June 30, 2015
by Brian H. Liebo
Usset, Weingarden & Liebo, PLLP
USFN Member (Minnesota)
In two separate articles, the MN information presented here first appeared in a slightly modified fashion in the USFN e-Update (May 2015 ed.). The information is republished here for those readers who missed it.
The regular 2015 legislative session concluded on May 18.
Additions to Mortgage Reinstatement Requirements — The Minnesota legislature, working with the Minnesota Bankers Association and interested parties (including this author’s firm) was able to craft and pass legislation that would have otherwise created large difficulties and delays for mortgage servicers seeking to foreclose mortgages in Minnesota.
In a recent case, the federal district court in Minnesota held that a mortgage servicer must provide a reinstatement quote to a requesting borrower within twenty-four hours of the request under Minnesota Statutes Section 580.30. That statute was silent on the deadline for providing reinstatement figures to requesting borrowers. In this legislative session, the Minnesota legislature introduced a bill to amend the statute (in response to the federal case) to provide a longer response time than twenty-four hours.
However, the original bill introduced in the legislature still only gave mortgage servicers a total of three days to provide reinstatement figures following a borrower’s request. Further, this original bill did not address which alternatives would be available if a mortgage servicer needed more than three days’ time to respond to a reinstatement inquiry, including the scenario of a borrower faxing a request late on a Friday night. As a result, the original bill would have effectively required that the mortgage servicer completely stop pending foreclosures altogether in situations where they were unable to provide borrowers with reinstatement quotes within three days of the request.
Additionally, the original bill did not contain any language allowing mortgage servicers to postpone foreclosures in order to provide reinstatement figures if they were unable to meet the three-day deadline. Moreover, the original bill did not restrict the amount of times that a borrower could submit reinstatement quote requests. Thus, borrowers seeking to disrupt and delay foreclosure proceedings could repeatedly submit reinstatement requests under the original bill.
Recognizing the troublesome implications of the original bill language, “safe harbor” language was submitted to the legislature: “If the amount necessary to reinstate the mortgage was not mailed to the mortgagor within three days of receipt of the request, no liability shall accrue to the party foreclosing the mortgage or the party’s attorney and the foreclosure shall not be invalidated if the mortgage reinstatement amount was mailed by first class mail to the mortgagor at least three days prior to the date of the completed sheriff’s sale.” This wording was carried into the final bill version passed into law.
Based on this new language, mortgage servicers will have far more breathing room in complying with borrower requests for reinstatement figures, and will also have the option to postpone sheriff’s sales — where necessary — to give this information, without having the entire foreclosure invalidated for doing so. Requesting borrowers will also still be assured of getting reinstatement figures prior to the sheriff’s sale. Mortgage servicers can now provide reinstatement quotes within three days of a request, or ensure that they convey a reinstatement quote at least three days before the date of the final sheriff’s sale as an alternative (and can postpone the original sale to accomplish this). The reinstatement quotes must be effective for seven days or until the foreclosure sale, whichever occurs first.
In a related development, the legislature also adopted into these bills new language that will be an additional curative statute provision under Minnesota Statutes Section 582.25. These provisions cause various errors to automatically “cure” with the passing of time, so that the issues can no longer be raised to overturn a completed foreclosure. In this particular situation, any errors made by a foreclosing party in connection with publishing or mailing notices for postponements of sheriff’s sales will automatically “cure” after one year has passed from the date of the expiration of the redemption period.
Finally, these bills contain a provision simply clarifying that if a borrower postpones a sheriff’s sale under Minnesota Statutes Section 580.07, subdivision 2 (for five or eleven months, whichever is applicable, in exchange for a five-week redemption period), and the related foreclosure is stopped and then restarted, the new redemption period is not permanently five weeks for any future foreclosures, unless the bankruptcy stay provision of the statute applies.
Clarification of Foreclosure Publication Statutes — In a growing area of litigation challenging foreclosures in Minnesota, the Minnesota Bar Association, the Minnesota Bankers Association, and interested parties (including this author’s firm) advocated for a necessary change to the legal publications statutes. These efforts were fruitful, and the Minnesota legislature passed a clarifying law this session under bills HF953 and SF1147.
Governed by a provision under Chapter 580 of Minnesota’s Foreclosure by Advertisement statutes, notices of sheriff’s sales must be published for six weeks prior to sheriff’s sales in qualified newspapers. For over a century, it has been the accepted custom and practice in Minnesota to publish those notices in any qualified newspapers located in the same county as the mortgaged property. Using a county-wide standard, the newspaper selection could be made based on the best quality and pricing among a larger pool of newspapers. Consistent with this practice, the Minnesota Secretary of State maintains a list of qualified legal publishers in Minnesota, which is arranged by county as the first category on the list.
Borrowers seeking to challenge foreclosures have been arguing that the newspaper selection standard should be closer to a city-based standard — rather than a county-based one — even if that would reduce competition by narrowing the selection of available legal publishers and, therefore, increase pricing that mortgage servicers and reinstating borrowers would have to pay. Under the narrower standard, if a small city only has one qualified newspaper, the publisher could charge whatever price it wanted for publishing legal notices because it would have a captive market. There is no Minnesota statute capping what newspapers can charge for such publications.
In the past few years, borrowers’ attorneys have been bringing court actions challenging foreclosures to promote the use of a narrower standard for selecting newspapers. They have been taking advantage of vague and undefined terms in related publication statutes to tie up properties in litigation. For example, one applicable statute, Minnesota Statutes Section 331A.03, requires that public notices be published in newspapers likely to give notice in the “affected area” or “to whom it is directed.” Unfortunately, neither of these terms is defined in any Minnesota statute or case law. The “affected area” for a foreclosure notice could be just the mortgaged parcel, its neighborhood, the city in which the mortgaged parcel is located, or its county. Also the “persons to whom foreclosure notices are directed” could be construed as just the borrowers, potential bidders, sheriffs conducting the sales, etc.
After persuasive prompting, bills were introduced in the Minnesota legislature to address the growing problem with the publication statutes. This new law, to be codified as Minnesota Statutes Section 580.033, now explicitly provides that a county-based standard for selecting newspapers for publishing foreclosure notices is proper. The new statute clearly provides that “publication of the notice of sale shall be sufficient if it occurs in a qualified newspaper having its known office of issue located in the county where the mortgaged premises, or some part thereof, are located.” This new statute also allows a foreclosing party to publish in a qualified newspaper having its known office of issue located in an adjoining county. However, the foreclosing party then has a higher standard to meet because the newspaper must also establish that a “substantial portion of the newspaper’s circulation is in the county where the mortgage premises, or some part thereof, are located.”
This clarifying new statute allows foreclosing parties to avoid having to contend with the vague standards of Section 331A.03 and provides greater certainty and predictability in selecting appropriate newspapers to publish foreclosure notices. It should also help in avoiding the litigation that resulted from the past applicability of an unclear statutory section to mortgage foreclosure.
The new laws are effective for all cases where the Notice of Pendency for Foreclosure is recorded on or after July 1, 2015. These notices of pendency are recorded prior to the time of the commencement of the foreclosure proceedings, which is the date of first publication.
The new publications statute will benefit parties seeking to foreclose mortgages by advertisement, as well as title companies insuring the transactions, since it creates more certainty in the laws governing these proceedings. By assuring a broader standard for selecting qualified newspapers, the new publication statute also helps to ensure that newspapers publishing legal notices will operate in a competitive environment, so that foreclosing parties can select qualified newspapers not only by location but also by factoring in pricing and quality of product among a larger pool of qualified newspapers.
Editor’s Note: The “safe harbor” provision now a part of Minn. Statutes Section 580.30, as well as the new language added to Minn. Statutes Section 582.25, was proposed and drafted by the author’s firm.
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