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.

Copyright © USFN 2025

USFNews - July 9

By Brian Liebo, Esq.

Liebo, Weingarden, Dobie & Barbee, PLLP

USFN Member (MN)

On May 25, 2023, the U.S. Supreme Court issued its decision in Tyler v. Hennepin County, Minnesota, regarding whether a homeowner is entitled to recover a surplus after a property tax forfeiture sale. (2023 WL 3632754).

The plaintiff, Geraldine Tyler, is 94 years old. In 1999, she bought a one-bedroom condominium in Minneapolis, Minnesota. In 2010, she moved from her condo to a senior community. The property taxes on the condo were not paid in Tyler’s absence, and by 2015, about $15,000 had accumulated in unpaid taxes, interest, and penalties. The county ultimately seized the condo through forfeiture proceedings and sold it for $40,000 to a new owner. That sum extinguished the $15,000 debt, but the county kept the remaining $25,000 surplus funds for its own use. Tyler brought suit claiming she was entitled to those surplus funds because the county’s retention of those funds was an unconstitutional taking.

Property Tax Forfeiture Process

Hennepin County imposes an annual tax on real property. The taxpayer has one year to pay before the taxes become delinquent.  If the taxes are not timely paid, the tax accrues interest and penalties, and the county can obtain a judgment against the property, transferring limited title to the state. This action is typically taken by a county three to five years after the first delinquent year.

The delinquent taxpayer then has three years to redeem the property and regain title by paying all taxes and late fees, among other options. During this time, the taxpayer remains the beneficial owner of the property and can continue to live in the home. If, however, the tax bill has not been paid within the three-year “redemption period,” title absolutely vests in the state, and the tax debt is extinguished. The state can keep the property or sell it to a private party. Under the existing forfeiture statute, if the property is sold, any proceeds in excess of the tax debt and the costs of sale remain with the county to be shared among the county, city, and school district. The former owner has no opportunity to recover the surplus.

Note, mortgagees may file their names and mailing addresses with the county where the land is located for the purpose of receiving notices related to forfeitures, along with paying filing fees. However, those filings expire after three years. On the other hand, taxpayers already of record with the county auditor, and mortgagees who remit taxes on the owners’ behalves with their addresses on file receive tax statements and other notices without having to pay a fee. Unfortunately, even if the county fails to provide these advance notices, there is really no recourse for the mortgagee, since such a failure does not invalidate the forfeiture per the statute.

Potentially Problematic Implications

The Supreme Court ultimately decided in favor of the plaintiff and held that Tyler was entitled to the full $25,000 surplus from the final tax forfeiture sale. This seems to be a fair result in contrast to the county retaining these substantial, excess funds. However, this result is not as simple as it seems. According to public records, Tyler was not the only one with an interest in the property. The Court recognized that the condo was subject to a $49,000 mortgage and a $12,000 lien for unpaid homeowners’ association assessments.

The Court’s sole focus was on Tyler and her right to the surplus. The Court identified that a tax sale extinguishes all other liens on a property. But, the Court did not address at all whether those junior lienholders were entitled to any of the surplus funds, even though, clearly, junior lienholders would want to claim the excess funds as well. Instead, the Court reasoned that the forfeiture sale does not extinguish the taxpayer’s debts, and the borrower remains personally liable for those debts. The Court wrote that if Tyler received the surplus from the tax sale, “she could have, at the very least, used it to reduce any such liability.” This reasoning fails to consider the frequent situations when those debts are discharged in bankruptcy, leaving those lienholders without any recourse. Nor does the opinion account for a scenario where the borrower decides to simply keep those surplus funds, hoping the junior liens will be charged off. In these circumstances, the borrower could end up with a significant windfall.

What is more troubling is that the Supreme Court only partially cited a Minnesota statute used to bolster its holding. The Court wrote the following: “Significantly, Minnesota law itself recognizes in many other contexts that a property owner is entitled to the surplus in excess of her debts. If a bank forecloses on a mortgaged property, state law entitles the homeowner to the surplus from the sale.”  This language contains a major omission from the referenced statute. That statute, Minn. Stat. § 580.10, reads, “the surplus shall be paid . . . on demand, to the mortgagor, the mortgagor’s legal representatives or assigns.” Longstanding state case law, including from the Minnesota Supreme Court, identifies that the mortgagor’s assigns include junior lienholders.

As a result of the foregoing, it is worrisome that borrowers may use this case to claim that they alone are entitled to surplus proceeds from a tax forfeiture sale, or even argue this case supports a claim that they alone are entitled to surplus funds from foreclosure sales. It is important to note that none of the junior lienholders were parties to the Tyler case. If they were, perhaps there would be a substantive discussion about those lienholders’ rights to the surplus. Also, the case was solely about whether the county or Tyler was entitled to the surplus funds, without the mention of any specific claims by the junior lienholders in the matter. Thus, those arguments may be preserved for another day. Based on the clear case law of Minnesota, any arguments that junior lienholders are not entitled to share in surpluses are tenuous at best.

As a best practice, it is critical that mortgagees closely monitor property taxes for their secured properties and ensure they remain current. Where the taxes are not being paid by the mortgagee through an escrow account, the mortgagee should regularly check property tax records to identify delinquencies, or file requests for notice with the county auditors. In the event a mortgaged property is tax-forfeited, the mortgagee should also consider intervening in any forfeiture proceedings or bringing its own action to ensure it is able to recover surplus funds upon the final sale of the tax-forfeited property.

@Copyright 2023 USFN

USFNews - July 26