Foreclosure in Minnesota: Know the Process, Timeline and How Bankruptcy Can Help

Home foreclosures in Minnesota are common and arguably are even on the rise despite an improving real estate market. In April 2012, the Star Tribune reported that while foreclosures were slightly down during the first quarter of 2012, signs still point to an 11 percent increase in Minnesotans facing foreclosure, adding that one in 312 Minnesota homeowners have received some sort of notice of foreclosure.

Home foreclosure in Minnesota happens via one of two legal proceedings: either the lender forecloses by advertisement or the lender forecloses by action. This post only discusses foreclosure by advertisement, which is the more common of the two Minnesota home foreclosure processes.

In a foreclosure by advertisement, the defaulting homeowner will typically receive one or more pre-foreclosure notices that warn of their lender’s intent to start the foreclosure process if payments are not brought current within a specified time. The time between the first default in mortgage payments and a homeowner’s receipt of the pre-foreclosure notice can be one to three months or more, depending on the lender and any efforts the homeowner may be making to do a workout with their lender. After the pre-foreclosure notice has gone out and the homeowner still has not brought their mortgage current, the lender will then serve the homeowner with a notice of sheriff’s sale. While the Minnesota laws governing service of process in a foreclosure proceeding are detailed, most homeowners are served in-person with the foreclosure papers at their home address. The Notice of Sheriff’s Sale, sometimes also called the auction notice, will provide the date, time and location of the upcoming sheriff’s sale, usually to be held six weeks after the date of service and at the county sheriff’s office. Once the sheriff’s sale has come and passed, ownership of the home transfers to the winning bidder (which is usually the lender for the first mortgage on the home) and the homeowner then has his or her redemption period to reside in the home before vacating it permanently. The length of the redemption period varies according to circumstances, but is most often six months from the date of the sheriff’s sale.

Chapter 13 bankruptcy can help a homeowner save their home from foreclosure by providing an avenue to repay the mortgage arrears over three to five years in a Chapter 13 plan. In fact, mortgage arrears is one of the most Common Reasons for Filing Chapter 13 Bankruptcy in Minnesota. If the homeowner can afford to make the monthly Chapter 13 plan payments, their mortgage may be brought current at the end of the Chapter 13 plan, in addition to the discharge of other debts allowed in bankruptcy.

Chapter 7 can stall the foreclosure process for two or more months and, like Chapter 13 bankruptcy, can also serve to discharge any deficiency owed on the second mortgage. While Chapter 7 bankruptcy will not help to resolve any mortgage arrears owed so that the homeowner can save their home, it can buy more time in the house before the homeowner must leave.

Keep reading for more information about How to Postpone a Sheriff’s Sale in Minnesota.

While Minnesota law governs the foreclosure process, the terms of a mortgage also govern a homeowner’s rights and a lender’s ability to foreclose. For more information on the foreclosure process in Minnesota and how Chapter 13 or Chapter 7 bankruptcy may help, contact Wartchow Law Office for a free bankruptcy consultation to understand your options.

Chapter 13: Not Always a Gloomy Diagnosis in Bankruptcy

Inevitably, many people will be told they do not qualify for Chapter 7 and must do a Chapter 13 if they want to file bankruptcy. Often I am the person giving that advice to clients who simply do not have a Chapter 7 option due to their income level or other circumstances that steer them into Chapter 13. However, Chapter 13 is not the worst alternative and sometimes is actually the preferred form of bankruptcy under some circumstances, as is discussed in more detail below.

The first thing to understand is what a Chapter 13 actually means. Chapter 13 involves a monthly plan where payments are made to the Chapter 13 trustee for three to five years. The majority of these payments will be used to pay certain debts in their entirety (for example, some taxes, home mortgage arrears, etc.) and to pay down other debts in a fractional amount of what is owed. At the end of the plan and after making timely payments each month, whatever has not been paid down on “dischargeable debts” (i.e., those debts that would be discharged in Chapter 7), gets discharged in Chapter 13 as well. The net effect of Chapter 13 is usually that most debts will be discharged just as they would be in Chapter 7 however a fraction of what is owed gets paid back to your creditors from the monthly plan payments you make to the Chapter 13 trustee.

The second thing to consider is the monthly Chapter 13 payment, since you will be paying this for three to five years before you can receive a discharge. The amount of the Chapter 13 plan payment is a result of a multifactor calculation that considers your income and expenses to churn out a monthly payment that is reasonable for you to afford. A bankruptcy attorney can calculate what this amount will be for you and if there are any reasons why that amount may change up or down during the Chapter 13 plan. A Chapter 13 plan where the payment changes at some point is often called a “stepped-up” or “stepped-down” plan and is usually the result of known future increases/decreases in expenses such as when car payments ends or property taxes/insurance increase.

Next, consider the advantages of Chapter 13 and whether you can benefit from any of these. Most notably, Chapter 13 provides a way to repay home mortgage arrears 100% over the duration of the plan and regardless of whether the bank likes it or not. Of course, Chapter 13 debtors must continue to make their regular mortgage payments in addition to the Chapter 13 payment in order to stay out of foreclosure, but many mortgage companies are increasingly willing to work with people to modify the terms of their mortgage to make that regular monthly mortgage payment more practical in the long term. And in some situations, second mortgages that are fully “underwater” (that is, the amount of the first mortgage clearly exceeds the value of the home) can even be stripped off in their entirety from the home, leaving you with just your first mortgage. This second mortgage stripping is a recent development in Minnesota bankruptcy law that is thanks to the efforts of local attorneys working hard to ensure that bankruptcy offers real relief for debtors.

If Chapter 13 is your bankruptcy diagnosis, give it a second look and see if it there is a silver lining for you. If you ask the right questions, you may find out that Chapter 13 is an advantageous debt relief option.

Wartchow Law Office advises clients on which form of bankruptcy they qualify for and whether Chapter 7 or Chapter 13 fits their needs best. Contact for a free consultation and more information on options available under Chapter 13 bankruptcy.