If a borrower defaults under the terms of a mortgage, most mortgages allow foreclosure of the real estate as one of the lender's remedies. The purpose of foreclosure is to put the lender in the ownership position of the borrower at the time the mortgage was given (taking the property subject to everything senior to lender's mortgage, and wiping out everything junior to lender's mortgage).
Minnesota allows for both foreclosure by advertisement and foreclosure by action. No action or proceeding to foreclose a real estate mortgage may be maintained unless commenced within 15 years from the maturity of the whole of the debt secured by the mortgage or, if no maturity date is stated in the mortgage, 15 years from the date of the mortgage. Minn. Stat. § 541.03. Below is a summary of foreclosure considerations and the basics of each method.
Foreclosure by Advertisement vs. Foreclosure by Judicial Action
Advantages of Foreclosure by Advertisement
- Less costly than foreclosure by action
- Faster than foreclosure by action
- Counterclaims are less likely
Advantages of Foreclosure by Action
- Deficiency judgment is available
- Because the proceeding is overseen by a court, there is greater resistance to a later attack on the foreclosure
- Lender may be proceeding to enforce the assignment of rents anyway
- Compulsory counterclaims must be asserted or lost
- Mortgages that must be foreclosed by action
- No power of sale in mortgage document
- Priority disputes with other mortgages or liens that must eventually be litigated
- If there are drafting or title issues
- Mortgage is not recorded or recordable
- Amount of debt is in dispute
Foreclosure by Advertisement
Governed by Minn. Stat. §§ 580 and 582
1. Mortgage must contain power of sale (Minn. Stat. § 580.01).
2. Default has occurred by which power of sale has become operative (Minn. Stat. § 580.02(1)).
3. No action or proceeding at law to collect the debt is pending or, if an action has been instituted, the same has been discontinued or the execution upon the judgment rendered has been returned unsatisfied (Minn. Stat. § 580.02(2)).
4. The mortgage and all assignments have been recorded.
1. The foreclosing party gives all pre-foreclosure notices to mortgagor (Minn. Stat. §§ 47.20, sub. 8 and 580.021).
2. Review title to verify that mortgage and all assignments have been recorded.
3. Prepare a Notice of Pendency and a Power of Attorney and file them with the County Recorder or County Registrar of Titles prior to first publication of notice of sale (Minn. Stat. §§ 580.025 and 580.05).
4. Prepare a notice of sale (Minn. Stat. §§ 580.025 , 580.04 and 580.045) and publish the notice for 6 consecutive weeks in the legal newspaper in the legal newspaper in the county where the property is located (Minn. Stat. § 580.03).
5. Serve the notice of sale together with the homestead designation notice (if applicable) upon occupants of the mortgaged premises at least 4 weeks before the sale (Minn. Stat. §§ 580.03 and 582.041). Also include Help for Homeowners in Foreclosure Notice (if applicable) and Tenant Advice Notice (if applicable) with service (Minn. Stat. §§ 580.041 and 580.042).
6. Search for and serve any federal and state tax liens at least 25 days before the sale for liens that are filed of record at least 30 days before the sale (Minn. Stat. § 270C.63)
7. Serve other junior lien holders or mechanic's lien holders at least 14 days before the sale (Minn. Stat. § 580.032).
8. Prepare a Sheriff's Certificate of Sale, Affidavit of Publication, Affidavit of Service on Occupants, Affidavits of Costs and Affidavit of Non-military Status (Minn. Stat. §§ 580.025, 580.15, and 580.17).
9. Foreclosure sale is conducted by the county sheriff who executes the Certificate of Sale (Minn. Stat. §§ 580.05, 580.12, 580.15, and 580.17).
10. Record the Certificate of Sale plus attachments with the County Recorder or the County Registrar of Titles within 20 days of foreclosure sale (Minn. Stat. § 580.12).
11. Redemption Period (Minn. Stat. §§ 580.23 – 580.26)
Process for Foreclosure by Judicial Action
- Governed by Minn. Stat. §§ 581 and 582
- Process for Foreclosure by Judicial Action
1. The foreclosing party gives all pre-foreclosure notices to mortgagor (Minn. Stat. § 47.20, sub. 8).
2. Review title to verify that mortgage and all assignments have been recorded.
3. Prepare the summons and complaint, Certificate of Representation of Parties and homestead designation notice (if applicable) in compliance with the Minnesota Rules of Civil Procedure. File the summons and complaint with the District Court.
4. Serve the summons, complaint, and homestead designation notice (if applicable) on all parties with interest of record.
5. Prepare and file a Notice of Lis Pendens on property in question with the County Recorder or County Registrar of Titles after the summons and complaint is filed with the District Court.
6. Update title work to ensure that there are no new necessary defendants.
7. Conduct trial or default hearing. Judgment is entered.
8. Deliver a certified copy of the judgment to county sheriff. Prepare a notice of sale (Minn. Stat. §§ 550.18, 550.19, and 550.20)
9. Sheriff holds judgment sale.
10. Sheriff prepares a report of the sale and lender's attorney files the report with the District Court.
11. File a motion with the District Court for an order confirming the sale (Minn. Stat. § 581.08).
12. If order confirming the sale is granted, the sheriff executes a Certificate of Sale (Minn. Stat. §§ 581.02 and 581.08)
13. Within 20 days, file the judgment, order confirming the sale and Certificate of Sale with the County Recorder or County Registrar of Titles.
14. If a deficiency is allowed by the judgment and order, the District Court enters the judgment on the note.
15. Serve the notice of the order confirming the sale on all necessary parties to commence the appeal period.
16. Redemption period.
Reinstatement occurs when the mortgagor cures the payment default prior to a foreclosure sale. Reinstatement is allowed by statute at any time prior to sale, and applies to both foreclosures by advertisement and by action. In order to reinstate, the mortgagor or holder of a junior lien must pay the amount in default plus attorneys' fees, publication costs, service costs, and "other lawful disbursements necessarily incurred" in foreclosure proceedings. In a foreclosure by advertisement, the mortgagor need only pay ½ of the attorney fees set by Minn. Stat. § 582.01. (Minn. Stat. § 580.30).
After the sheriff's sale, the mortgagor and junior lien creditors have the statutory right to redeem the property. The status of the redeeming party as an owner or a creditor determines the timing and mechanics of a redemption. Generally, the redemption period will be six months, but it may be five weeks under Minn. Stat. § 582.032 (abandoned property), two months under Minn. Stat. § 582.32 (voluntary foreclosure), or twelve months under Minn. Stat. § 580.23. The redemption price is the amount bid at the sheriff's sale plus accrued interest and other costs (Minn. Stat. §§ 581.10 and 580.23).
Minnesota has adopted the Farmer-Lender Mediation Act, which is codified in Minn. Stat. §§ 583.20 – 583.32. If land constitutes agricultural property and the land is in agricultural production within the meaning of the Act, prior to foreclosure proceedings, the farmer must be offered the opportunity for mediation.
Receivership is a tool used by mortgagees (lenders) to protect the value of collateral property prior to foreclosure and during a redemption period. As a general rule, when collateral property is in receivership, a duly appointed receiver takes over management of the collateral and the mortgagor loses most or all of its control.
This article provides a general overview of receivership—including mortgagee considerations, advantages and disadvantages, and its effects on leases and rents—and concludes with a discussion of the statutory requirements governing receivership in Minnesota.
Further details are necessary for complete understanding of the subjects covered by this article. For that reason, the specific advice of legal counsel is recommended before acting on any matter discussed in these pages.