How can I avoid a deficiency judgment in Minnesota?

Many people facing foreclosure on their homes may be wondering is Minnesota a deficiency state? Homeowners that have fallen behind in their mortgage payments could be facing foreclosure by the lender. If the mortgage or deed of trust contains a power of sale clause, this will allow the bank to file a non-judicial foreclosure. This is a major advantage to the bank since they don’t have to spend the time and money to file a lawsuit against the homeowner. Once the foreclosure process is over and the home is sold at auction, the bank could possibly obtain a deficiency judgment against the homeowner.

Minnesota’s Foreclosure Process

Since most mortgages or deeds of trust contain a power of sale clause, non-judicial foreclosures are the primary process used when foreclosing on a property. The laws in Minnesota stipulate that a non-judicial foreclosure can only happen if:

• There is no other lawsuit currently pending against the property to collect on the mortgage.
• The mortgage or any new loans by lenders must be recorded within the county where the property is located.
• A notice of sale must be published at least eight weeks prior to the foreclosure if the property is deemed a homestead.

All Minnesota residents that own and occupy a home as their primary residence can file for homestead protection, which gives them a tax reduction and allows them to protect a certain amount of home equity.

Finding An Alternative to Foreclosure

To avoid the lender obtaining a deficiency judgment against you, consider the following alternatives:

• Forbearance—Ask the bank if they are willing to temporarily suspend your payments for a short time. They might be wiling to do this is you can prove that your financial hardship is only temporary and that you expect to be back on your feet in a few months.

• Refinance—Try to refinance the loan at a lower interest rate.

• Loan Modification—Some lenders are willing to renegotiate the terms of the loan by extending the term. This saves them from an expensive foreclosure process.

• Deed in Lieu—This option may be available if the lender is willing to forgive the amount owed in exchange for the borrower deeding the property back to the bank so it can be sold.

• Short Sale—Banks may be willing to accept less than the amount owed on the current mortgage if the recent downturn in the economy has led to lower property values.

• Bankruptcy—This may be the last option of protecting the equity in your home by filing for Chapter 13 bankruptcy. The federal court may require the lender to accept new terms in paying back the mortgage. This also gives the homeowner time to come up with a repayment plan to catch up on missed payments.

Seek Advice From a Minnesota Foreclosure Lawyer

Although Minnesota’s foreclosure laws allow banks to pursue a deficiency judgment against the homeowner, they are limited in the amount they can pursue. They can only obtain the difference between the fair market value of the property and what it sold for. If you are at risk of losing your home, contact an experienced foreclosure attorney. These professionals may be able to guide you in pursuing options that could save your home from foreclosure.