Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, many federal and state laws now give protections to borrowers. Servicers generally must provide borrowers with loss mitigation opportunities, account for each foreclosure step, and carefully comply with foreclosure laws.
Also, most people who take out a loan to buy a residential property in Minnesota sign a promissory note and a mortgage. These documents usually give homeowners certain contractual rights after a home loan default.
So, don't get caught off guard if you're a homeowner behind in mortgage payments. Learn about foreclosure laws in Minnesota and how the Minnesota foreclosure process works, from missing your first payment to a foreclosure sale.
In a Minnesota foreclosure, you'll most likely get the right to:
Once you understand the Minnesota foreclosure process and your rights, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale happens as "preforeclosure," too.)
During the preforeclosure period, the servicer can charge you various fees. Also, in most cases, federal law requires the servicer to let you know how to avoid foreclosure, and most mortgage contracts require the servicer to send you a breach letter.
Minnesota's Homeowner Bill of Rights prohibits specific actions, like dual tracking, and requires servicers to assist borrowers in the loss mitigation process. This state law is similar to federal mortgage servicing laws, with some minor differences.
The servicer must notify the borrower in writing of available loss mitigation options that the servicer offer before referring the mortgage loan to an attorney for foreclosure. (Minn. Stat. § 582.043).
After the borrower requests a loan modification or other loss mitigation option, the loan servicer must:
Once the borrower submits a complete loss mitigation application, the foreclosure is stalled while the loan servicer reviews the application and makes a decision. (Minn. Stat. § 582.043).
Even if the lender denies the loss mitigation, the servicer still can't foreclose until:
If the servicer receives a borrower's loss mitigation application before midnight on the seventh business day before the foreclosure sale date, the foreclosure stops while the servicer evaluates the application. This provision is stricter than federal law, which requires the borrower to submit the application more than 37 days before the sale to get protections against foreclosure. (Minn. Stat. § 582.043).
The protections under the Minnesota Homeowner Bill of Rights generally apply to first mortgage loans for properties that are:
Smaller servicers are exempt from the law, but they can't pursue a foreclosure if a borrower is in compliance with the terms of a loan modification or other loss mitigation agreement. (Minn. Stat. § 582.043).
Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a couple of exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners ample opportunity to submit a loss mitigation application to the servicer.
If you default on your mortgage payments in Minnesota, the lender may foreclose using a judicial or nonjudicial method.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. The lender will automatically win the case if you don't respond with a written answer.
But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold.
If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. After completing the required steps, the lender can sell the home at a foreclosure sale.
Most lenders opt for the nonjudicial process because it's quicker and cheaper than litigating the matter in court.
Again, most residential foreclosures in Minnesota are nonjudicial.
In most cases, the lender has to mail the borrower a notice of default before officially starting a foreclosure. The notice must provide the borrower with 30 days to cure the default. (Minn. Stat. § 47.20).
Typically, along with the notice of default, Minnesota law requires the lender to provide notice that foreclosure prevention counseling services are available and that the homeowner's contact information will be sent to an approved foreclosure prevention agency. This law applies to properties consisting of one- to four-family dwelling units, one of which the owner occupies as the owner's principal place of residency. (Minn. Stat. § 580.021, § 580.022).
The lender begins the foreclosure by filing a notice of the pendency with the county recorder's office. (Minn. Stat. § 580.032). After filing the notice of pendency, a notice of sale is published in a newspaper for six weeks before the sale. The lender must also serve a notice of sale to you (the home's occupant) four weeks before the sale. (Minn. Stat. § 580.03).
Another notice, a redemption rights notice, contains information about the homeowner's right to redeem the property (see below) and other rights after the sale. (Minn. Stat. § 580.041). In addition, the lender also must provide an advice notice, which includes information about how the borrower can get help avoiding foreclosure. (Minn. Stat. § 580.041).
Under Minnesota law, if the property is classified as a homestead, is occupied by the owner as a homestead, and contains one to four dwelling units, the borrower or homeowner can choose to postpone the foreclosure sale. But the trade-off is a reduced redemption period (see below) of five weeks. (Minn. Rev. Stat. § 580.07).
To get a postponement, you have to complete a series of steps, including:
You must do all this after the notice of foreclosure sale is published, but at least 15 days before the scheduled sale date specified in that notice. Depending on the circumstances, the postponement will be for five or 11 months. (Minn. Rev. Stat. § 580.07).
At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less.
Sometimes, depending on state law, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower. Other times, state law prohibits a deficiency judgment (see below).
If the lender is the highest bidder, the property becomes "Real Estate Owned" (REO). But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds—that is, money over and above what's needed to pay off all the liens on your property—you're entitled to that surplus money.
After the redemption period ends, the new owner may file an eviction lawsuit against you (the former owner). (Minn. Stat. § 504B.285).
A few potential ways to stop a foreclosure and keep your home include reinstating the loan, redeeming the property before or after the sale, or filing for bankruptcy. Working out a loss mitigation option, like a loan modification, will also stop a foreclosure.
Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid foreclosure. But you'll have to give up your home with a short sale or deed in lieu of foreclosure transaction.
One way to stop a foreclosure is by "redeeming" the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.
Some states also provide foreclosed borrowers a redemption period after the foreclosure sale, during which they can buy back the home. In Minnesota, most homeowners have six months to redeem the home after the foreclosure. (Minn. Stat. § 580.23).
But for some kinds of properties, like some kinds of agricultural properties, or if the amount owed on the mortgage is less than 66-2/3 percent of the original principal amount, for example, the redemption period is one year. (Minn. Stat. § 580.23). If the borrower abandons the home or postpones the sale, a court can reduce the redemption period to five weeks. (Minn. Rev. Stat. § 582.032, § 580.07).
If you're facing a foreclosure, filing for bankruptcy might help. In fact, if a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy.
Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction, which prohibits the lender from foreclosing on your home or otherwise trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out about the options available to you, speak with a local bankruptcy attorney.
The federal Servicemembers Civil Relief Act (SCRA) provides legal protections to military personnel who are in danger of foreclosure. Minnesota law extends protections under the federal SCRA to servicemembers called to state active service or federally funded state active service. (Minn. Stat. § 190.055).
In a foreclosure, the borrower's total mortgage debt sometimes exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $400,000, but the home sells for $350,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount from the borrower.
In Minnesota, the lender can't obtain a deficiency judgment against the borrower if the mortgage is foreclosed nonjudicially and the redemption period is six months or five weeks (applicable to abandoned properties). (Minn. Stat. § 582.30).
For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
Get tips on what to do—and what not to do—if you're facing a foreclosure.
Find out if foreclosures are on the rise.
If you have questions about Minnesota's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney. Talking to a HUD-approved housing counselor about different loss mitigation options is also a good idea.