Minnesota is the second state in the country (after California) to enact a Homeowner Bill of Rights designed to protect struggling homeowners. The new law prohibits certain actions, like dual tracking, and requires loan servicers to assist homeowners in the loss mitigation process. Read on to learn about the new protections for homeowners and how the Homeowner Bill of Rights can help you if you are facing foreclosure in Minnesota.
(For more articles on Minnesota foreclosure law and assistance for Minnesota homeowners facing foreclosure, visit our Minnesota Foreclosure Law Center.)
Purpose of the Minnesota Homeowner Bill of Rights
Over 150,000 Minnesota homeowners have lost their homes to foreclosure since 2006. In many cases, lenders did not provide those homeowners with significant opportunities to obtain loss mitigation options (such as loan modifications) to avoid foreclosure and also engaged in extensive mortgage servicing misconduct. To address this issue, Minnesota Governor Mark Dayton signed the Homeowner Bill of Rights into law on May 24, 2013.
(Learn more about loan modifications and the different types of loss mitigation options in our Alternatives to Foreclosure area.)
Key Protections in the Minnesota Homeowner Bill of Rights
There are five key protections in the Homeowner Bill of Rights:
Loan Servicers Must Communicate All Loss Mitigation Options to Homeowners
A loan servicer must notify the homeowner in writing of all available loss mitigation options before referring the mortgage loan to an attorney for foreclosure. (A loan servicer is the company that collects monthly mortgage payments from borrowers on behalf of the owner of the loan, as well as tracks account balances, manages the escrow account, handles loss mitigation applications, and pursues foreclosure in the case of defaulted loans.)
Loan Servicers Must Assist Homeowners in Submitting Loss Mitigation Documentation
After the homeowner requests a loan modification or other loss mitigation option, the loan servicer must:
- assist the homeowner in submitting the loss mitigation application
- make reasonable attempts to obtain the documents and information needed from the homeowner to complete the loss mitigation application, and
- give the homeowers a reasonable amount of time to provide the required documents.
Loan Servicers Must Offer Loan Modifications to Eligible Homeowners
After reviewing a loss mitigation application, the servicer must:
- offer the homeowner a loan modification if the homeowner is eligible or,
- if not eligible, offer the homeowner any other loss mitigation option for which the homeowner qualifies.
No Dual Tracking
Minnesota’s Homeowner Bill of Rights bans the dual tracking of foreclosures. (Dual tracking is when the lender proceeds with the foreclosure while a loss mitigation application is pending). This means loan servicers must make a decision to grant or deny a first-lien loss mitigation application before starting or continuing the foreclosure process.
What does this mean for homeowners? Once the homeowner submits a complete loss mitigation application, the foreclosure is stalled while the loan servicer reviews the application and makes a decision. Even if the lender denies the loss mitigation, it still cannot foreclose until any applicable appeals period has expired.
A homeowner can submit a loss mitigation application up to midnight on the seventh business day before the foreclosure sale and halt the foreclosure while the servicer evaluates the application. This provision is stricter than new federal regulations, which will require the homeowner to submit the application 37 days prior to the sale. (Learn more about the new federal regulations in our article New Federal Rules Protecting Homeowners With Mortgages.)
Additionally, a servicer cannot proceed with foreclosure if:
- the homeowner is in compliance with the terms of a trial or permanent loan modification, or other loss mitigation option, or
- a short sale has been approved by all necessary parties and proof of funds or financing has been provided to the servicer.
Homeowners Have the Right to Sue for Violations
Homeowners may sue the servicer for violations of the Minnesota Homeowner Bill of Rights. Potential relief includes:
- stopping an upcoming foreclosure sale
- setting aside (reversing) a foreclosure sale if one has already occurred, and
- obtaining reimbursement of attorneys’ fees and costs if the homeowner wins the case.
Effective Date of the New Law
The protections under the Minnesota Homeowner Bill of Rights are effective as of August 1, 2013, except for the dual-tracking prohibition, which goes into effect on October 31, 2013.
Applicability of the Minnesota Homeowner Bill of Rights
The protections afforded to homeowners by the Homeowner Bill of Rights generally apply to first mortgage loans for properties that are:
- owner-occupied as the owner’s principal residence
- residential, and
- have no more than four units.
The law does not apply to mortgages that secure a loan for business, commercial, or agricultural purposes.
Smaller mortgage servicers are exempt from the law, however they cannot pursue a foreclosure if a homeowner is in compliance with the terms of a loan modification or other loss mitigation agreement.
Learn More About the Minnesota Homeowner Bill of Rights
You can find the laws discussed in this article in Chapter 582 of the Minnesota Statutes. To read the text of the Minnesota Homeowner Bill of Rights, you can go to www.leg.state.mn.us, then click on “Search Senate Bills,” and enter “1276” (the number of the Senate Bill) in the search box.