Many homeowners are forced to face the reality of foreclosure. After the housing market crash, a large number of individuals have found themselves owing more than their property is worth. In case you or someone you know are falling behind on your mortgage payments and facing foreclosure, we would like to provide you with a walk-through of what to expect.
Once you begin to fall behind on the property—normally after three (3) missed payments or around 90 days—the bank or a law firm will send you a letter stating their intent to foreclose. This letter will include notification of the bank’s intent to foreclose. It will also include options you may have available and the contact information for a foreclosure counseling service. You can contact this service or another service that you may know of, to try and resolve any issues with your lender. This notice is likely to be the last communication you will receive before the foreclosure process actually begins.
Some people recommend filing bankruptcy at this point, as a way to avoid foreclosure. Bankruptcy will not have the desired effect, although it will delay the foreclosure until the bankruptcy is resolved. In order to keep the property after filing bankruptcy, you will need to reaffirm the mortgage, which means the debt will not be discharged and you will still be liable for the mortgage payments. After that period, if you are still behind, the bank will re-file the foreclosure. So before filing bankruptcy, it is important to review your finances to determine whether you are able to make payments with your other debts discharged.
If the issues with your mortgage are unresolved, the bank will choose between two (2) legal foreclosure proceedings. The first, which is rarely used, is foreclosure by action. This process means the lender will take you to court to secure the foreclosure. If this process is chosen, you could be liable for any money not recovered from the sale of the property, which is referred to as a deficiency judgment.
More commonly in Minnesota, lenders choose to foreclose by advertisement. This process involves sending notice to the homeowner of the intent to foreclose and setting a date for the Sheriff’s Sale, an auction in which the county sheriff sells the property to the highest bidder (usually the lender). If a lender chooses to proceed with foreclosure by advertisement, this action prohibits the lender from collecting any deficiency on the mortgage.
Before the Sheriff’s sale, you can reinstate the mortgage by paying all the arrears on the loan plus any costs incurred by the lender. This is known as reinstating the mortgage. After the Sheriff’s Sale, the redemption period begins. This is a six (6) month period after the Sheriff’s Sale, during which you can pay off your mortgage or secure new financing. If you don’t complete either of these options, you will be asked to vacate the premises sometime after that period ends; homeowners are normally given five (5) weeks’ notice to vacate.
If you want to delay the sale for a period of time, you may file an Affidavit of Postponement with the County Sheriff fifteen (15) days prior to the scheduled Sheriff’s Sale; this will delay the sale for five (5) months. The benefit of filing this Affidavit is that lenders normally are more willing to work with a homeowner prior to the Sheriff’s Sale, and cannot change anything after. So, delaying the sale will allow you more time to obtain a mortgage modification or another line of credit. If this option is taken, however, you waive the six (6) month redemption period and only will have five (5) weeks to redeem the property after the Sheriff’s Sale takes place.
Foreclosure significantly impacts individuals both financially and personally. It is important to understand your rights and the options available to you. This overview may not specifically apply to your situation, so as always, consult with an attorney or foreclosure specialist about your case.
Attorney Nicholas D. Hartley