This weeks follow on to the Minnesota Homes in Foreclosure series explains the Methods of Foreclosure found in Minnesota. Not all states have the same methods, so check with your local agent for more information.
Remember that the reason for a mortgage is to give the lender the right to foreclose, have the property sold, and the debt paid out of the sale proceeds. So upon default, the bank has two options:
- Foreclosure by Advertisement – also known as the power of sale method, this is the most commonly used method in Minnesota. It allows the bank to conduct a foreclosure and sheriff’s sale without taking the matter to court. The property must be advertised by publishing a notice in a newspaper in the county where the home is located for six weeks prior to the sale. Also, at least four weeks prior to the sale, a copy of the notice must be sent to the homeowner.
- Judicial Foreclosure – if a mortgage does not contain a power of sale clause, then the mortgage must go to court. The lender must file a lawsuit in the county where the property is located. An attorney will further record a lis pendens, making the judgment of the court binding on all persons that have interests in the property. The judge will then order the sale of the property.
- Deed in Lieu of Foreclosure – some borrowers might have the option of giving the deed and title directly back to the bank, rather then going through the foreclosure process. Some banks might except this as it saves them time and money, but they may decline and proceed with #1.
Be forewarned that in some cases, the proceeds of a foreclosure may not cover the full amount owed to the bank. The lender might want to seek what is called a Deficiency Judgment in order to get the full amount owed. However, know that a DJ is not allowed after the Foreclosure by Advertisement method if redemption periods are 6 months or five weeks. If the redemption period is 12 months, then it is possible to get a DJ, or else the lender must close by Judicial Foreclosure.
I know this all might be confusing, so if you are facing foreclosure, my best suggestion is to seek the advice of an attorney. Everyone has different circumstances. Check back next week when I post the third instalment on What Foreclosure Means for You. Also read part one of this series about pre-foreclosures and redemption periods.