Reviewing foreclosure

Bill Donahue nearly lost his home to foreclosure a month ago. His family home of 25 years had been sold at a sheriff’s auction and he had an eviction notice on his door. It may have been just another foreclosure except Donahue had been making payments under a loan modification agreement with his lender, according to Curtis Hertel Jr., Ingham County register of deeds.

Hertel, who worked with Donahue to regain his home, says Donahue’s case is not unusual in Michigan.

“I would say we have over 1,000 fraudulent foreclosures in Ingham County over the last three years,” Hertel said. 

Hertel has been holding town hall meetings throughout the county about fraudulent foreclosures and what citizens can do to protect themselves. He is also trying to convince the Michigan Legislature to change the state’s foreclosure laws so what happened to Donahue can’t happen again.

The next meeting is scheduled for 7 p.m. today  at the Foster Community Center, 200 N. Foster in Lansing, room 213. 

“There’s no point in the (foreclosure) process where a private citizen gets to go to an elected official and say I am being wrongly foreclosed,” Hertel said at a town hall meeting in Leslie last month. “The only way to do that is to wait until the eviction, which is too late because their credit has already been destroyed. My point to the Michigan Legislature is if that can happen to a Michigan citizen, then the laws aren’t working and they need to be changed.”

Almost all of Michigan’s foreclosures are done through a system called foreclosure-by-advertisement, Hertel explained. Under this system, the mortgage holder advertises the intention to foreclose in a weekly ad for four weeks in  a local newspaper. The home then goes up for auction. The property owner then has six months before eviction to buy it back.

The only option for stopping the foreclosure process once it has begun is by going to court, said Elliot Spoon, a mortgage law professor at Michigan State University.

“The effect would be to delay the completion of the foreclosure, and that’s good if the borrower is able to begin making their mortgage payments,” Spoon said. “If they’re not, it’s simply delaying the time that the mortgage will be foreclosed upon.”

Foreclosure severely damages a borrower’s credit score, Hertel said. It also affects surrounding properties by lowering property values. This lowers tax revenue for both the county and state, affecting services such as public safety, road repairs and education.

In good years, Ingham County had between 400 and 500 foreclosures, Hertel said. That number has increased to over 1,500 foreclosures a year for the last three years, causing the taxable value of Ingham County properties to drop by over $1 billion since 2009.

 Michigan’s foreclosure-by-advertisement system does not allow for any review to determine if the foreclosure is valid, which can cause problems, Hertel said.

"Under the current system there is an assumption that the bank is always right,” he said. “The banks do not have to provide information to the sheriff’s office that shows that the foreclosure is valid. You can literally, in Ingham County and across the state, come up to my office and say ‘Hey Curtis I’m committing a fraud,’ and by Michigan law I have to accept the documents even if I know they’re fraudulent. We need some third-party person involved.” 

Spoon agreed that the number of foreclosure abuses has been rising, but he wasn’t sure if changing the law would help since borrowers already have the option of court. Current law also requires the borrower and lender to meet before foreclosure starts to discuss refinancing or modifying the loan, and problems can be discussed then as well.

“The question is do we permanently change the statute for a temporary problem,” Spoon said. “My sense is that the (banks) were simply unable to handle the volume of people in default and the volume of foreclosures and so looked for shortcuts.”

One of those shortcuts uses “robo,” or automated, signing to replace documents that a mortgage company or bank needs to foreclose on a home, Spoon said. Foreclosures require documents such as affidavits stating files have been reviewed before the foreclosure starts. If the affidavit is signed without review, then the affidavit is incorrect and the foreclosure process is flawed.

Hertel said robo-signed documents have been used on over 400 documents in county foreclosures in the past three years making those foreclosures illegal. However, the current system makes it hard for citizens to fight back and receive loan modifications.

“If we can make it harder for (banks to take a home) and make them have to file the documents correctly, make them have to do everything legally, they’re less likely to go through foreclosure (and) they’re more likely to give reasonable modifications,” Hertel said.

State Rep. Jim Ananich, D-Flint, introduced legislation in May requiring that Michigan uses judicial foreclosures in order to build in a third party review process. The bill is  in committee.

The bill would “put some judicial review in it so we know these people, before their house is sold at auction, legally should be foreclosed,” Hertel said. “I don’t think that’s too much to ask.”