Changes in Minnesota Foreclosure Law

Though foreclosures are on the decline, many low-income Minnesotans are still underwater on their mortgages and are seeking relief to stay in their homes.1 Banks and servicers have loss mitigation programs that provide an avenue for struggling homeowners to avoid foreclosure. Historically, many VLN clients have struggled to navigate the different avenues for relief, sometimes mailing and re-mailing modification applications so many times that their copies could fill a suitcase (one client actually did fill one). Unfortunately, often while the client was in the process of applying for relief, another branch of the lender was actively foreclosing the lien, resulting in the client losing his/her home without ever being considered for a modification that could have prevented the foreclosure.

The Minnesota legislature has enacted new provisions aimed at helping struggling borrowers remain in their homes. Provisions of Minn. Stat. § 582.043 took effect on August 1, 2013. This tip highlights important aspects of the new law that attorneys advising clients facing foreclosure should know.

Notice of Mitigation Options before Foreclosure

The new law requires a servicer to give the homeowner notice of loss mitigation options as a precondition to foreclosure. Before referring a mortgage to an attorney for foreclosure, a servicer must “notify a mortgagor in writing of available loss mitigation options offered by the servicer that are applicable to the mortgagor’s loan.”2 This provision applies to judicial foreclosures as well as foreclosures by advertisement on owner-occupied residential real property. For more information on the applicability of this provision, see Minn. Stat. § 582.043 Subd. 2.

There are free foreclosure counseling services available for borrowers who are struggling to make their mortgage payments or who have defaulted. Foreclosure counselors can review the homeowner’s financial situation and help work with the lender to avoid foreclosure. To locate a foreclosure counselor, visit:

Practice Tip: Scam artists frequently target struggling homeowners. A homeowner should never pay advance fees to get assistance with a modification or foreclosure counseling. Some scams even tell the homeowner not to work with the lender or tell them the lender is prohibited from working with them. When your client receives notice of mortgage assistance opportunities, contact the servicer of the loan or consult the Minnesota Attorney General’s website to investigate its validity.

Due Diligence Requirement and Elimination of Dual Tracking

New provisions of the law require the servicer to comply with their own loss mitigation procedures, an obligation that had been practically unenforceable. When a homeowner submits a request for one of the loss mitigation options, the servicer must “exercise reasonable diligence in obtaining documents and information from the mortgagor to completed a loss mitigation application…” and to “give the mortgagor a reasonable amount of time to provide the required documents.”3

Dual Tracking is the friendly label for the aforementioned process where a lender would proceed with foreclosure while at the same time processing a homeowner’s loss mitigation application. According to Minn. Stat. § 582.043 Subd. 6, if the servicer receives the application:

          • prior to referring the loan to an attorney for foreclosure;
      • after the loan has been referred to an attorney for foreclosure but before a foreclosure sale has been scheduled; or
      • after the foreclosure sale has been scheduled but before midnight on the seventh business day before the sale date;

the servicer cannot proceed with foreclosure until:

  1. the servicer determines that the homeowner is not eligible, notifies the homeowner in writing, and options for appeal have been exhausted;
  2. a written offer is made, but the homeowner has not accepted it within the required time frame; or
  3. the homeowner declines the loss mitigation offer in writing.

Private Cause of Action Created

During the foreclosure crisis, VLN clients reported enduring nearly every imaginable problem or delay a servicer could occasion upon the loss mitigation application process, and many were foreclosed upon while their application was ‘out there.’ Now, homeowners have a cause of action to enjoin or set aside a sale if the servicer does not comply with loss mitigation requirements. The statute also allows for attorney fees and costs in prevailing actions. The homeowner must bring the action and record a lis pendens prior to the expiration of the redemption period. Loss mitigation options already existed, but the new statutes give attorneys a tool to ensure that their clients have access to every available option when fighting to save their homes.

Practice Tip: If you are representing a client on a pro bono case, sign up for an account at to access trainings and resources to help with your case and to join the Foreclosure Defense Taskforce, a listserv that facilitates communication and collaboration among foreclosure defense attorneys.

Full Text

For the full text of the new law and exact effective dates, see Chapter 115 in the Minnesota Session Laws for the 2013 regular session, S.F.No. 1276, available at:

1 For statistical data, see the 2013 Semi-Annual Foreclosures in Minnesota report released on August 9, 2013 by the Minnesota Homeownership Center available at: content/uploads/2013/08/SemiAnnual_ForeclosuresInMN_Report_2013.pdf.
2 Minn. Stat. § 582.043, Subd. 5 (1)
3 Minn. Stat. § 582.043 Subd. 5 (2)

Submitted by: Chris Hanrahan, VLN Resource Attorney

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pdfdownload2 September Tip of the Month – Changes in Minnesota Foreclosure Law

Mortgage Foreclosure Legislative Changes

New Resources Available:

For Attorneys representing clients with equity stripping and/or foreclosure defense issues,
you may be eligible to join the Equity Stripping or Foreclosure Defense Task Forces.  We
have a new practice area with sample documents, cases, practice aids, and a listserv
available on

Summary of Mortgage Foreclosure Legislative Changes

Created by the Legal Services Advocacy Project

A package of bills was enacted by the Legislature in an attempt to respond to the
epidemic of foreclosures that Minnesota has not seen since the Great Depression.
Under each entry in this summary you will find a notation listing the Chapter number.
Listed in parenthesis next to the Chapter number is the bill number.  The bill number will
have either an HF (for House File) or an SF (for Senate File) in front of it.  (Whether the
Chapter is associated with a House File or Senate File depends on which body passed the
bill first.)  This information is provided to enable you to more easily locate the exact
language contained in the bill signed by the Governor.  You can find the 2008 Chapters at
the following link:

A.        Abandonments and Vacancies
A new law declares that the failure of a homeowner to appear at a hearing to determine
whether the property is abandoned is deemed conclusive evidence of abandonment.  The
Legislature also gave the right to the lender holding the mortgage or the sheriff’s
certificate to take actions necessary to prevent the premises from “falling below
minimum community standards for public safety and sanitation” and to make reasonable
periodic inspections.  These new provisions were added to encourage lenders to use the
shortened, five-week redemption period option already available to them under law, and
to maintain foreclosed properties while the foreclosure process is underway.
Chapter 178 (SF 2918) (providing for conclusive proof of abandonment)
Chapter 341, Article 5, Section 22 (HF 3420) (taking actions to prevent deterioration of
the property)

B.        Foreclosure Data and Reporting
The Legislature required that lenders include in legal notices that a foreclosure is pending
the following information:  (1) the physical street address, city, and zip code of the
mortgaged premises; (2) the name of : (i) the residential mortgage servicer; (ii) the lender
or broker; or (iii) the “transaction agent, which is a third party other than a servicer,
lender, or broker (such as the Mortgage Electronic Registry Service or MERS); (3) the
tax parcel identification number of the mortgaged  premises; (4) if stated on the
mortgage, the transaction agent’s mortgage identification number; and (5) if stated on the
mortgage, the name of the mortgage originator.

In addition, the Legislature established a Statewide Foreclosure Data Collection working
group to study the most efficient and cost-effective way to develop and implement an
electronic system for the submission, collection, entry, retrieval, management, and
assessment of statewide foreclosure data.  The group must report to the Legislature on the
outcome of the study by February 15, 2009.
Chapter 238, Article 1 (HF 3516)

C.        Foreclosure Prevention Assistance
The Legislature raised the amount of assistance that can be provided by the Minnesota
Housing Finance Agency under the Mortgage Foreclosure Prevention and Assistance
Program from a maximum of $5,500 per borrower to an indexed amount that, today, is
nearly $11,000 for the Metro area and nearly $9,500 for Greater Minnesota.
Chapter 362 (HF 3346)

D.        Foreclosure Prevention Counseling
A lender must now transmit the borrower’s name and contact information to a Minnesota
Mortgage Foreclosure Prevention and Assistance agency when a lender sends the
borrower a notice of default.
Chapter 341, Article 5, Sections 6 and 7 (HF 3420)

E.         Foreclosure Process Changes
One new notice to homeowners in default was required, and one existing notice was
revised.  They are both aimed to providing information to homeowners about foreclosure
prevention counseling.  In addition, certain costs associated with the foreclosure process
were reduced, established or clarified certain costs associated with foreclosure.  Finally,
sheriffs were given the authority to request the current payoff amount and the name of the
person or entity with authority to act on behalf of the lender.  If the lender does not
provide the information in a timely manner, the new law directs the sheriff to postpone
the foreclosure sale.
Chapter 341, Article 5, various sections (HF 3420)

F.         Mortgage Debt Tax Forgiveness
Any mortgage debt forgiven (as a result of a short sale or other settlement of a mortgage
debt between a lender and homeowner) will not have to be reported on state taxes as
Chapter 154, Article 4, Section 2 (HF 3201)

Equity Stripping

This Tip provides information on how to spot an Equity Stripping case under Minn. Stat. § 325N, when the client has been involved in a foreclosure reconveyance scam, also known as equity stripping.


Equity Stripping may take many forms, but the scheme typically includes a person who purports to offer to “save” the homes of homeowners with substantial equity in their homes who are faced with foreclosure, and help the homeowners remain in their homes.  In reality, the objective is to obtain title to the home, extract as much money from the former homeowner as possible, and then evict the homeowners as quickly as possible so they can resell the home for its full market price, typically tens of thousands of dollars more than they paid to redeem it.

In response to the problems of foreclosed homeowners loosing their equity to equity stripping scams, the Minnesota Legislature passed Minn. Stat. § 325N, and this law went into effect August 1, 2004.  This law does two things; it regulates “foreclosure consultants” and “foreclosure reconveyance transactions.”


Minnesota Statute§ 325N.10 – 18 establishes the elements of an equity stripping claim.  Look for the following facts:

  1. Client previously owned their home.  The definition of home includes a condominium, the property must be residential and must be the primary residence of the client.
  2. Client’s home was in foreclosure at the time of the transaction.  If the client was not actually in foreclosure at the time of the transaction, then it does not fall within this statute. Please note that some “equity strippers” will identify potential victims before the home enters the foreclosure process.
  3. Someone other than Client has obtained title to the home.  Title could be transferred by the creation of a mortgage, creation of a lien or encumbrance that allows the property to be redeemed as a junior leinholder, or a transfer interest from the foreclosed homeowner.
  4. Client conveyed their home based on a promise of subsequent reconveyance.  This promise may take the form of a contract for deed, purchase agreement, option to purchase or lease.  Most importantly, the reconveyance MUST include a right to possession by the foreclosed homeowner following the conclusion of the foreclosure process.
  5. Client continued to live in the home after the sale.
  6. The transaction took place after August 1, 2004.

Equity Stripping cases can be first spotted at many different points.  An attorney may encounter an equity stripping situation when the client has been served with an Eviction Action Complaint or a Notice of Cancellation of Contract for Deed.  If you spot a case that seems to have the elements listed above, have the client call Legal Aid’s intake number:  612/334-5970 to be screened for Equity Stripping, and possible subsequent representation by an attorney on our Equity Stripping Task Force.

Please Note:
Not all equity stripping cases fall within Minn. Stat. § 325N, and some of these cases still may have valid consumer protection claims.  If you spot a case that is close to meeting the above criteria, please do not hesitate to direct the client to call 612/334-5970 to be screened.

Submitted by: Darielle Dannen
Housing Law Resource Attorney
Volunteer Lawyers Network