By: Lance T. Denha, Esq.
Over the last few years it has been a very trying time on lenders, bankers, court system, lawyers and homeowners in the area of foreclosures and defense against a foreclosure. In fact, because of the backlog in cases, both Michigan and Florida are some of the latest states who are looking to speed up the foreclosure process by reducing the number of court hearings, filing periods, paperwork, and redemption periods. Whether this acceleration of the process helps or hurts is debatable.
Here’s the advantage and disadvantage to each: With shorter default times, homeowners in danger of default will need to pay closer attention to foreclosure response timelines – or risk losing their homes. Buyers in the market for a foreclosure will also need to be prepared to close quickly by having their cash or financing available in order – or risk losing the property to an investor or another buyer.
Michigan lawmakers are considering changes to the state’s current foreclosure law. The legislation includes shortening the foreclosure redemption period which is the time when homeowners can challenge a foreclosure’s legality, sell their home, or find a new one. In most cases, that period would be reduced from six months to 60 days.
Several bank-backed bills argue that long redemption periods cause many homes to sit abandoned, creating blight and reducing property values in the neighborhood. Critics say that if these foreclosure laws pass, it will have a negative impact on distressed Michigan homeowners who are struggling to find ways to keep their properties. Currently, most lenders wait until homeowners are in default up to 120 days before they file a foreclosure, and Michigan residents have 90 days to negotiate a mortgage modification or other resolution with their lender.
While banks and homeowner associations favor the new law, as shorter timelines free up the backlog of court cases and help resell homes more quickly, the flip side is that a flood of foreclosure properties could be detrimental to the real estate housing market recovery. While buyers may benefit from affordable housing prices, a foreclosure may not be right for every buyer. Many foreclosure homes are in poor condition and need extensive repairs. Shorter timelines could certainly produce a negative effect on distressed homeowners, who may not have enough time to defend against a foreclosure action and save their home and credit.
More effective solutions to the foreclosure problem may include educating homeowners prior to purchasing a home, improving lenders’ business practices, and enacting better safeguards and protections to prevent another housing-market meltdown.