If you are facing foreclosure and you want to keep your home, but you just can’t bring the mortgage current with all of the fees and costs added by the mortgage company, a Chapter 13 may be the answer. We have helped thousands of Minnesota families save their homes through a reasonable and realistic Chapter 13 plan that allows them to catch up with their mortgage arrears over several years.  

When you become delinquent on your house payment, your mortgage company will often require you to pay all of the late payments, interest, and penalties all at once. Once you become several months behind, this can be not only unreasonable but impossible. Once the Chapter 13 case is filed, the arrears are paid through the Chapter 13 plan and you can begin to make your regular monthly payments again. You can also include all of your other unsecured debt in the repayment plan so you only have one payment to make on your debt, and at the end of the Chapter 13 plan your mortgage will be current and your unsecured debt will be satisfied.

WHAT IS A MORTGAGE?

If you financed the purchase of your home, you signed both a promissory note (the loan agreement in which you promised to repay the bank for the money you borrowed for your house) and a mortgage, which gives the mortgage company a security interest (known as a “lien”) in your house. The mortgage protects the bank in the event that the borrower stops paying, and allows the mortgage company to take the house back to pay itself the money owed by the borrower.

WHAT IS FORECLOSURE?

Foreclosure is the process by which the mortgage company can take back a house that it has a mortgage to pay itself back for the money borrowed to purchase the home. Minnesota laws provide two different ways to foreclose: foreclosure by advertisement, and foreclosure by action. Foreclosure by advertisement is the way at least 95% of all foreclosures happen in Minnesota.

WHAT IS FORECLOSURE BY ADVERTISEMENT?

About 99% of all foreclosures in Minnesota are done “by advertisement,” which means that the foreclosure happens without the involvement of any court.  

• DEFAULT: When the mortgage becomes at least 90 days behind, the mortgage company can consider the loan in default, and begin the foreclosure process.

• NOTICE OF DEFAULT: The first notice in the foreclosure process is an Acceleration Notice/Notice of Default which states that the mortgage must be brought current within 30 days, and provides information regarding the availability of foreclosure counseling.  

• NOTICE OF THE RIGHT TO VALIDATE THE DEBT: The next notice in the foreclosure process is a letter sent by the attorney who has been hired to foreclose, who sends a letter giving the homeowner 30 days to demand that the mortgage company prove that the debt is valid.

• NOTICE OF SHERIFF’S SALE: Thirty days after the foreclosing attorney sent the notice of the right to validate the debt, the foreclosure attorney must set a date for the sheriff’s sale, publish notice of the sheriff’s sale for 6 consecutive weeks in a legal newspaper of the county in which the property is located, and must personally deliver to the homeowner a notice of the sheriff’s sale at least 30 days prior to the sheriff sale date. This notice lists the mortgage company, the balance of the mortgage, the time, date, and place of the sheriff sale, and the redemption period (almost always 6 months from the sheriff sale date).  

• SHERIFF’S SALE: The Sheriff will conduct an auction of the property in a public place, usually the Sheriff’s office or a patrol station. No one will come to the house, and there are no flags or signs on your lawn or other signs of the foreclosure other than the published notice.  Typically the only party bidding at the sheriff sale is the bank, and they will usually bid the amount owed on the mortgage. 

• REDEMPTION PERIOD: The homeowner is given 6 months to redeem the property by paying off the amount bid at the sheriff sale. At the end of the redemption period the homeowner’s ownership interest is extinguished.  

• REMAINING DEBT: The mortgage company cannot collect the deficiency if foreclosing by advertisement. Many states do allow the collection of a deficiency balance after foreclosure, and if your home was located in one of those states, they can come after you for the deficiency even if you now live in Minnesota. If there is a second mortgage, the second mortgage company’s lien is removed by the first mortgage company’s foreclosure. The second mortgage or other junior lien holders can still pursue the homeowner for the debt owed on their mortgage note as that debt is not satisfied through the foreclosure.  Their lien rights are gone but not the debt owed to them.

WHAT IS FORECLOSURE BY ACTION?

Foreclosure by action is also called judicial foreclosure. It occurs through a court process initiated by the mortgage company, and the foreclosure is ordered by and overseen by a judge. This is very uncommon in Minnesota. 

• DEFAULT: When the mortgage becomes at least 90 days behind, the mortgage company can consider the loan in default, and begin the foreclosure process.

• NOTICE OF DEFAULT: The first notice in the foreclosure process is an Acceleration Notice/Notice of Default which states that the mortgage must be brought current within 30 days, and provides information regarding the availability of foreclosure counseling.  

• NOTICE OF THE RIGHT TO VALIDATE THE DEBT: The next notice in the foreclosure process is a letter sent by the attorney who has been hired to foreclose, who sends a letter giving the homeowner 30 days to demand that the mortgage company prove that the debt is valid.

• LAWSUIT: The homeowner is served with a Summons and Complaint alleging the default and requesting a sheriff sale be ordered, and allowing for a deficiency judgment to be entered. The homeowner has 20 days to respond to the Summons and Complaint with any viable good faith defense (there usually is not). The court order a sheriff sale to be held.

• SHERIFF’S SALE: The Sheriff will conduct an auction of the property in a public place, usually the Sheriff’s office or a patrol station.  No one will come to the house, and there are no flags or signs on your lawn or other signs of the foreclosure other than the published notice.  Typically the only party bidding at the sheriff sale is the bank, and they will usually bid the amount owed on the mortgage.

• REDEMPTION PERIOD: The homeowner is given 6 months to redeem the property by paying off the amount bid at the sheriff sale.  At the end of the redemption period the homeowners ownership interest is extinguished.  

• DEFICIENCY BALANCE: After the sheriff’s sale the court will determine the amount, if any, that the homeowner still owes the bank, which will be entered as a deficiency judgment against the homeowner.   If there is a second mortgage, the second mortgage company’s lien is removed by the first mortgage company’s foreclosure. The second mortgage or other junior lien holders can still pursue the homeowner for the debt owed on their mortgage note as that debt is not satisfied through the foreclosure. Their lien rights are gone but not the debt owed to them.

HOW DO I STOP THE SHERIFF’S SALE?

• BRING THE MORTGAGE CURRENT: The homeowner can, any time up to the date of the sheriff sale, reinstate the mortgage by paying all late payments including all costs and fees incurred by the mortgage company. The mortgage company can refuse to take partial payments once the loan is considered to be in default.

• MODIFY THE MORTGAGE: The homeowner can try to have the mortgage company modify the mortgage, which will put the mortgage arrears at the end of the loan and may also reduce the interest rate or payment. The mortgage company does not have to grant a modification and may continue on with the sheriff’s sale once the modification is denied.

• FILE AN AFFIDAVIT OF POSTPONEMENT:  Minnesota law provides that a homeowner can delay a sheriff’s sale for five months by filing an affidavit of postponement with the County and serving it on the Sheriff and foreclosing attorney. This cancels the original sheriff’s sale and sets a new sale five months later, giving the homeowner extra time to bring the mortgage current. In exchange, the redemption period after the sheriff’s sale is reduced from 6 months to 5 weeks. The affidavit of postponement must be filed and completed at least 15 days before the date set for the sheriff’s sale. This can give you more time to reinstate the mortgage and bring it current. The postponement can also give you more time to file a Chapter 13 bankruptcy to save the property.

• FILE CHAPTER 7 BANKRUPTCY:  Filing a Chapter 7 bankruptcy before the sheriff’s sale cancels the sheriff’s sale. The mortgage company can resume the foreclosure process after discharge, or prior to that if the mortgage company asks for special permission from the bankruptcy court. When the mortgage company resumes the foreclosure process, it must reschedule the sheriff’s sale for at least 6 weeks out, publish a notice in the newspaper, and serve the homeowner at least 30 days before the sheriff’s sale. Filing a Chapter 7 to stop the sheriff’s sale will only give a brief respite from the foreclosure. It can give the homeowner time to work out another resolution to the foreclosure, and remove other debts so that the homeowner can focus solely on bringing the mortgage current. But it is not in and of itself a solution.  

• FILE CHAPTER 13: Filing a Chapter 13 bankruptcy before the sheriff’s sale cancels the sheriff’s sale. With the Chapter 13 bankruptcy petition, we also file a Chapter 13 plan, which creates a 36-to-60-month long plan during which the homeowner will slowly catch up the mortgage arrears, fees, and penalties. The homeowner resumes monthly mortgage payments starting the first month after the case is filed, and also makes a monthly payment to the Chapter 13 Trustee which is used to catch up the mortgage delinquency. As long as the homeowner stays current on mortgage payments after the Chapter 13 is filed and stays current on the Chapter 13 plan payments, the mortgage company cannot foreclose during the Chapter 13. At the end of the Chapter 13, the mortgage will be current, and the homeowner’s other dischargeable debts will be discharged.