Federal and state laws regulate loan servicing and foreclosure processes. Many of these laws give protections to borrowers. Servicers generally have to provide borrowers with loss mitigation opportunities, account for each foreclosure step, and strictly comply with foreclosure laws. Also, the majority of people who take out a loan to buy a residential property in Minnesota sign a promissory note and a mortgage. These documents give homeowners some contractual rights in addition to federal and state legal protections.
In a Minnesota foreclosure, you'll most likely get the right to:
So, don't get caught off guard if you're a Minnesota homeowner who's behind in mortgage payments. Learn about each step in a Minnesota foreclosure, from missing your first payment to a foreclosure sale. Once you understand the process, 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 actually happens as "preforeclosure," too.) During this time, the servicer can charge you various fees, like late charges and inspection fees, and, in most cases, must inform you about ways to avoid foreclosure.
If you miss a payment, most loans include a grace period of ten or fifteen days, after which time the servicer will assess a late fee. Each month you miss a payment, the servicer will charge this fee. To find out the late charge amount and grace period for your loan, look at the promissory note you signed. You can also find this information on your monthly mortgage statement.
Also, most Minnesota mortgages allow the lender (or the current loan holder, referred to as the "lender" in this article) to take necessary steps to protect its interest in the property. Property inspections are performed to ensure that the home is occupied and appropriately maintained. Inspections, which are generally drive-by, are usually ordered automatically once the loan goes into default and typically cost around $10 or $15.
Other types of fees the servicer might charge include those for broker's price opinions, which are like appraisals, and property preservation costs, such as for yard maintenance or winterizing an abandoned home.
Under federal mortgage servicing laws, the servicer must contact, or attempt to contact, you by phone to discuss loss mitigation options, like a loan modification, forbearance, or repayment plan, no later than 36 days after you miss a payment and again within 36 days after each following delinquency. No later than 45 days after missing a payment, the servicer has to inform you in writing about loss mitigation options that might be available and appoint personnel to help you try to work out a way to avoid foreclosure. A few exceptions are in place for some of these requirements, though, like if you've filed bankruptcy or asked the servicer not to contact you pursuant to the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39, 12 C.F.R. § 1024.40).
Federal mortgage servicing laws also prohibit dual tracking (pursuing a foreclosure while a complete loss mitigation application is pending).
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 with 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. If you don't respond with a written answer, the lender will automatically win the case. 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 to use 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. Ann. § 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. Ann. § 580.021, § 580.022).
The lender begins the foreclosure by filing a notice of the pendency with the county recorder's office. (Minn. Stat. Ann. § 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 also has to serve a notice of sale to you (the home's occupant) four weeks before the sale. (Minn. Stat. Ann. § 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. Ann. § 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. Ann. § 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 prior to the scheduled sale date specified in that notice. Depending on the circumstances, the postponement will be for five months 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 what's called "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. Ann. § 504B.285).
A few potential ways to stop a foreclosure include reinstating the loan, redeeming the property before or after the sale, or filing for bankruptcy. Of course, if you're able to work out a loss mitigation option, like a loan modification, that will also stop a foreclosure.
Minnesota law permits a borrower to reinstate a defaulted loan at any time before the sale. (Minn. Stat. Ann. § 580.30).
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 with 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. Ann. Ann. § 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. Ann. § 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.
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. Ann. § 582.30).
In this article, you'll find details on foreclosure laws in Minnesota, with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea.
To find Minnesota's laws, search online for "Minnesota statutes" or "Minnesota laws." Make sure you're reading the most recent, official laws. Usually, the URL will end in ".gov" or the statutes will be on an official state legislature webpage.
For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
Although the programs under the Making Home Affordable (MHA) initiative have expired, the MHA website still contains useful information for homeowners facing foreclosure.
How courts and agencies interpret and apply laws can change. And some rules can even vary within a state. These are just some of the reasons to consider consulting a lawyer if you're facing a foreclosure. 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.
It's also a good idea to talk to a HUD-approved housing counselor if you want to learn about different loss mitigation options. You can use the CFPB's Find a Counselor tool to get a list of HUD-approved housing counseling agencies in your area. You can also call the Homeownership Preservation Foundation (HOPE) Hotline, which is open 24 hours a day, seven days a week, at 888-995-HOPE (4673).