Michigan Deficiency Judgment Law

A deficiency is created when a lender forecloses on a property and receives less than what was owed on the property.  A deficiency judgment is created when a lender sues and gets a judgment on the amount still owed on the loan after the foreclosure. Michigan has the following restrictions on obtaining a deficiency judgment:

  • A deficiency judgment is obtainable, but when the lender (mortgagee) is the purchaser that the sale pursuant to a power of sale (non-judicial foreclosure), then the borrower may claim that the fair market value of the property was equal to the amount of the debt secured by it at the time and place of sale or that the amount bid was substantially less than the fair market value (Mich. Comp. Laws Section 600.3280);
  • In a judicial foreclosure, the court may determine and fix the price at which the property may be sold (Mich. Comp. Laws Section 600.3155).

Regarding the first bullet point, in a situation where $100,000 was owed on the property when foreclosed upon, the property sold at foreclosure for $70,000, and the property was actually worth $90,000, a mortgage company could only seek a $10,000 deficiency (the amount owed minus the fair market value) even though it actually lost $30,000 (the amount owed minus the foreclosure sale price).  Regarding the last bullet point, in an lawsuit by a mortgage company seeking foreclosure, the borrower could ask the Court to set the sales price at the fair market value of the property, if the fair market value is less than the amount owed.

What the fair market value of a property is can be difficult to determine and the homeowner and the mortgage company will likely disagree as to that value.  If you live in Michigan and have questions about whether your particular situation might give rise to a deficiency judgment, speak to an attorney in your area for specific guidance.  Or continue searching this site for potential foreclosure alternatives

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