By Eric Cook, Esq.

Wilford,Geske & Cook, P.A.

USFN Member (MN)

Minnesota passed foreclosure reform legislation in a combined omnibus bill on the last day of the 2025 legislative session, HF2432, Article 5. All 13 sections of the bill were signed into law and will become effective either on August 1, 2025 or January 1, 2026. Key provisions for the default servicing industry cover loss mitigation, postponements of judicial foreclosure sales, surplus funds, post-sale redemptions, and enhanced sheriff tools to thwart foreclosure speculators.

The timeline for handling loss mitigation applications under Minnesota law is now better (but not perfectly) aligned with federal law. In 2014, Minnesota enacted an ambiguous dual-tracking statute that conflicted with Regulation X procedures. The most problematic issue involved the addition of a single word “halt” to the state dual-tracking statute which in practice made it difficult for servicers to safely postpone a sheriff’s sale during loss mitigation.

It has long been permissible to postpone a foreclosure sale under RESPA while evaluating a loss mitigation application, provided the servicer does not “move for an order of foreclosure, seek a foreclosure judgment, or conduct a foreclosure sale… .” 12 C.F.R. §1024.41(g). Since 2014, the conservative response of some servicers in Minnesota entailed canceling scheduled foreclosure sales upon receipt of a partial application for fear of violating the state statute’s directive to “halt” the foreclosure proceedings. The term “halt” was left undefined and remains undefined by local courts. A Minnesota federal court commented with disapproval the fact that the servicer “continued to publish the notice of foreclosure sale after…” the homeowner submitted a loan modification application, stating that “halt” means “that all proceedings should be suspended or stopped pending an application review.” Hall v. The Bank of New York Mellon, et al, 2016 WL 2930917 (D.Minn. 2016).  As a result, publishing a postponement notice of a scheduled sheriff’s sale presented servicers with litigation risk and led to uneconomically canceling scheduled sales after incurring significant attorney fees and costs.

With the support of the Minnesota Legal Aid Society, which originally drafted Minnesota’s dual-tracking statute in the image of Regulation X in 2014, the term “halt” now explicitly allows a servicer to postpone or cancel a pending foreclosure proceeding while evaluating a loss mitigation application.  After August 1, 2025, servicers do not need to cancel and re-start pending foreclosures during loss mitigation, which made no economic sense for the servicer or borrower, and will no longer be faced with the dilemma of complying with state and federal dual-tracking statutes that conflict with one another. 

Some differences remain between Regulation X and Minnesota’s dual-tracking statute. For instance, a Minnesota homeowner retains the right to submit a loss mitigation application up until “midnight of the seventh business day before the foreclosure sale date” compared to the 37-day deadline under Regulation X. 12 C.F.R. §1024.41(g). However, now the servicer receiving an application at the eleventh hour may simply postpone the sheriff’s sale rather than cancel it and start over. 

The dual-tracking statute in Minnesota will now require a servicer to wait 60 days before conducting a sheriff’s sale after the occurrence of one of the following, whichever is applicable: (1) a loss mitigation denial letter, (2) the homeowner fails to timely accept a loss mitigation offer, or (3) the homeowner declines a loss mitigation offer in writing. As a practical matter, this eliminates the unseemly instance of removing a loss mitigation hold on a Monday and proceeding with a sheriff’s sale on Wednesday.

In a separate provision introduced by Legal Aid, judicial foreclosure sales may now be postponed at the request of the servicer for an unlimited number of times. Minn.Stat. § 580.07, subds. 1. In alignment with non-judicial foreclosures (the predominant method of foreclosure in Minnesota), the right to postpone a sheriff sale has been relied upon by servicers for many reasons including compliance, moratoriums, reviews, and to allow time for reinstatements and payoffs. Previously, no statutory basis existed in Minnesota to postpone a judicial sale, which led to re-doing all post judgment foreclosure activities if a judicial sale couldn’t move forward at the time of the scheduled sale. A homeowner’s one-time right to postpone a sheriff’s sale for five or 11 months, in exchange for reducing the homeowner’s redemption period to only five weeks, is also carried over to judicial foreclosures. Minn.Stat. § 580.07, subd. 2. The net effect on timelines of a “borrower postponement” is minimal in Minnesota and only extends the overall foreclosure timeline by one week.

The surplus statute, Minn.Stat. §580.10, is rewritten but retains most of the substantive rights. Consistent with case law, junior creditors hold priority ahead of owners to demand a surplus in the order of their recorded priority. Minn.Stat. §580.10, subd. 1.  Demands for a surplus by a junior lienholder must be in writing and now must be accompanied by an affidavit stating the amount unpaid and describing the lien interest creating a right to a surplus. A sheriff must now hold surplus funds for the entire redemption period, usually six or 12 months.  The sheriff must send a Notice of Surplus to the owner at the property address. An owner may request that the surplus be held and applied to a mortgagor redemption, which right is nontransferable from the mortgagor to a third party, such as a foreclosure speculator. A surplus of less than $100 can be automatically paid to the owner of the property. In the event of competing demands for a surplus, a sheriff may now apply to a court to resolve such claims.

Technical changes to the redemption statutes provide more transparency, accuracy, and time to complete redemptions. Junior creditor redemptions now take place during consecutive 14-day windows (instead of seven-day windows) following the mortgagor’s redemption period expiration date. Minn.Stat. § 580.24. The deadline for a junior creditor to record an Affidavit of Amount Due is now relaxed to “as soon as reasonably possible” instead of strictly within 24 hours. Minn.Stat. §580.25. Redemption affidavits must state the interest rate accruing on the lien and the date of payment of each cost incurred during the redemption period. A Certificate of Redemption must be issued in the name of the mortgagor if redemption occurs during mortgagor’s redemption period. Minn.Stat. §580.26.  The deadline to record a Certificate of Redemption is extended from four days to one week.  Minn.Stat. §580.26.

Sheriffs will have powers to thwart foreclosure speculators. For years, speculation has existed in Minnesota foreclosures and redemptions through schemes to artificially create redeemable interests in properties. Voluntarily paying property taxes for another, and thus having a lien for the taxes paid, was one example of creating a right of redemption in a foreclosure. The right to pay property taxes for another is limited to only those having a “legal or equitable” interest in the underlying property. Minn.Stat. § 272.45. Additional tactics such as forged deeds or fraudulent mechanics liens have been questioned by sheriffs in the past.  Now, sheriffs may commence an action to resolve a redemption dispute or question the validity of a redemption without issuing a Certificate of Redemption to a foreclosure speculator. Minn.Stat. § 580.24(d). The scope of legal challenges that may be raised under a statute intended to preserve redemption rights pending the legal challenge, is expanded to include surplus and redemption disputes. Minn.Stat. § 580.28.

In the end, the 2025 amendments will create more certainty, fairness, and predictability to the foreclosure, surplus, and redemption processes in Minnesota.

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USFNews - July 9