Minnesota foreclosure – understand the process

Foreclosure. Sheriff’s sale. Redemption period. Short sale. These words were rarely in our general vocabulary before the recent housing downturn. Now these terms are heard nearly every day in the media when discussing the condition of our local, state and national housing market.  The housing downturn has affected millions of people across the country and in Minnesota.  If you have been personally affected it is important that you understand the Minnesota foreclosure process as well as your options.

Foreclosure is a process initiated by a lender who is not being paid by a borrower (homeowner).  Some lenders will initiate foreclosure after the borrower falls two months behind, others may wait up to a year.  Talking with your lender may help stall the process.  Eventually, the lender will give notice to the borrower that they are going to foreclose on the property. They notify the borrower in writing and after four weeks can schedule a sheriff’s sale in the county where the property is located. The sheriff acts as auctioneer and the lender is the seller. The property goes to the highest bidder which in most cases is the lender. The sheriff then prepares a certificate of sale which is a conditional transfer of property to the winning bidder. It is conditional because the borrower, by Minnesota law, generally has a six month redemption period in which they can make good on their mortgage. During this period the borrower still has the legal right to live in the property; they can sell or refinance the property.  They no longer have the option of making up missed payments to bring the mortgage current.  If the borrower desires to keep the property, their only option is to find new financing, which is often very challenging as a result of their now damaged credit.  If the borrower does not redeem or sell the property within six months, they lose all rights to the property and must willingly vacate or be forced out by the Sheriff. 

Typically, the best option is to hire an experienced Minnesota REALTOR® who can explain the options available and assist with bank negotiations.  Any time before, or even during, the foreclosure process the property can be put up for sale, like any other home. If it is like many of the homes facing foreclosure in today’s marketplace, the home may be worth less than the amount that is owed on the mortgage. For example, say someone bought a house for $200,000 three years ago with no money down. Now the property is valued at only $160,000 and the borrower still owes the lender $197,000. Putting a property up for sale in this situation would be a short sale. This simply means that the lender will have to agree to any sale that brings in less than the $197,000 they are still owed. In other words, the bank is really the decision maker and they are determining whether or not to accept an offer that is short of what they are owed.

Remember, these are general guidelines for Minnesota foreclosure and each situation can be very different. If you are facing foreclosure, it is best to be proactive and talk to your lender. There is always the possibility of renegotiating your mortgage or coming up with some other plan that is acceptable to both you and the lender. You can also check with local county and state organizations that provide foreclosure assistance and/or aid.  Some real estate agents in Minnesota specialize in foreclosures and short sales and can offer assistance.  It is usually in everyone’s best interest to avoid foreclosure.