In its two most recent sessions, the Minnesota Legislature has focused significant attention to providing assistance to homeowners that are in danger of having their home foreclosed.
Perhaps the most significant new statute is Minn. Stat. § 580.07 (2) which provides the owner of a “homestead” (as defined under Minn. Stat. § 273.124) the right to postpone a Sheriff’s Sale of their homestead property. If the homeowner completes the process described above correctly, the Sheriff’s Sale will be postponed to the first non-weekend, non-holiday date which is 5 calendar months (if the redemption period is 6 months) or 11 calendar months (if the redemption period is 12 months) after the originally scheduled date of the Sheriff’s Sale. In exchange for the delay of the Sheriff’s Sale, the redemption period is reduced to 5 weeks.
To postpone the Sheriff’s Sale, the homeowner is required to: (i) prepare and execute the statutory form of notice; (ii) record the notice in the property records for the county in which the property is located; and (iii) file the executed, recorded notice with the Sheriff and deliver the same to the attorney for the foreclosing lender. The notice must be filed with the Sheriff between the date that the foreclosure notice is first published and the 15th day prior to the originally scheduled date of the Sheriff’s sale.
The benefits of the postponement are best explained in the context of the concepts of “redemption” and “reinstatement”. Minnesota law provides that a borrower may “reinstate” a mortgage by paying to the Sheriff or the foreclosing lender the amount then in default (e.g. the missed payments), plus the foreclosing lender’s costs, at any time prior to the Sheriff’s Sale – in which case the foreclosure proceedings are terminated and the homeowner (hopefully) continues paying the mortgage. “Redemption” is a foreclosed homeowner’s right to repurchase the property from the party purchasing the property at the Sheriff’s Sale for a period of 6 or 12 months after the date of the Sheriff’s Sale at the price paid at the Sheriff’s Sale plus certain costs. The homeowner retains the right to live in the property throughout the redemption period.
While postponement only adds one week to the period of time that the homeowner retains the right to live in the property it does give two important and related benefits. The first is that by delaying the Sheriff’s Sale, the postponement adds 5 months to the period in which the homeowner can reinstate the mortgage. Admittedly, most homeowners in foreclosure are not able to reinstate or redeem their property, but the ability to pay only what is currently in default is certainly going to be more realistic than having to redeem the property for the price paid at the Sheriff’s Sale. The second is that by delaying the Sheriff’s Sale, the homeowner has an additional 5 months to attempt to sell the property before the foreclosure is complete. The homeowner will certainly need to take a discount when prospective buyers find out that the foreclosure process has begun, but typically, this will be a smaller discount than after the Sheriff’s Sale has occurred. As a third benefit, the postponement delays the impact of a foreclosure on the homeowner’s credit and gives the homeowner a greater ability to avoid the foreclosure all together.
Postponement also has some benefits for lenders. The most obvious one is that by giving the homeowner the additional time to attempt to sell their home, the lender stands a better chance of receiving the full debt secured by the mortgage – or at least a higher percentage of it. Secondly, postponement creates an additional 5 month period for the homeowner to correct whatever problem caused them to go into default – potentially allowing them to return the loan to performing status. The most obvious detriment is that a lender has fewer rights to protect its interest in the property prior to the Sheriff’s Sale than afterwards.