When a mortgage loan is closed with an "escrow waiver" the Borrower is responsible for directly paying Property Taxes and other "escrow items."
In Michigan it is certain that homeowners can defer payment of their Property Taxes for 2 years before forfeiture and 3 years before tax foreclosure.
Most uniform mortgage instruments say that if the Borrower fails to pay Property Taxes in a timely manner, that the Lender may pay them to protect its interests.
Most uniform mortgage instruments say that if the Lender pays Property Taxes to protect its interests, the amounts shall become "additional debt secured by the security instrument" which is "payable" with interest at the "note rate" after the Lender gives a "notice requesting payment."
Most uniform mortgage instruments also say the Lender may, at any time, revoke the "escrow waiver" and "establish" an escrow account and require the Borrower to deposit, subject to the limits under RESPA, amounts sufficient to pay amounts needed to pay the applicable "escrow items" as they come due.
The Lender is prohibited from establishing the new escrow account with a "negative balance." Most all Lenders are engaged in the practice of establishing post-settlement escrow accounts with negative balances that are equal in amount to the sum of all amounts the lender has advanced to protect its interests.
This has been found to be a Breach of Contract and an Unfair Debt Collection Practice. Many defaults have been declared based on a Borrower's failure to pay ongoing payments that are inflated as a result of an unlawfully negative starting balance and many foreclosures have been completed based on these unlawful practices - this can very likely be a defense to the default and/or foreclosure.
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