As the eighteenth-ranked nation in foreclosures, Minnesota residents know how important it is to find alternatives to stop foreclosure before they lose their family home. The process in Minnesota utilizes two options: non-judicial foreclosure, which is the most common, and judicial foreclosure. The process can take from 60 to 90 days, during which time homeowners can seek alternatives for saving their home. They do have the option of redeeming their property for up to one year after the sale merely by making up all past due payments rather than paying the mortgage note in full. In addition, they have the right of first refusal if their property is bought in a foreclosure auction by a state or federal agency, a corporation, or limited partnership and they try to sell it. The lender must offer the previous owner the first preference in buying it back for a period of five years. However, at the time of sale, the lender has the right to seek a deficiency judgment, but only for the fair market value minus the unpaid balance of the loan.
Federal Government Programs
Thankfully for those homeowners in default on their mortgages, many state and federal government programs exist to help them. A counselor from the U.S. Department of Housing and Urban and Development (HUD) and an experienced foreclosure attorney can help a borrower learn which programs are available and, more importantly, the ones for which they qualify. Some of the federal programs that provide the most assistance include:
- Both the Hope for Homeowners Act and the Homeowner Affordability and Stability Act – which provide financial incentives for lenders to refinance mortgage loans or to adjust the rates, terms, or schedules of those loans to make it easier for faltering borrowers to catch up and keep up with their payments. Some also provide incentives to lenders to reduce the principal on some loans and to forgive early repayment or late payment fees.
- The Mortgage Forgiveness Debt Relief Act of 2007 – which prohibits the IRS from taxing any forgiven debt amounts as income.
Lender Programs
It may be a surprise to learn that many lenders are anxious to help conscientious and hardworking homeowners to keep their homes and pay off their mortgages. Foreclosures cost them time and money, and with the increased number in today’s economy, many are overwhelmed. They may be willing to work with borrowers—especially those who contact them when they first realize they’re going to have problems—through one of these programs:
- Forbearance – a lender may be willing to consent to a few partial, late, or missing payments if the borrower agrees to make them up at an agreed-upon date, often at the end of the loan.
- Modification – if a borrower demonstrates that they will be able to keep up with a loan if there are smaller payments, or if the loan is adjusted from a variable rate loan to a fixed rate loan, the lender may agree to make those types of changes.
- Reinstatement – if a borrower can show that they will be coming into additional money in the near future—such as a tax refund, inheritance, or bonus from work—that they will use to catch up on missed payments, the lender may agree to reinstate the loan.
Bankruptcy Programs
Others may be unaware that while bankruptcy is an unpopular choice that damages a borrower’s credit score for years to come, it can actually help some debtors keep their home and begin to restore their credit rating sooner. One reason is because the process always begins with a court-ordered hold on foreclosure or collection processes, allowing the borrower to catch their breath and make some important decisions.
- For some, Chapter 7 is the right choice if they qualify, because it allows them to erase much of their consumer debt, although it may require them to liquidate some of their personal property. Minnesota does provide a homestead exemption from liquidation for up to $300,000 of their residential property (more for some types of agricultural property) which would allow many to save their home.
- For others, Chapter 13 allows them to reorganize their debts and, with the help of their attorney and the foreclosure trustee, propose a suitable repayment plan. If they maintain their payments, they should be able to satisfy their debts and keep their home.
Home Sale Programs
The sad truth is, for some homeowners, there is no way to save their property. For them, the best option is to hope to sell their home for more than the balance of the mortgage loan. If they cannot do so, there are other alternatives:
- A short sale, by which a lender agrees to accept a sale for less than the mortgage balance to satisfy that note. However, it is vital for a borrower to make sure this agreement is in writing to prevent a deficiency judgment for the difference.
- A deed in lieu of foreclosure, by which a lender accepts the property deed to satisfy the remaining mortgage debt. Again, it is wise to get this agreement in writing to avoid deficiency judgments.
Getting Legal Help Stopping Foreclosure in Minnesota
These options are certainly helpful, but they are also clearly complex. Many homeowners fail to take advantage of some of the means of stopping foreclosure either because they don’t know they exist or they do not apply for them appropriately. An experienced foreclosure attorney can help with both of those needs, as well as advise a homeowner through more difficult options such as bankruptcy, redemption, and avoiding deficiency judgments. They can also help borrowers avoid the growing number of scams that fill the marketplace which not only do not help save the debtor’s home but take what remaining money they have.
