Michigan Hard Money Loan Guide
Michigan has a healthy rate of homeownership, ranked 8th in the nation with a state average of 72% which like the rest of the country is slightly down from a few years back when the number was closer to 77%. Home buyers in the Great Lake State, like the rest of the country, want to own their own piece of the American dream but that has become a little bit more challenging in recent years. Many in search of funding for a first time purchase or renovations on a property are seeking out alternatives to the big banks and mortgage companies that require a lot of paperwork and can take months to fund. Hard money loans, offered by individual and small group investors, are becoming more popular as people learn that they exist. Buyers willing and able to use their home or other owned real estate as collateral can usually close on their purchase much faster and with less paperwork, often a win-win for all involved.
Michigan Foreclosure Laws
In some states, all foreclosures must be managed by the state court system and are referred to as judicial foreclosures. In Michigan, most foreclosures are managed outside of the court system and are called non-judicial foreclosures. This allows the process to move much faster than the courts typically manage, so homeowners facing foreclosure in Michigan need to be informed and understand their rights under the law if they want the best chance to save the property from foreclosure.
Property Redemption after Foreclosure Sale
Some states allow the borrower to redeem (repurchase) the home within a certain period of time, even after a foreclosure sale has taken place. In Michigan, the redemption period is one year, if the borrower owes less than two-thirds of the original loan amount. If they owe more than that, it is six months. However, if the homeowner has abandoned the property, leaving it unattended for a period of time before the foreclosure sale, then their option to redeem the home is reduced to just one month. Mich. Comp. Laws § 600.3240.
Deficiency Judgments in Michigan
When the total mortgage debt exceeds the foreclosure sale price, the difference is called a "deficiency." Some states allow the lender to seek a personal judgment (called a "deficiency judgment") against the borrower for this amount, while other states prohibit deficiency judgments with what are called anti-deficiency laws. There is no anti-deficiency law in Michigan. Lenders can obtain a deficiency judgment following a non-judicial foreclosure. The borrower can contest the amount of the deficiency if the mortgage holder was the purchaser at the foreclosure sale and if the sale price was substantially less than the fair market value of the property. Mich. Comp. Laws § 600.3280.
Deed in Lieu of Foreclosure
In order to avoid foreclosure proceedings, sometimes a home owner will give up ownership of a property to the lender. This is called a deed in lieu of foreclosure, and this process can avoid stressful legal proceedings. This agreement between the borrower and lender allows both parties to avoid the entire process of foreclosure. Sometimes it's called "cash for keys" because since the homeowner is willing to make the process simple for the lender, they can possibly negotiate a cash settlement to help with other costs. A deed in lieu of foreclosure doesn't automatically protect the borrower from deficiency judgments, but many are able to negotiate so it's included in the agreement.
Grace Period Notice
Michigan does not technically have a built-in grace period requirement for the foreclosure process. Some states force the lender to enter into mediation or to give the homeowner a specific number of days to try and make arrangements that satisfy the default so that they can keep their home. But Michigan does not have that. In fact, Michigan does not even require that the homeowner specifically be notified prior to a foreclosure sale's public posting. They do, however, have set time periods in the process that can allow for negotiation and payment. And most lenders, while not required by state law, have standard processes built into their own agreements. Most provide at least 30 days' notice and many will work with the homeowner to find a solution if payment can be made to catch up.
Protections For Military Service Members
Michigan law provides special protections against foreclosure to certain military service members, including members of the Michigan National Guard. So long as either the mortgagor entered into the mortgage before becoming a service member or the mortgagor is deployed in overseas service, lenders cannot foreclose during the service member's period of military service (or within 6 months thereafter) unless a court ordered the sale or foreclosure. Mich. Comp. Laws § 600.3285
High Risk Mortgage Protections
In July of 2002, Michigan law enacted a set of anti-predatory lending laws in order to help protect Michigan homebuyers from predatory lenders. Some of the provisions of this new set of laws include the prohibition of a lender charging points and fees in excess of 6% of the total principal financed amount, the prohibition of a mortgage company issuing a loan to a borrower in an amount that the borrower could not reasonably afford to repay, and the prohibition of the financing of single-premium credit insurance, among others.
Additional State Laws
The maximum interest rate allowed by law is 7%. While most states set limits on how much interest a creditor may charge, consumers regularly waive these limits when agreeing to the terms of a credit card or other loan. Therefore, state interest rate laws typically have no bearing on the actual rates paid by borrowers. Regardless, Michigan interest rate laws impose a 5 percent limit on interest rates, or 7 percent with a written agreement.
Michigan is a homestead state. Homestead laws allow homeowners and property owners in general to register a limited parcel of their property as a "homestead." A homestead is protected from creditors seeking to collect a debt. State homestead laws typically mandate a maximum amount of property (often expressed in dollar amounts) that may be claimed. Michigan homestead laws allow forty acres of rural land or an average-sized urban lot (up to $3,500 worth) to be set aside as a homestead.
Lender Licensing Requirements
The Mortgage and Consumer Finance Division of the Michigan Department of Labor & Economic Growth (DLEG), officially began business on December 8, 2003, in a move to centralize and streamline various economic departments under one department. Within the DLEG, the Office of Financial and Insurance Services handles all aspects of licensing and supervising mortgage brokers. Michigan issues separate licenses for mortgage brokers handling first mortgages and mortgage brokers handling second mortgages. An applicant may apply for either or both of these licenses. All Michigan mortgage licenses are handled through the National Mortgage Licensing System.
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