Foreclosure is complicated, confusing and emotional. And it is normal. A carefully planned and timed bankruptcy filing can expand your options to save your home, afford more time to live in the home while you get ready for what’s next, and ensure that you do not suffer from deficiency collection on the mortgages. Understanding the basics of the home foreclosure process in Minnesota will establish a basis from which you can then understand your bankruptcy options, whether your intention is to save your home, stay in it as long as possible or avoid a mortgage deficiency after foreclosure. Timing is critical, so be certain to act fast in contacting a bankruptcy lawyer who knows how a bankruptcy filing can both help and protect you.
For more detailed information about foreclosure law and procedure in Minnesota, tax consequences of foreclosure, what bankruptcy can do to stop foreclosure and more, be sure to read Wartchow Law’s Foreclosure Blog.
Foreclosure Affects Many Minnesota Homeowners — It’s Not Just You
Foreclosure is one of the most common ailments affecting homeowners across the country. According to the FDIC, at least one in every two hundred homes in America will be foreclosed upon. If you are experiencing a foreclosure, one of the first things you should know is that you are not alone. The economy is especially treacherous for homeowners after the crash in the housing market, the stakes are higher than ever before, and foreclosure today isn’t the foreclosure of past years. It is affecting homeowners in every economic group, in urban, suburban and rural areas, and the working, unemployed and retired alike. Unfortunately, foreclosure is just as much the norm today as it was the exception a generation ago. Knowing the basics of the foreclosure process in Minnesota is a starting point for what to expect: whether you are able to keep your home through the filing of a Chapter 13 bankruptcy or availability of a hardship program such as mortgage modification, or simply understand the often misunderstood truth of what the after effects of foreclosure will mean for you.
The Foreclosure Process in Minnesota: Know the Timeline and Know Your Rights
Step 1: Mortgage Arrears and Pre-Foreclosure
Foreclosure is a statutory and legal process in which a lender forecloses upon its secured interest in a home, otherwise known as a “lien”, in order to repossess the home and sell it to recoup any lender losses. Generally, foreclosure is the result of a homeowner’s default in mortgage payments over time. A default in mortgage payments due under the terms of their mortgage is also known as mortgage arrears. In Minnesota, if the homeowner falls behind on their mortgage and is in arrears, the first step most lenders will take in foreclosure is to mail a default notice to the borrower. This mortgage default letter gives the homeowner notice of his or her default, the amount of the arrears owed and the opportunity to cure these arrears within a specified period. This period of time before an actual foreclosure notice of sale has been served is sometimes referred to as the pre-foreclosure period. Pre-foreclosure can last anywhere from one to six months or more, depending on the terms of your individual mortgage, the volume of foreclosures a particular mortgage lender is conducting, and a host other factors. You have the right to stop the foreclosure process by paying the arrears and other fees listed in the pre-foreclosure notice. The important thing to know is that once you receive this notice of default, a foreclosure notice and sheriff’s sale looming in the near future.
Step 2: The Foreclosure Notice and Sheriff’s Sale
Once a default notice has been sent and the arrears are not brought current–meaning if the homeowner cannot pay off their arrears within that specified period in the pre-foreclosure notice–the lender will then serve the notice of a sheriff’s sale. While the Minnesota law governing service of process in a foreclosure proceeding are detailed, most homeowners will personally served with the foreclosure papers at their home address. The Notice of Sheriff’s Sale or auction they receive will provide the date, time and location of the upcoming sale, usually to be held six weeks later at the county sheriff’s office. The foreclosure notice also includes information about the balance due on the mortgage, the property’s address and other legally required information about the property and homeowner rights in foreclosure. This may be the only notice of to foreclose that you receive and unless the borrower is able to postpone or delay the sale through some other avenue, the sale will be conducted in the morning on that date. A sheriff’s sale is basically a pubic auction whereby anyone can attend and bid on a property, however most commonly it is the mortgage lender itself that purchases the home at the foreclosure sale. Once the sheriff’s sale is conducted and a lender’s bid is accepted, ownership of the property has effectively transferred to the lender and the lender is now the owner of the property. The former homeowner has a right to redemption including the right to stay in the home for a period of time.
Step 3: The Redemption Period
Once the sheriff’s sale has come and passed, the homeowner is now inside a period of time known as the redemption period. While the duration of a redemption period is determined by Minnesota statute and depends on how the foreclosure was conducted and what type of property is involved, most borrowers who continue live in the home will have a six-month redemption period from the date of the sheriff’s sale. During this time, the homeowner has various redemption rights, most importantly being the right to redeem the home by paying the total bid amount as well as any interest, costs and other specified amounts. The homeowner also has the right to occupy the home through the end of the redemption period. After a redemption period has expired, a homeowner is expected to vacate the property or otherwise could face an eviction proceeding in state court. Some borrowers are also able to negotiate an ongoing rental of the home with the lender, if both parties are willing.
The Dreaded Mortgage Deficiency after Foreclosure or Short Sale
Mortgage deficiency is one of the most misunderstood aspects of both foreclosure and short sales in Minnesota. In short, Minnesota law protects most homeowners from owing a deficiency on their mortgage after foreclosure. The statute is commonly referred to as the Minnesota Anti-Deficiency Statute (Minn. Stat. 582.30), and it should be noted that this protection is only available if it is your home and the lender forecloses by advertisement (which is the more common Minnesota home foreclosure process). The anti-deficiency statute does not protect homeowners against deficiencies on second or third mortgages, or if they short sold their home. It’s also important to note that a cancelled deficiency may be subject to taxation as 1099 taxable income.
How Can Bankruptcy Help or Stop My Foreclosure?
Bankruptcy can impact home foreclosure proceeding in a variety of ways. But timing is of the essence. First and foremost, a Chapter 7 or Chapter 13 bankruptcy filed before the occurrence of a sheriff’s sale will not only preserve the greatest extent of available options with regard to the home but it will also stop the sale sheriff’s itself. While your options in bankruptcy vary depending on your income and what your intent is to do with your home, there is no question that the first thing you should do is consult an experienced bankruptcy attorney who can explain the timing issues and bankruptcy options to you. Whether it’s simply buying you more time to stay in your home or saving your home in Chapter 13, you must act fast and plan for your best course of action to achieve what is possible with bankruptcy.
Repayment of Mortgage Arrears in Chapter 13 Bankruptcy
One of the most common reasons a homeowner may elect to file Chapter 13–which is a partial debt repayment program–and not Chapter 7 bankruptcy is to take advantage of the ability to repay home mortgage arrears through a confirmed Chapter 13 plan. Unlike Chapter 7 bankruptcy, a Chapter 13 bankruptcy involves a three to five-year plan during which the borrower makes monthly payments to a trustee assigned to their case. From these monthly payments, the trustee will distribute funds to pay certain debts in full such as mortgage arrears and most taxes, while certain other debts, such as credit cards and most unsecured debts, receive a usually prorated amount of what each is owed. After the successful completion of this three to five-year plan, the borrower can be caught up on their mortgage arrears and receive a discharge on most if not all of the remaining dischargeable debts. The key to making a Chapter 13 work to pay off your mortgage arrears and keep your home is that you must have income that supports that not only can you make the regular payment due on your mortgages and all your other basic living expenses, but also that you can afford to make this additional Chapter 13 payment. The amount of the Chapter 13 monthly payment depends on a variety of factors and calculations, which an experienced Chapter 13 bankruptcy attorney can compute and explain to you.
It is important to note that while Minnesota law governs the legal foreclosure process, the terms of your specific mortgage also govern your rights and your lender’s ability to foreclose. While this information is provided as general guidance on foreclosure in Minnesota, you should review the terms of your mortgage and consult with an attorney if necessary to determine your rights in the Minnesota home foreclosure process and foreclosure defense.