“Foreclosure” is a word that can strike terror into the heart of a homeowner who has missed one or more payments on the loan used to purchase his residence. The word most often appears in a letter to the borrower from the bank or other lending institution that made the loan. This letter is a formal notice required by Michigan law to commence the foreclosure proceeding. The receipt of such a letter can feel like a death sentence. The foreclosure process in Michigan (and most other states) is a complex legal process that is poorly understood by lay persons (and by more than a few lawyers). In order to understand how a short sale can help prevent the loss of a home, let us begin by analyzing the foreclosure process.
Most Michigan residents think that the foreclosure process is somehow connected with their right to occupy the home. That is incorrect. Michigan law gives every borrower the right to redeem the real estate from the lien of the lender. This right is called “redemption.” The right to redeem must be exercised within 6 months after the date of the sale of the house by the county sheriff; if the unpaid balance on the loan is less than 2/3 of the original debt, the redemption period is 12 months. If the borrower can pay the amount that was bid for the house at the sheriff’s sale, or make other arrangements with the lender, the property will be deemed to have been redeemed, and the borrower is restored to all rights of ownership. Because this right is deemed to be an equitable remedy, the right to redeem is known as the “equity of redemption.” The foreclosure proceeding foreclosures the right of redemption so that the person who purchased the property at the sheriff’s sale can take possession or resell the property.
What is a short sale?
A short sale is a sale of the property that occurs before the deadline for redemption or repayment passes. Most mortgage agreements contain the bank’s requirements for arranging a short sale, and most require the lender’s approval before the property can be sold. If a short sale can be arranged before the redemption period expires, the proceeds from the sale can be used to pay a portion of the balance of the loan. If the lender has approved the short sale, those proceeds may also be used to pay the delinquency on the original loan.
Anyone contemplating a short sale for any reason should contact an experienced real estate attorney for an evaluation of the proposed transaction and for an opinion as to whether a short sale will provide a satisfactory method of halting the foreclosure process.