Home > business, Real Estate > Michigan Real Estate Law Update: Investors: If you Intend to Redeem, Better Record that Deed.

Michigan Real Estate Law Update: Investors: If you Intend to Redeem, Better Record that Deed.

Happy New Year!

A brief Michigan Legislative Update that affects real estate investors. HB 5795  was passed into law on December 29, 2014 and given immediate effect. The law amends the redemption from foreclosure statute. MCL 600.3140.

See the legislative analysis of the House Bill here

Purchasing Property at (and after) Foreclosure.

Under the prior language, anyone “lawfully claiming from or under the mortgagor or the mortgagor’s heirs, executors, or administrators” could redeem the property from foreclosure.

This effectively meant that an investor who missed the foreclosure sale could contact the homeowner (or their personal representative, if deceased) and purchase a quitclaim deed that would transfer the homeowner’s “redemption rights” in the property.

“Redemption Rights” One Stick in the Bundle of Rights.

As every lawyer who sat through Property Law in first year Law School was taught, Property Rights are akin to a “bundle of sticks” – multiple rights within that bundle, including, complete ownership (fee simple) possession, contingent rights, mineral rights, air rights, etc…and in the case of a homeowner, a right of redemption.

A quitclaim deed transfers “whatever” rights the homeowner had at the time of the transfer. In the case of a homeowner after foreclosure, this typically means only “the right of redemption” since that is the only stick left in the bundle.

When Do you have a Right to Redeem as the Owner of a Redemption Right?

The result of HB 5795, it doesn’t preclude a homeowner from assigning their interest, but it puts the burden of the “grantee” (or real estate investor who purchased the rights) to record the deed prior to redemption.

The practical effect is that it places no duty on a purchaser at foreclosure, or the register of deeds, to accept payment, unless they are presented with a “recorded interest.”

What’s the Purpose for this Amendment?

For real estate investors who pick up properties at foreclosures, there is nothing that irks them more than another investor who approaches them a few months after foreclosure sale and informs that they own the right to redeem the property via a quitclaim deed, and they intend to redeem.

All the investor’s time and energy in due diligence to investigate properties worth picking up, not to mention the amount of cash that was needed to purchase the Property at the foreclosure sale – all gone to waste.  When the investor expected to either rehab and flip the property, or make it into a long term rental investment, what does the investor get in return? a nominal short term interest payment on their funds.

It isn’t surprising that an investor is not too happy when they get the call asking for a pay off from one “lawfully claiming under the mortgagor” Now, rightfully, the investor could search the Register of Deeds and see if a quitclaim deed had been recorded. If not, it arguably gives them grounds to refuse a pay off.

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

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  1. January 20, 2015 at 10:12 am

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