Foreclosures in Minnesota

5 Replies

In Minnesota, residents aren't given a pre-foreclosure notice.  So i'm curious who owns the house after a notice of default is given?  For example, on Zillow a recently posted house was listed as a pre-foreclosure and lists an auction date in December.  Is this house still owned by the original owner until the auction is held, or is it bank-owned immediately after the letter of default is given?  

Chris,

A notice of default does NOT change the owner on title of the asset, it only gives notice of lien holder's intent to collect on their debt. Sometimes an asset owner in default will voluntarily give a deed in lieu to a banker in return for agreement/consideration not to pursue owner for shortfall (personal guaranty) on the debt after the asset is sold. A house going to auction or Sheriff Sale may or may not be owned by the lender/lien holder. 

Usually the owner of the house doesn't change in a foreclosure until the redemption period  is complete after the sheriff's sale. In MN owners are typically granted under law a redemption period of 6 months to pay off the debt/lien - there are exceptions to this. If the redemption period runs out after the auction/Sheriff Sale without payment, then the process of clearing title to the property begins. Under that process junior lien holders have a very short window (something like 7 days or less) to pay off all creditors ahead of them (e.g. 2nd mortgage pays off the 1st). The last lien holder standing in the process becomes the owner of the house and all other liens get cleared away thereby giving them clean title to the property. 

I am not an attorney, but I have served many years as the treasurer of a homeowners association and have had to go through the process a number of times. Hope this helps.

Robert,

Thanks for the reply, it was very informative.  With that being the case, I could potentially pursue a wholesale deal for a house that is listed to go to auction, and still be able to assign the contract before the title changes hands, correct?

I guess you could, but it all comes down to the economics for the buyer. Can they purchase the property, pay off the liens and make repairs for a price that is equal to or less than market? Selling a property subject to foreclosure requires a sophisticated buyer and lots of disclosure on your part. You better know what you're doing before you attempt it!

I will definitely do my research before attempting such a deal.  This is all speculation for now; simply trying to think of different approaches to wholesaling.  My initial thoughts were to find pre-foreclosure homes with enough equity for the deal to be beneficial  for all three parties.  This isn't necessarily new, but the foreclosure process in Minnesota seemed different then in most cases I've read about.  That't why I was curious how this type of deal would work in Minnesota.

@Chris Salveson  you're basically on the right path.  As I recall, the sheriff's auction marks the half-way point in the foreclosure process.  That means that the owner is 6 months behind in payments (and fees) but there is also 6 months to go before title changes.  To be profitable, you're going to need to include the missing payments and fees.

By the way, I went to a sheriff's auction once.  It was three bank lawyers, a deputy and me sitting around a tiny table.  Everyone there knew the dance except me.  #Uncomfortable

I examined this general route (pre-foreclosures & auction) for acquiring properties but never found a viable deal.  First, Zillow's data is old news.  You're better-off searching notices in small, local online papers.  For some reason, banks like to post their listings in strange, out of the way places.  Second, few of the foreclosures have any equity.  The only one I found was an antique farm house.  I spoke with the little old lady there and learned more than I wanted.  Ultimately, she was waiting to hear back from her bank about "reversing her mortgage".  A reverse mortgage was actually a good idea for her.  

Perhaps consider adding reverse mortgage to your wholesaling plans.