer of property, and the bills would prescribe penalties for failing to do so.

The bills are tie-barred.

FISCAL IMPACT

The bills would likely have a small negative fiscal impact on the State and local governmental units. The fiscal impacts on the State and local governmental units would be determined by the impact on the register of deeds, the local courts, and the cost of creating the new standardized forms. These costs would likely be minimal.

MCL 600.3208 et al. (H.B. 5152) Legislative Analyst: Jessica Gebbie

MCL 600.3240 et al. (H.B. 5153) Fiscal Analyst: Bobby Canell

CONTENT

House Bill 5152 (H-4) would amend Chapter 32 (Foreclosure of Mortgages by Advertisement) of the Revised Judicature Act to do the following:

-- Require a copy of the notice of a foreclosure sale for a residential property of not more than four units be recorded at register of deeds before the notice was published publicly.

-- Require a purchaser of a foreclosed home (grantee) to provide a specific notice of rights to the grantor before purchasing the home.

-- Prescribe the language for the document of the required notice of rights, including warnings to the seller that the seller was waiving certain rights by foregoing the foreclosure process and that the seller could not be required to authorize the sale until seven days after signing the notice.

-- Prescribe the penalties for the failure to provide a notice of rights.

-- Prescribe the damages a grantee would be liable to the grantor for if the grantee failed to provide a notice of rights.

-- Provide the exceptions for the requirements of the notice that would apply for a grantee.

House Bill 5153 (H-4) would amend Chapter 32 of the Revised Judicature Act to do the following:

-- Specify that an assignment or transfer of a mortgagor's right of redemption for a residential property of not more than four units would be subject to the bill's remedies and requirements, specifically the process of providing a notice of redemption rights.

-- Prescribe the language for the document of the required notice of redemption rights, including warnings to the seller that the seller was waiving certain rights by foregoing the foreclosure process and that the seller could not be required to authorize the sale until seven days after signing the notice.

-- Provide that an assignee would have to record the notice of redemption rights with the register of deeds in the county where the property was located within 30 days of the execution of the instrument of assignment.

-- Prescribe the penalty for the failure to provide the notice of redemption rights and the instrument of assignment within 30 days of the instrument's execution.

-- Specify that a grantee would be liable for damages to a grantor if the grantee failed to provide notice of redemption rights.

-- Provide the exceptions for the requirements of the notice that would apply for an assignee.

-- Provide that a mortgagor's right to surplus proceeds that exceed the mortgage amount from the sale of the foreclosed residential property would not be assignable or transferable after the notice of foreclosure was published.

House Bill 5152 (H-4)

The Act prescribes the circumstances and process under which a party may foreclose a mortgage by advertisement. Generally, the circumstances include a default in a condition of the mortgage, and the party foreclosing must be the owner of the indebtedness or the servicing agent of the mortgage. Currently, the Act requires that notice of a mortgage that will be foreclosed by a sale of the mortgaged premises be published in a newspaper for four consecutive weeks. A true copy of the notice must be posted in a conspicuous place on the premises within 15 days of the first publication of the notice. Under the bill, for a residential property that did not exceed four units, a copy of this notice would have to be recorded with the register of deeds for the county or counties of the property before the first publication of the notice.

Under the bill, if a mortgagor, the mortgagor's heirs or personal representative, or any person that had a recorded interest in the mortgaged premises that was obtained before a notice of foreclosure was recorded with the register of deeds conveyed the mortgaged premises after the notice of foreclosure was recorded and before the foreclosure sale was conducted, the grantee would be liable to the grantor for damages, unless the grantee provided a notice of rights that satisfied all the requirements below to the grantor before execution of the instrument of conveyance but not before the cooling-off period had elapsed.

Notice of Rights

The following would apply to a notice of rights required by the bill:

-- The notice would have to be a separate document from the instrument of conveyance and any other document.

-- The notice would have to be printed in not less than 14-point boldfaced type.

-- The notice would have to be signed and dated by each grantor.

-- A copy of the fully executed notice, signed and dated by all parties, would have to be provided to each grantor at the time of signing.

The notice of rights would have to contain specific language, including a warning indicating that the seller was selling the house while in foreclosure; information concerning the house, such as State equalized value, the purchase price offered, and the outstanding mortgage balance; and a description of the following rights that the seller would relinquish upon sale:

-- The right of redemption: by selling the property, the seller would permanently waive all rights to redeem or reclaim the property; the right of redemption allows a mortgagor, the property owner, to reclaim a foreclosed property by paying off the outstanding debt within a legally specified redemption period and this right is forfeited upon sale's completion.

-- The right to occupancy during the redemption period: a further acknowledgement that any rights to remain in the property during the redemption period would no longer be available and that once the conveyance was complete, the seller would forfeit any and all rights to continue occupying the property.

-- The right to surplus proceeds: an acknowledgement that the seller's home could be worth more than the outstanding balance of the mortgage, and if the home were sold at public auction, and the sale price was greater than the balance of the mortgage, the seller could be entitled to collect the remaining sale proceeds, but by selling the property before the public auction, the seller would have no right to collect the surplus proceeds that could have resulted from the auction sale.

-- By signing a deed or instrument of conveyance, which by law could not be presented to the seller for signature until at least seven days after the date this notice was signed, the seller would be waiving the above rights provided by statute.

Notice and Cool-off Period Requirements

Under the bill, before presenting the notice to the grantor for signature, the grantee would have to complete all blanks in the notice, including all property value disclosures required by notice language. A notice presented with any required blank unfilled would not satisfy the requirements. The notice would have to identify the property by street address and by each tax parcel identification number assigned to the property. If the property consisted of more than one parcel, the notice would have to list every parcel identification number. If no street address or parcel identification number had been assigned, the notice would have to include the legal description of the property. A good-faith error in, or omission of, a parcel identification number would not, by itself, make the notice noncompliant or give rise to liability if the property were otherwise reasonably identified in the notice.

A grantee could not present an instrument of conveyance, or an agreement, option, or contract to convey an interest, to the grantor for execution before seven days after the grantor signed the required notice of rights. An instrument of conveyance, or an agreement, option, or contract to convey an interest, executed in violation of this seven-day cooling-off period would be a willful violation. This seven-day cooling-off period would be mandatory and could not be waived. The existence of a signed notice would not be a defense against a claim of fraud, duress, misrepresentation, or unconscionability, and would not preclude any other remedy at law or equity available to the grantor.

Failure to Provide Notice of Rights and Damages from Willful Violation

A grantee who failed to provide a notice of rights would be liable to the grantor for damages as follows:

-- The measure of damages would be the fair market value of the premises at the time of conveyance less the outstanding mortgage balance as stated in a notice of foreclosure recorded less the consideration actually paid by the grantee to the grantor.¹

-- The grantor would bear the initial burden of establishing a reasonable estimate of the fair market value of the premises at the time of conveyance by competent evidence, which would include a retrospective appraisal by a licensed appraiser and comparable sales data for similar properties in the same area within a reasonable time of the conveyance; upon the establishment of a reasonable estimate of fair market value, the burden would shift to the grantee to rebut that estimate by a preponderance of the evidence.

If the court found that the violation was willful, the court would have to award two times the damages calculated above. A violation would be presumed willful if any of the following applied:

-- The grantee was a person other than an individual, and the grantee's stated or apparent business purpose involved acquiring distressed or foreclosed properties.

-- The grantee, or a beneficial owner or controlling person of the grantee, had acquired more than one interest in mortgaged premises during a foreclosure gap period within the three years preceding the conveyance at issue.

-- The notice of rights was backdated, as established by any evidence, including metadata, witness testimony, or inconsistency with other transaction documents.

-- The grantee took affirmative steps to prevent the grantor from seeking legal counsel, including requiring same-day signing, misrepresenting the nature of the documents, or representing that the notice of rights was not required.

-- The grantee failed to record the instrument of conveyance and the notice of rights not later than 120 days after execution.

In addition to damages listed, the court would have to award the grantor reasonable attorney fees and costs if the grantor prevails.

An individual who was a beneficial owner of or who exercised control over the management or operations of an entity that was subject to the bill would be jointly and severally liable with the entity for all damages and attorney fees awarded. A beneficial owner or controlling person would be presumed to have actual knowledge of the recorded notice of foreclosure at the time of the conveyance. This presumption could be rebutted by clear and convincing evidence. It would be an affirmative defense to liability that the grantee had no actual knowledge of the recorded notice of foreclosure at the time the instrument of conveyance was executed. A grantee who conducted a bona fide search of the register of deeds index before closing and found no recorded foreclosure notice would be presumed to have had no actual knowledge of the pending foreclosure.

Notice Applicability

The notice would apply only to a residential property that does not exceed four units. Property that was used in part for nonresidential purposes would be residential property only if the residential use were the principal use of the property. The notice would not apply if the grantee was the person foreclosing the mortgage or was a person that had an interest in the property that was subordinate to the interest of the person foreclosing the mortgage.

Liability

Under the bill, it would be an affirmative defense to liability for a grantee who failed to provide a notice of rights that the grantee provided the grantor a notice of rights that contained all completed required property value disclosures, the grantor signed and dated the notice, the cooling-off period was observed, and the defect did not mislead or prejudice the grantor.

Under the bill, within 30 days after execution of an instrument of conveyance, the grantee would have to record the instrument, with the required notice of rights attached, with the register of deeds for the county or counties in which the premises were located. A grantee that failed to record the instrument would be liable to the grantor for a civil penalty of $50 for each day the failure continued, beginning on the thirty-first day after execution and ending on the date the instrument and attached notice were recorded, not to exceed $25,000 for each instrument, and liable for reasonable attorney fees and costs if the grantor prevailed. A penalty for this failure would be in addition to any liability described. The period of limitations for an action would not begin to run until the instrument of conveyance and the required notice of rights were recorded.

Cancellation

If a notice of foreclosure were recorded, and a sale scheduled in a notice was cancelled by the party foreclosing the mortgage, a notice cancelling the notice of foreclosure would have to be recorded with the register of deeds for the county or counties in which the premises are located not later than 30 days after the sale is canceled.

House Bill 5153 (H-4)

Currently, a purchaser's deed is void if the mortgagor, the mortgagor's heirs or person representative or any person that has a recorded interest in the property lawfully claiming under the mortgagor redeems the entire premises sold by paying the amount required. The bill would add a provision that an assignment or transfer of the mortgagor's right of redemption recognized by the Act would be subject to the requirements and remedies of House Bills 5152 (H-4) and 5153 (H-4). The bills' proposed sections would only apply to residential property that did not exceed four units. Property that was used in part for nonresidential purposes would be residential property only if the residential use was the principal use of the property.

The following would apply to an assignment or transfer of the mortgagor's right of redemption:

-- An assignment or transfer by testate or intestate succession would not be subject to the notice, cooling-off, or recording requirements of the bill.²

-- An assignment or transfer that was genuinely without consideration would not be subject to the notice, cooling-off, or recording requirements of the bill.

-- An assignment or transfer would have to be consistent with the required timeline for providing the register of deeds the recording of an instrument of assignment, even if denominated as a gift or as being without consideration, if either of the following applied: the assignee or transferee, a beneficial owner or controlling person of the assignee or transferee, or a person who acted in concert with any of them acquired the right of redemption in the course of a trade or business; or if any consideration were given or promised, directly or indirectly, by or on behalf of the assignee or transferee in connection with the assignment or transfer.

-- Any other assignment or transfer would require a notice of redemption rights that satisfied the requirements of the notice, provided to the assignor before execution of the instrument of assignment, but not before the cooling-off period had elapsed; assignment or transfer that did not comply with this requirement would be valid and recordable, but the assignee would be liable to the assignor for damages, and the register of deeds would not be required to evaluate compliance before recording an instrument of assignment.

-- A conveyance of the mortgaged premises that did not expressly exclude the mortgagor's right of redemption would be presumed to include an assignment of that right.

-- A person who acquired the mortgaged premises by conveyance subject to the notice of foreclosure in House Bill 5152 (H-4) and who, as a result of a foreclosure sale occurring after the execution of that conveyance held only the mortgagor's right of redemption, could exercise that right of redemption without providing the required notice; compliance with the notice requirements at the time of the conveyance would satisfy the notice requirements with respect to that conveyance.

Requirements for Notice of Redemption Rights

Under the bill, the following would apply to a notice of redemption rights:

-- The notice would have to be a separate document from the instrument of assignment and any other document.

-- The notice would have to be printed in not less than 14-point boldfaced type.

-- The notice would have to be signed and dated by the assignor.

-- A copy of the fully executed notice, signed and dated by all parties, would have to be provided to the assignor at the time of signing.

-- Before presenting the notice to the assignor for signature, the assignee would have to complete all blanks in the notice, including all property value disclosures required by the notice language; a notice presented with any required blank unfilled would not satisfy the requirements.

-- The notice would have to identify the property by street address and by each tax parcel identification number assigned to the property; if the property consisted of more than one parcel, the notice would have to list every parcel identification number, and if no street address or parcel identification number had been assigned, the notice would have to include the legal description of the property.³

The notice of rights would have to contain specific language, including a warning indicating that the seller was selling the house while in foreclosure; information concerning the house, such as State equalized value, the purchase price offered, and the redemption amount; and a description of the following rights that the seller would relinquish upon forfeiting the right to redemption:

-- The right of redemption: by assigning the redemption right, the seller would permanently waive any and all rights to redeem or reclaim the property, which would be irrevocably forfeited upon completion of the assignment.

-- The right to occupancy during the redemption period: the seller would have the right to remain in the property until the redemption period expired or the property was redeemed, whichever occurred first, but the right would end upon redemption by the assignee or expiration of the redemption period, not upon signing of the assignment.

-- A notice specifying that the seller would be transferring the right to redeem the property to another person, that the bill's provisions would prohibit the agreement from being presented for signature until seven days after the date the notice was signed, and that once the agreement was signed the seller would have no right to reclaim the property.

Liability

Under the bill, an assignee who failed to provide a notice of redemption rights would be liable to the assignor for damages as follows:

-- The measure of damages would be the fair market value of the premises at the time of assignment less the redemption amount as stated in the purchaser's affidavit, less the consideration actually paid by the assignee to the assignor.⁴

-- The assignor would bear the initial burden of establishing a reasonable estimate of the fair market value of the premises at the time of assignment by competent evidence, which would include a retrospective appraisal by a licensed appraiser, comparable sales data for similar properties in the same area within a reasonable time of the assignment, or the actual foreclosure sale price if available; upon the assignor establishing a reasonable estimate of fair market value, the burden would shift to the assignee to rebut that estimate by a preponderance of the evidence.

If the court found that the violation was willful, the court would have to award two times the calculated damages. A violation would be presumed willful if any of the following applied:

-- The assignee was a person other than an individual, and the assignee's stated or apparent business purpose involved acquiring distressed or foreclosed properties.

-- The assignee, or a beneficial owner or controlling person of the assignee, had acquired more than one redemption right assignment within the three years preceding the assignment at issue.

-- The notice of redemption rights was backdated, as established by any evidence including document metadata, witness testimony, or inconsistency with other transaction documents.

-- The assignee took affirmative steps to prevent the assignor from seeking legal counsel, including requiring same day signing, misrepresenting the nature of the documents, or representing that the notice of redemption rights was not required.

-- The assignee failed to record the instrument of assignment and the notice of redemption rights within 120 days after execution.

In addition to these damages, the court would have to award the assignor reasonable attorney fees and costs if the assignor prevailed.

An individual who was a beneficial owner of, or who exercised control over the management or operations of, an entity that would be subject to the bill would be jointly and severally liable with the entity for all damages and attorney fees awarded. A beneficial owner or controlling person would be presumed to have had actual knowledge of the recorded notice of foreclosure at the time of the assignment. This presumption could be rebutted by clear and convincing evidence.

Notice and Cool-off Period Requirements

An assignee could not present an instrument of assignment to the assignor for execution before seven days after the assignor had signed the required notice of redemption rights. An instrument of assignment, or an agreement, option, or contract to assign a redemption right, executed in violation of the seven-day cooling-off period would be a willful violation. The seven-day cooling-off period would be mandatory and could not be waived. If the applicable redemption period expired within seven days of the date the assignor signed the notice of redemption rights, the cooling-off period would be reduced to one day less than the number of days remaining in the redemption period at the time the notice was signed.

There would be an affirmative defense to liability for a violation of the notice of rights that the assignee provided the assignor a notice of redemption rights that contained all completed property value disclosures required, the assignor signed and dated the notice, the cooling-off period required was observed, and the defect did not mislead or prejudice the assignor.

Penalties for Failure to Notice

Within 30 days after execution of an instrument of assignment, the assignee would have to record the instrument, with the fully executed notice of redemption rights required attached, with the register of deeds for the county or counties in which the premises were located. An assignee who failed to record the instrument with the register of deeds would be liable to the assignor for a civil penalty of $50 for each day the failure continued, beginning on the thirty-first day after execution and ending on the date the instrument and attached notice were recorded, not to exceed $25,000 for each instrument and for reasonable attorney fees and costs if the assignor prevailed. A penalty would be in addition to any liability.

The period of limitations for an action of liability would not begin to run until the instrument of assignment and the notice of redemption rights required were recorded. The existence of a signed notice would not be a defense against a claim of fraud, duress, misrepresentation, or unconscionability and would not preclude any other remedy at law or equity available to the assignor.

[1] "Consideration actually paid" would mean cash or cash equivalent actually received by the grantor at or before closing, not including any amounts paid by the grantee directly to satisfy the mortgage or other liens encumbering the premises.

[2] Testate and intestate generally refer to the process of distributing an individual's property after the individual dies; testate refers to the process of distribution with a will; intestate refers to distribution without a will.

[3] A good-faith error in, or omission of, a parcel identification number would not, by itself, make the notice noncompliant or give rise to liability if the property were otherwise reasonably identified in the notice.

[4] "Consideration actually paid" would mean the cash or cash equivalent actually received by the assignor at or before closing, and would not include any amounts paid by the assignee directly to satisfy the redemption amount or other obligations encumbering the premises.