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Tuesday, May 28, 2013

Critics say Michigan foreclosure bills seek to 'get people out of their homes quicker'





MLive

All Michigan



Critics say Michigan foreclosure bills seek to 'get people out of their homes quicker'


Jonathan Oosting | joosting@mlive.com By Jonathan Oosting | joosting@mlive.com
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on May 24, 2013 at 8:40 AM, updated May 24, 2013 at 9:06 AM







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LANSING, MI -- Michigan homeowners could have more time to avoid foreclosure but less time to reverse it under legislation moving quickly through the state legislature.

The Senate Banking and Financial Institutions Committee on Thursday approved a four-bill package, introduced one day earlier by a group of Republican lawmakers, that would extend a pre-foreclosure negotiation period allowing residents to seek loan modifications but shorten a post-foreclosure redemption window allowing them to retain or short sell their homes.

The bills now head to the full Senate for consideration.

Supporters say a quick fix is needed because the state's mandated negotiation period is set to expire at the end of June, but critics believe reducing the redemption period could result in more Michigan residents losing their homes and damaging their credit as the state continues to emerge from a prolonged foreclosure crisis.

"This is so inconsistent and going in the wrong direction of federal policies, where the concern is to do everything you can to keep homeowners in their homes," Lorray Brown, a statewide foreclosure specialist with the Michigan Advocacy Project, said in testimony before the committee on Thursday. "And here we are in Michigan, trying to get people out of their homes quicker."
Senate Bills 380-382, sponsored by Sens. Randy Richardville of Monroe, Mike Nofs of Battle Creek and Jim Marleau of Lake Orion, would extend the state's 90-day negotiation period, which is set to expire at the end of June, through January 10. That's when new federal regulations kick in mandating a 120-day period, which would allow additional time for homeowners to seek loan modifications or other agreements with their lender in an attempt to avoid foreclosure.

Senate Bill 383, sponsored by Sen. Darwin Booher of Evart, would shorten Michigan's post-foreclosure redemption period by 120 days -- from six months to two months -- providing residents with less time to pursue a short sale or reclaim their home by paying off outstanding fees after it is placed in foreclosure and sold at a sheriff's auction.

While the foreclosure crisis hit Michigan early and hard, numbers are now trending in the right direction. The state saw fewer than half as many foreclosures in March of 2013 than it did in March of 2012. Still, Michigan totaled roughly 70,000 foreclosures during that 12-month period, more than all but two other states.

Booher, who chairs the committee and worked in Michigan banks before entering politics, said the proposal is appropriate because the state's foreclosure rate is slowing, and with federal regulations mandating a longer negotiation period, it makes sense to shorten the redemption period. All told, he pointed out the entire process -- from a missed mortgage payment to loss of a home -- could still take more than 200 days to complete.

"I believe this is the right time and the right policy for Michigan," Booher said. "I believe that this really isn't a shortening of the foreclosure process, but rather a shift in our time frame."

The bills are tie-barred together, meaning that none will take effect unless all four are approved by the legislature and signed by the governor, frustrating some who would support the pre-foreclosure provisions but strongly oppose the shortened redemption period.

"This is really a sad situation," Neeta Delaney, head of the Michigan Foreclosure Task Force, told MLive earlier Thursday. "It was a very political, strategic move on the part of the legislators who are pushing it. It's frustrating to tie those three bills to something else that is so drastic."

Booher said it is important to move quickly on the bills because state law mandating the 90-day negotiation period expires in June but the federal regulations do not take effect until early January. Michigan lawmakers are expected to begin their summer break on June 13, he said, meaning the bills would have to move through both chambers in the next few weeks.
Michigan banks and credit unions widely support the package, pointing to the wide scope of pending federal regulations and their own pro-active efforts to work with borrowers.

"We have little to no redemptions during the redemption period," said Kieran Marion, vice president of governmental affairs for the Michigan Credit Union League. "We have very little people taking advantage of the 90-day process on the front end. We do a lot of work with our borrowers to try to keep them in their homes, and that's probably a result of that."

Local lenders aren't the problem, according to Democratic Sen. Jim Ananich of Flint, who said that Michigan banks and credit unions are generally willing to work with owners to keep them in their homes.

"My problem is with the bigger folks that it's impossible to get on the phone," said Ananich, who cast the lone "no" vote against SB 383. "When I had a Bank of America loan -- I was trying to pay if off, I wasn't even in the foreclosure process -- it took me three weeks to get someone on the phone.

"I feel like we're dealing with folks that are doing the right thing, and we're letting off the folks that are hurting a lot of citizens across the state and across the country."

Booher, pointing to his own experience in the profession, said banks that do everything right during the pre-foreclosure negotiation period, which would be extended to 120 days, should not be "penalized" by having to wait another six months to take possession of a property after they have foreclosed. During that window, he argued, some residents neglect or damage homes they are not intending to fight for.

"People tear up those homes," he said. "They destroy it, or somebody does. Whether or not they've left the home, those buildings are being destroyed and causing the value of my property to go down. So that additional 120 days, I've got to be convinced is worth having on the end of this during the foreclosure process."

But shortening the redemption period would do little to deter outgoing homeowners intent on defacing their property, according to Brown, who said other states have taken a more direct approach by allowing banks to take possession of a home, with a court order, if it is significantly damaged during the foreclosure process.

"If someone's inclined to destroy the property, they'll do as much as they can in two months," she said. "So we have to look at what is the most effective policy to address that issue. That's not done with a blanket reduction of the redemption period."

Underwater homeowners are increasingly using the redemption period to negotiate a short sale, which requires lender approval to sell their home for less than they owe on the mortgage. Banks lose money in the process, while the homeowners avoid significant damage to their credit and a neighborhood can be spared a vacant home.

Short sales can often take six months to complete, according to Kathy Persha, a real-estate agent in Metro Detroit who specializes in helping homeowners facing foreclosures. She said that reducing the redemption period to only two months would prohibit some residents from being able to find a buyer and get lender approval to sell their home once it enters foreclosure.

"It's a joke," she said. "With some of the new rules that came out last October, we thought the process would happen a lot quicker. Instead, everyone I've talked to in this business have all said the same thing: the time frame has gotten much longer for short sales. And some banks would rather not approve short sales and just take the property back."

Michigan Senate Bills 380-383 now head to the full Senate for consideration. Booher said he plans to meet with interested and concerned parties in hopes of fine-tuning the legislation in coming weeks.

Jonathan Oosting is a Capitol reporter for MLive Media Group. Email him, find him on Google+ or follow him on Twitter.

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