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Chapter 7 & 13 | Consumer Bankruptcy

How to Stop a Foreclosure Without Filing Bankruptcy

Yes, in Minnesota you can stop a mortgage foreclosure, and save your home, without filing bankruptcy.  What’s more, there are two ways to accomplish this important result.

The Minnesota legislature recently enacted two new statutes allowing a homeowner to stop a residential mortgage foreclosure.  These were enacted in response to the housing market meltdown — the same meltdown that was the catalyst for the 2008 recession.

The first, Minnesota Statutes section 580.07, was enacted in 2010.  It provides for the postponement of a sheriff’s auction foreclosure sale for five months from the date scheduled for the sale.  The postponement is obtained by filing a request for postponement in the county recorder’s office, and then serving the request upon the sheriff and also the attorney for the mortgagee holder.  This must be done at least fifteen days prior to the sale date.

Yes, you read this right.  Every Minnesota homeowner automatically gets a five month postponement of a foreclosure sale simply by asking for it.

While obtaining a five month postponement of a mortgage foreclosure is a certainly a good thing, it is often a stopgap measure rather than a long term solution.  This because the foreclosure sale is merely pushed down the road five months, where it will soon loom large in the homeowner’s path — unless all of the past due payments plus fees and costs can be paid up before the new sale date.

The second new way of stopping a foreclosure sale of a residential mortgage, found in Minnesota Statutes section 582.043 (2013), is to submit an “application for loss mitigation” to the mortgage servicer.  An application for loss mitigation is simply the statutory name for a loan modification.

Although the U.S. Treasury Regulation which originally mandated that mortgage servicers offer loan modifications expired in December 2016, this is irrelevant to Minnesota residents, who enjoy the broader protections of Minnesota Statute section 582.043.

An application for loss mitigation must be submitted to the mortgage servicer at least seven business days before the foreclosure sale date.  Once the application is submitted, the mortgage servicer is required to halt the foreclosure sale while it considers the application.

Because of the provisions of the statute governing sheriff’s foreclosure sales, this means the foreclosure must be cancelled altogether.  Under the law, the foreclosure sale cannot be rescheduled until the servicer makes a decision on the application and notifies the homeowner of any appeal procedures.

Yes, you also read this one right too.  Every Minnesota homeowner automatically gets a postponement of a foreclosure sale simply by submitting an application for loss mitigation.

In the experience of this author, some servicers will postpone a foreclosure indefinitely in response to an application for loss mitigation, and some will simply reschedule the foreclosure for six weeks later.  The latter approach is probably illegal under section 582.043, and accordingly this author has had success in obtaining repeated postponements without the need for litigation.  Other servicers will make a reasonable offer to modify the loan, sometimes bringing the mortgage current and offering a permanent solution to the homeowner.

Section 582.043 is unusual and complicated, and there is much in this law addressing pre-foreclosure remedies as well.  This author has appeared on the faculty at Continuing Legal Education seminars alongside mortgage servicer attorneys, and county housing authority attorneys, lecturing on compliance with section 582.043.  It is fair to say that mortgage servicers are often unsure of how to proceed when faced with an application for loss mitigation.

These two new statutes can be powerful tools in the hands of a homeowner determined to stop a sheriff’s auction foreclosure sale of his or her home.  It is a good idea to hire a lawyer to obtain relief under either statute.  Filing legal documents, and communicating with mortgage servicers and their lawyers, is a task best to your lawyer.  Find a lawyer who is familiar with both of these statutes, and who is experienced in bankruptcy practice as well, so that you can choose the best option after gaining an understanding of the relief that is available under these new laws.

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