by Brian Liebo, Esq. and Paul Weingarden, Esq.
Usset, Weingarden & Liebo, PLLP
USFN Member (MN)

Five Week Redemption Period for Abandoned Properties
It’s that time of year, yet again - wintertime in Minnesota.  Twenty below zero with another six-month period of time when pipes can freeze and burst causing damage to the property.  Your local property preservation team has just called you (hopefully long-distance for your sake) suggesting one of your mortgaged properties is vacant.   

So now what’s a Lender to do?  You’re in luck.  Under Minnesota Statutes § 582.031, if a mortgaged property is vacant, the mortgage holder can take the necessary steps to protect its security without becoming what is termed a “mortgagee in possession”.  These powers include authority to enter the property without a court order, secure the property, winterize the property, inspect the premises and take all other reasonable actions to prevent trespass, waste and damage to the premises.  The cost of such actions may be added to the principal balance of the mortgage, or added to the redemption price if incurred after the foreclosure sale and an affidavit of those posts-sale post-sale costs is timely provided to the sheriff’s office.

Keep in mind, however, that this statute also provides that, upon request, the servicer must deliver a key (rather than simply access) to the borrower or any person lawfully claiming through the borrower, which may include the owner, agent, tenant, or in the case of death, the heirs or personal representatives. These requests should be promptly honored, and we suggest your property preservation team be available to respond to such requests on short notice.

So now that you have secured and winterized the property, what’s next?  Minnesota law specifically contains a provision to shorten the foreclosure’s redemption period to just five weeks (down from the standard six-month redemption period or even the -month redemption period applicable to certain properties), thereby cutting delay costs considerably.  These properties must be both vacant and abandoned, rather than just vacant.  For example, if the vacant property is listed for sale, then the property is almost certainly not abandoned.

The mechanics of this process are found in Minnesota States § 582.032 which dovetails nicely with the securing powers available to lenders in § 582.031 for vacant properties.  In most cases, a mortgage servicer changing the locks and terminating a utility commences a showing of proof of abandonment.  Once secured, an affidavit by the servicer asserting no person with a right of possession to the property has requested a key within 10 days of securing constitutes a prima facie establishment of abandonment.   Procedurally, there is an abbreviated court action required to request a judicial determination of abandonment and reduction in the redemption period to five weeks.  If there is no opposing appearance at the hearing following proper service, such absence constitutes conclusive evidence of abandonment and the Order will issue.   

This redemption shortening process is only applicable to properties that are 10 acres or less, improved with a residential dwelling of four or less units, are not model homes or dwellings under construction, and are not used in agricultural production.  Also keep in mind that while an encumbering federal income tax lien may not prevent the shortening of the redemption period for the borrower, it may preclude reducing the redemption period for the federal interests under 120 days.

Five Week Redemption Period for Borrower-Initiated Postponements
In contrast, there is another five-week redemption period at play in Minnesota, which is Minnesota Statutes § 580.07, Subd. 2. While this statute does not actually shorten the timing of the overall foreclosure process (and instead actually adds one week to the overall process), it can be a formidable tool for borrowers working with servicers to extend the time before the foreclosure sale occurs to have more loss mitigation options available. 

In short, the borrower can unilaterally use a specific affidavit to delay the sheriff’s sale date by five months (for a six-month redemption period foreclosure) or 11 months (for a 12-month period foreclosure).  The borrower’s affidavit must be recorded and served on both the sheriff and foreclosing party’s counsel at least 15 days before the scheduled foreclosure sale.  In exchange, the borrower’s redemption period is automatically reduced to just five weeks.  This right to postpone unilaterally by the borrower can only be exercised once, regardless of whether the borrower reinstates the mortgage before the postponed foreclosure sale.  If the initial foreclosure is ultimately stopped by the mortgage servicer, rather than by the borrower reinstating or filing bankruptcy, it is common practice in Minnesota to accept the borrower’s subsequent postponement election.  Otherwise, mortgage servicers could simply stop and restart foreclosures as soon as a borrower’s postponement affidavit is received to avoid the statute’s intended effects.

This postponement process has the particular advantage of preserving available loss mitigation options for the lender and borrower.  Since the pre-sale foreclosure period is extended with this postponement procedure, the borrower and lender have more extensive loss mitigation tools available.  The borrower can still modify the mortgage, work out a forbearance, enter a repayment plan, or utilize any other loss mitigation options available.  Once the sheriff’s sale occurs though, the available loss mitigation options are typically just a short sale or short redemption.

The primary concern a lender may have is that the extension of the pre-sale foreclosure period also gives the borrower more time to file for bankruptcy relief enabling an endless loop of postponements and bankruptcy filings.  That assumption is somewhat correct, since bankruptcy filings after borrower postponements are a common practice.  However, the drafters of § 580.07 wisely anticipated this, and added a provision that if a borrower obtains a bankruptcy stay after electing postponement of the sheriff’s sale under the statute, then when the stay is no longer applicable, the five-week redemption period remains applicable to the foreclosure process.

Also keep in mind that a borrower-initiated postponement extends the time for dual-tracking protections for the borrower.  In Minnesota a qualifying borrower has the right to apply for loss mitigation up to seven business days before the original sheriff’s sale date or the new sale date resulting from the borrower’s postponement, whichever is later, to activate related dual-tracking protections.

As practice tips for mortgage servicers, these Minnesota statutes involving five-week redemption periods can be effective tools for avoiding potential losses or delay costs.  The first statutes mentioned (Sections 582. 031 and 582.032) are powerful tools for protecting abandoned properties and vastly shortening the redemption periods surrounding qualifying properties. 

On the other hand, the latter statute mentioned (Section 580.07, Subd. 2) is a great tool for borrowers and mortgage servicers looking for more time to work with a wider variety of loss mitigation options available before the sheriff’s sale than the more limited options after the sheriff’s sale occurs.  This benefit of having greater flexibility in loss mitigation options comes at the relatively small price of having the overall foreclosure process extended by just one week.

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February 2021 e-Update