Foreclosure by advertisement
Foreclosure by advertisement is the most common form of mortgage foreclosure in Minnesota, It allows the lender to foreclose a mortgage without going to court.
A lender starts the mortgage foreclosure process by serving a 30-day default notice on the homeowner. If the homeowner does not cure the default within this period, then the lender will schedule a sheriffs sale for the property. It takes approximately six to eight weeks to schedule a sheriff’s sale. Notice of the sale must be served on the occupants of the property and published in a local newspaper. The homeowner may reinstate the mortgage and keep the property at any time prior to the sheriffs sale by curing the amount of default.
A Sheriffs sale is literally an auction conducted at the sheriff’s office of the county where the property is located. Parties will have an opportunity to bid on the property. In nearly all cases, a lender is the successful bidder and purchases the property for the amount due on the mortgage plus expenses. It is possible for a third party to outbid the lender at the sale and purchase the property, but this rarely happens. The lender purchases the property at the sheriff’s sale subject to the homeowner’s right of redemption. The time period of a right of redemption can be six or twelve months. There is also a process for the lender to shorten the redemption period. The homeowner may keep the property by paying off the mortgage during the redemption period. This amount is usually the balance due on the mortgage plus expenses. If the homeowner does not redeem the property by the end of the redemption period, the homeowner must vacate the property. The homeowner has the exclusive right to remain in the property during the redemption period. The lender may not enter the property during the period of redemption.
In the event a homeowner refuses to vacate the property at the end of the redemption period, then the lender must commence a court action to evict the homeowner from the property.
Deed-in-lieu of foreclosure
In order to avoid foreclosure, a borrower who is in default of a mortgage may agree to give the lender a deed-in-lieu of foreclosure. This means that the borrower would sign a deed conveying title to the property to the lender in satisfaction of the mortgage. In most cases, the lender would agree to waive any further claims against the homeowner. The homeowner would also agree to vacate the property.
Deeds-in-lieu of foreclosure can be an advantage for the lender, because it avoids the costly and time consuming process involved in foreclosing a mortgage. It can also be an advantage for a borrower because the borrower can avoid having a mortgage foreclosure on his/her record.
The parties can only use a deed-in-lieu of foreclosure, however, if there are no junior mortgages against the property and no tax liens, judgment liens, or other title problems. If there are clouds on the title, then the lender must foreclose to clear title to the property. The borrower usually contacts the lender to request a deed-in-lieu of foreclosure.
Foreclosure by action
Foreclosure by action is an alternative means of foreclosing property. Foreclosure by action is different than a foreclosure by advertising in that the lender must start a court action. A lender will prepare a summons and complaint which will be served on the homeowner like any other lawsuit.
A homeowner will have an opportunity to respond to the summons and complaint. If there is no response, then a default judgment will be entered against the homeowner. Lenders may foreclose by action in order to cure any irregularities in the mortgage. Another reason lenders may foreclose by action is that they will be entitled to get a deficiency judgment against the borrower in the event the sale of the property does not meet the balance due on the mortgage. A lender may not get a deficiency judgment against a borrower in a foreclosure by advertisement.
After the lender obtains judgment in the court process, the lender must proceed to a sheriff’s sale to purchase the property, and the borrower is given the same right to redeem the property as with a foreclosure by advertisement.
Another alternative to a mortgage foreclosure process is a voluntary foreclosure.
In this case, a borrower is willing to work with the lender to turn over the property, but the parties cannot use a deed-in-lieu of foreclosure or a short sale because there are junior mortgages or liens against the property. In cases like this, it is necessary for the lender to foreclose the mortgage to wipe out any junior mortgages or other liens.
A homeowner can agree to a voluntary foreclosure. This would allow the lender to foreclose the mortgage to wipe out subordinate liens but, with the homeowner’s consent, the time period it takes to foreclose in the property would be significantly reduced. The advantage for the homeowner is that the homeowner can resolve the default sooner. The advantage for the lender is that it can save time and expense of a traditional foreclosure.
See Short Sale