June 14, 2016
by Eric D. Cook and Orin J. Kipp
Wilford, Geske & Cook, P.A. – USFN Member (Minnesota)
In 2013 the Minnesota legislature enacted Minn. Stat. § 582.043 (the Statute) which, in part, prohibits dual tracking and creates a private cause of action against servicers for dual tracking a loss mitigation application with a scheduled foreclosure sale. Unfortunately, the Statute is ambiguous in many ways when it comes to assisting servicers regarding developing processes and assessing business risks. As we approach the three-year anniversary of the Statute’s effective date, the dark clouds of uncertainty remain, with no clear direction from Minnesota courts or amendments from the Minnesota legislature.
The most difficult part of the Statute provides that if a foreclosure sale has been scheduled (“first legal”), and the servicer receives a loss mitigation application before midnight on the seventh business day prior to the sale, the servicer must “halt” the foreclosure sale and evaluate the application. Minn. Stat. § 582.043, subd. 6(c) (2016). The obligation to halt the foreclosure sale is in addition to the CFPB-like obligations not to move for an order of foreclosure, seek a foreclosure judgment, or conduct a foreclosure sale.
The term “halt” is not defined, and the CFPB is not helpful since it does not speak in terms of “halting” a foreclosure sale. The Minnesota legislature appears to require something more from a servicer beyond existing CFPB obligations; but what are those additional state law obligations in Minnesota? Hall v. The Bank of New York Mellon, No. 16-cv-00167 (D. Minn. May 19, 2016), sheds just a flicker of light on how Minnesota courts may interpret this essential terminology.
In Hall, the servicer asserted that the Statute allows a lender to continue publishing a foreclosure notice while evaluating the application. The court disagreed, stating that “the Statute requires servicers to ‘halt’ the foreclosure, which means that all proceedings should be suspended or stopped pending an application review.” The court apparently views continued publication as going too far, but since the court was merely denying a motion to dismiss, a further order of the court may provide additional guidance in the future.
An important question that is likely to remain unanswered is, can a servicer publish a postponement of a sale to maintain the status quo while evaluating the application? Under the Official Bureau Interpretation to § 1024.41(g) of the CFPB Regs, the answer is clearly “Yes,” while under the Hall decision, the answer is likely “No.” Therefore, maintaining the status quo by finishing an existing publication, or postponing a sale date to a new sale date, could lead to a non-compliance ruling against a servicer. Servicers have struggled with this postponement question in Minnesota since cancelling and re-starting (the conservative approach) departs from CFPB-designed processes.
Most national servicers have established procedures in place to postpone foreclosure sales while they evaluate pending loss mitigation applications. Again, that’s fine under CFPB regulations and the Official Commentary; however, it remains an unanswered question in Minnesota. A servicer choosing to postpone a scheduled foreclosure sale while evaluating an application assumes a business risk of making bad case law in Minnesota, should a court determine that actively postponing a foreclosure is a failure to halt the foreclosure sale. The decision in Hall suggests that the continued publication of a foreclosure sale may be a statutory violation. The consequences of non-compliance could be significant since the statute expressly provides for injunctive relief, setting aside the sale, and recovery of attorney fees and costs.
The court in Hall relied on last year’s decision in Mann v. Nationstar Mortgage, LLC, No. 14-cv-00099, 2015 WL 40942009 (D. Minn. July 2015). The Mann decision provided only a faint ray of light clarifying another essential, yet undefined, term in the Statute: “loss mitigation application.” The Statute, unlike the CFPB regulations, does not necessitate a complete application before requiring the servicer to halt the sale. In Mann, the court did not define what constitutes a “loss mitigation application” but noted that receipt of “core documents” with the application would likely allow a servicer to undertake analysis of the application which would be sufficient. The skies remain cloudy in Minnesota on this issue.
Only one clear ray of light appears under the Statute from a Minnesota Federal District Court decision that actually was a ruling in favor of a servicer. Litterer v. Rushmore Loan Management Services, LLC, No. 15-cv-01638 (D. Minn. June 2, 2016). The Statute requires a lis pendens be recorded before the end of the borrower’s redemption period to assert a claim for non-compliance. The Statute goes further and states that “[t]he failure to record the lis pendens creates a conclusive presumption that the servicer has complied with this section.” Minn. Stat. § 582.043, subd. 7 (2016). On a motion for summary judgment, the court dismissed the entire case on statute of limitation grounds. The claims of non-compliance were extensive, but the notice of lis pendens was filed two months late, and the court concluded that not even excusable neglect was excepted from the conclusive presumption under the Statute.
At some point, a Minnesota court may expound on the many ambiguities in the Statute and provide clarity for servicers to design processes and procedures. Until then, it is best to consult with your local attorneys on these issues to assess risks based on the specific facts of each case.
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