If you get a loan to buy residential real estate in Minnesota, you'll likely sign two documents: a promissory note and a mortgage. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The mortgage is the document that gives the lender a security interest in the property and will probably include a power of sale clause. If you fail to make the payments, the mortgage gives the lender the right to sell the home through a process called "foreclosure" so it can recoup the money it loaned you.
The servicer (on behalf of the loan owner, called the “lender” in this article) will manage the foreclosure process. The method will most likely be nonjudicial, although judicial foreclosures are also allowed. Minnesota law specifies how nonjudicial procedures work, and both federal and state laws give you rights and protections throughout the foreclosure.
If you miss a payment, the servicer can charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you’ll incur late charges. To find out the grace period in your situation and the amount of the monthly late fee, review the promissory note or your monthly billing statement.
If you skip a few mortgage payments, the servicer will probably send letters and call you to try to collect the late amounts. Federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called “loss mitigation” options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available, and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. But in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
In Minnesota, the lender has to give you the following notices before foreclosure starts.
In most cases, the lender has to send you a written notice of the default before officially starting a foreclosure. The notice must provide 30 days to cure the default. (Minn. Stat. Ann. § 47.20).
Usually, along with the notice of default, the lender also has to provide notice that foreclosure prevention counseling services are available and that your contact information will be sent to an approved foreclosure prevention agency. This law applies to properties that consist 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).
Again, most foreclosures in Minnesota are nonjudicial.
To start the nonjudicial foreclosure process officially, the lender must first file a notice of the pendency of the foreclosure with the county recorder’s office. (Minn. Stat. Ann. § 580.032). After filing the notice of pendency, it has to publish a notice of sale for six weeks before the sale and serve a notice of sale to the occupant of the home four weeks before the sale. (Minn. Stat. Ann. § 580.03).
For properties consisting of one- to four-family dwelling units, one of which the owner occupies as the owner's principal place of residency, along with the notice of sale, the lender has to provide a foreclosure advice notice. This notice provides information about how to get help to prevent a foreclosure. The lender also has to give a notice of redemption rights (see below) and information about what happens after the foreclosure sale. (Minn. Stat. Ann. § 580.041).
The foreclosure advice notice must also be provided with each subsequent written communication mailed to you. A lender is deemed to have complied with these requirements if it sends the foreclosure advice notice at least once every 60 days up to the foreclosure sale date. (Minn. Stat. Ann. § 580.041).
Under Minnesota law, you can choose to postpone the foreclosure sale if the property:
To get a postponement, you have to complete a series of steps. After the notice of foreclosure sale is published, but at least 15 days prior to the scheduled sale date specified in that notice, you have to execute and record a sworn affidavit, as well as file a copy with the sheriff who's conducting the sale and deliver a copy to the lender's attorney. The copies must show the recording date and the county recorder’s office in which the affidavit was recorded. (Minn. Stat. Ann. § 580.07).
Depending on the situation, the postponement will last for five months or 11 months. The trade-off is a reduced redemption period (see below) of five weeks. (Minn. Stat. Ann. § 580.07). For more information on postponing the sale, consult with a lawyer.
The sale is a public auction. The property is either sold to a third-party bidder or reverts to the lender and becomes known as “Real Estate Owned” (REO).
“Reinstating” is when you catch up on the missed payments, plus fees and costs, to stop a foreclosure. In Minnesota, the borrower has the right to reinstate at any time before the sale. (Minn. Stat. Ann. § 580.30).
Sometimes, when a home sells at a foreclosure sale, the sale doesn’t bring in enough money to pay off the full amount owed. The difference between the sale price and the total debt is called a “deficiency balance.” Many states, like Minnesota, allow the lender to get a personal judgment (a “deficiency judgment”) for this amount against the borrower.
In Minnesota, the foreclosing lender can’t get 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). Once the lender gets a deficiency judgment, it might try to collect on it by, for example, going after your paycheck through a wage garnishment or your bank account with a levy.
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. Most borrowers in Minnesota get six months to redeem the home following a foreclosure. (Minn. Stat. Ann. § 580.23). But in some particular situations, the redemption period will be:
As discussed above, you’ll get a notice of redemption rights telling you about your right to redeem the property and other rights after the sale. (Minn. Stat. Ann. § 580.041).
After the redemption period ends, the new owner may file an eviction lawsuit against you (the former owner). (Minn. Stat. Ann. § 504B.285).
If you’re facing a Minnesota foreclosure, consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.