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A HOMEOWNER’S GUIDE:
DEFENDING AGAINST FORECLOSURE

In  today’s economy it is virtually impossible to walk one block within any residential neighborhood in Minnesota without coming across a home that is either in default, in foreclosure, or was sold through a transaction designed to avoid foreclosure.  As foreclosures become increasingly common in this real estate market, the horror stories experienced by many of those homeowners are becoming just as common – especially among homeowners who have attempted to reinstate or modify their mortgages hoping to avoid the completion of foreclosure proceedings. 

However, there are certain things that homeowners can look out for and do to preserve their rights when faced with the prospect of foreclosure.

Common Signs of a Problematic Foreclosure
Although foreclosures are common in Minnesota, the paths leading to foreclosure often vary.  For example, some homeowners face foreclosure due to the failure to make mortgage payments as a result of losing a job.  Others face foreclosure due to unexpected medical bills, which hinder their ability to make mortgage payments. 

Regardless of the cause of a homeowner’s failure to make his or her mortgage payments, the experiences that occur after the initial default and prior to the bank’s initiation of foreclosure are often very similar.  Further, many of these experiences are indicative of problems related to the potential foreclosure.  Here are a few of the warning signs you should look for if you are concerned that your foreclosure is not following the normal course:

  • Lenders will often notify homeowners that the only way they can talk with them about modification programs or other internal remedies is if there is a default on mortgage payments. The lender will recommend that the homeowner therefore stop making mortgage payments, only later notifying the homeowner that they are not eligible for certain programs because they have not made recent mortgage payments.
  • Lenders will often notify homeowners that they may be eligible for modification programs or other internal remedies if certain documents are provided to the lender.  However, each time documents are sent, the lender claims they were not received and demands that they be resent.
  • Lenders will often notify homeowners that they need to make trial payments pursuant to a loan modification program.  However, the lender will refuse to accept tender of the trial payments from the borrower, thereafter claiming they are not eligible for the loan modification program for failure to make trial payments.
  • Lenders will bounce homeowners around between different departments when discussing a modification program or other internal remedy to avoid a foreclosure completion, without ever letting one department make a decision on the homeowner’s eligibility for a modification program or other internal remedy.
  • A homeowner often does not learn about a pending foreclosure until after the lender has purchased the property at a sheriff’s sale, at which time the lender represents to the homeowner that their only remedy is to redeem the property for the sheriff’s sale purchase price.

Legal Rights for Homeowners in Foreclosure
Under certain circumstances, homeowners in Minnesota have legal rights in defense of foreclosure proceedings.  For example, Minnesota law provides that a lender must strictly comply with the requirements for foreclosure proceedings.  Therefore, if there is a technical defect in the proceedings, the foreclosure must be deemed void.  Furthermore, if a homeowner does not receive proper notice of the foreclosure proceedings, the foreclosure must be deemed void.  Likewise, if a lender represents to a homeowner that he or she is eligible for a modification of their mortgage, but then fails to follow through on its representations, Minnesota law provides that the lender may have breached a contract for a modification with the homeowner, or at least, breached its duties of good faith and fair dealing as a mortgagee.  Minnesota law also provides that such conduct by a lender may amount to a deceptive trade practice, negligent misrepresentation or, under certain circumstances, fraud.  Depending on the circumstances of the case, there are various legal theories that may be advanced by a homeowner in defense of a pending foreclosure proceeding.

Possible Results of Problematic Foreclosures
Foreclosure proceedings contain many different stages.  As long as homeowner takes action in defense of foreclosure proceedings prior to the expiration of a redemption period, Minnesota law provides many options for legal and equitable results, all of which require the initiation of a lawsuit by the homeowner against the lender. 

In connection with a lawsuit of this type, the homeowner may ask the Court to issue a temporary restraining order or temporary injunction preventing the lender from completing its foreclosure until the homeowner’s lawsuit is resolved.  As long as the homeowner is willing and able to make appropriate monthly payments, the Courts in Minnesota are willing to issue a restraining order and stop a lender’s foreclosure proceedings while a lawsuit is pending, provided the Court is presented with a proper request identifying the appropriate legal theories.  Once a temporary restraining order or temporary injunction is issued, the homeowner and lender may choose from a wide array of options to resolve their claims, including:

  • Completing a loan modification or reinstatement that the homeowner was told they would receive prior to initiating a lawsuit;
  • Allowing the foreclosure to be completed and thereafter renting the home from the lender, with an option to purchase the home at the current market value;
  • Receiving payment from the lender in exchange for transferring title to the home to the lender without requiring the lender to complete its foreclosure proceedings; or
  • Seeking judicial rescission of the mortgage where appropriate under the facts of the case.

Skjold-Barthel has assisted numerous homeowners in foreclosure. Call Chris Parrington at 612-746-2560 for assistance or information.