August 1, 2016
by Brian H. Liebo
Usset, Weingarden & Liebo, PLLP
USFN Member (Minnesota)
The Minnesota Mortgage Foreclosure Dual Tracking law was enacted in 2013 and codified as Minn. Stat. § 582.043. The relatively new law is comparable to the rules of the Consumer Financial Protection Bureau (CFPB) on dual tracking — with a large difference often initially overlooked by mortgage servicers. While the CFPB rules give borrowers a deadline to apply for loss mitigation of thirty-seven days before the foreclosure sale to qualify for dual tracking protections, the Minnesota statute gives borrowers a more generous deadline of up to seven days prior to the date of the foreclosure sale. Unlike the Minnesota statute, the CFPB dual tracking rules also exclude more borrowers from protection (e.g., borrowers who received bankruptcy relief or who have already gone through the loss mitigation application process, among others).
Since the inception of the dual tracking law, the biggest question that Minnesota practitioners have had is how far “dual tracking” activity would be limited. While some language of the statute is relatively clear, other provisions are more ambiguous. Recent case law may provide some clarification for those latter provisions. Unfortunately, the trend among the courts analyzing the Minnesota dual tracking statute is unfavorable to mortgage servicers and is contrary to initial (and reasonable) interpretations of the statute’s provisions.
Statutory Language — The Minnesota dual tracking statute primarily addresses three different points in a foreclosure: (1) prior to the time that a mortgage servicer refers a loan to an attorney for foreclosure; (2) after a loan has been referred to an attorney for foreclosure but prior to the time that a foreclosure sale has been scheduled; and (3) after a foreclosure sale has been scheduled by a foreclosure attorney but before midnight on the seventh business day prior to a foreclosure sale date.
During each of these three periods, the statute prohibits a mortgage servicer from moving forward with foreclosure activity unless:
• The servicer determines that the mortgagor is not eligible for a loss mitigation option, the servicer informs the mortgagor of this determination in writing, and the applicable appeal period has expired without an appeal or the appeal has been properly denied;
• Where a written offer is made and a written acceptance is required, the mortgagor fails to accept the loss mitigation offer within the time specified in the offer or within 14 days after the date of the offer, whichever is longer; or
• The mortgagor declines a loss mitigation offer in writing.
The statute also prohibits a mortgagee from conducting a foreclosure sale while the mortgagor is complying with the terms of a trial or permanent loan modification (or another loss mitigation option, including where short sale approval has been granted by all necessary parties and proof of funds or financing has been provided to the servicer).
Parsing out the statutory language, it is clear that if a mortgage servicer has received a loss mitigation application before a foreclosure has been referred to an attorney, the servicer must not refer the foreclosure until the terms of the statute have been satisfied. In contrast, the statute appears less clear as to what steps the mortgage servicer can take after a loan has already been referred to an attorney for foreclosure and an application is then received. After that point, the statute provides that if loss mitigation activity is pending, the servicer “shall not move for an order of foreclosure, seek a foreclosure judgment, or conduct a foreclosure sale.” Further, if the servicer receives a loss mitigation application after the foreclosure sale has been scheduled, but before midnight on the seventh business day prior to the foreclosure sale date, the servicer must “halt the foreclosure sale” and evaluate the application.
Although judicial foreclosures can occur in Minnesota, the predominant method of foreclosing mortgages is through nonjudicial foreclosure by advertisement proceedings. That method involves serving various notices and publishing a notice of foreclosure sale for six consecutive weeks. The final point of the foreclosure sale can be postponed to later dates by publishing the postponements and serving additional notices.
The dual tracking statute contains the vague phrase, “halt the foreclosure sale,” which is not contained in any other foreclosure statute and is undefined. However, the statute does appear to indicate that the operative point of a foreclosure where action must be taken to stop the dual activities of loss mitigation and mortgage foreclosure is the time of the foreclosure sale, rather than earlier in the foreclosure proceedings. That interpretation would be consistent with the other statutory provision prohibiting a servicer from “conducting a foreclosure sale” when a loss mitigation application is pending.
Nowhere does the dual tracking statute explicitly prohibit mortgage servicers from commencing or continuing “foreclosure proceedings” after referral while loss mitigation activities are occurring. Instead, the statutory language appears to focus solely on the point of the foreclosure sale with respect to nonjudicial foreclosures. On the other hand, since Minnesota is a “stop and restart state” for foreclosures, halting the foreclosure sale could also mean that the foreclosure sale must be cancelled altogether, and then foreclosure proceedings be restarted later with a new foreclosure sale date. But, given that the legislature could have easily written language requiring that the mortgage foreclosure proceedings be halted in their entirety — instead of just the foreclosure sale — it would appear more reasonable to interpret the statute to allow mortgage servicers to postpone sheriff’s sales if a loss mitigation application is received after a foreclosure referral, rather than require that servicers scrap the whole foreclosure process during the application review period.
Based on the statutory language, mortgage servicers believed they could delay the foreclosure sale by postponing it if they needed more time to complete a loss mitigation application review and denial process. Borrowers’ attorneys also accepted the rationale that a foreclosure sale could be postponed for loss mitigation review, and would routinely request that postponement accommodation while citing the dual tracking statute.
Case Law — Recent cases, however, appear to defy this reasonable interpretation of the statute and indicate that foreclosure proceedings must be cancelled in their entirety (instead of at just the point of foreclosure sale) if timely loss mitigation applications are submitted to mortgage servicers. In Hall v. The Bank of New York Mellon, 2016 U.S. Dist. LEXIS 66642 (D. Minn. 2016), a federal district court appears to have misquoted the dual tracking statute in holding that nonjudicial foreclosure proceedings must be stopped in their entirety once a loss mitigation application is timely submitted. In that case, the borrowers submitted a loan modification application to the mortgage servicer and then received a notice of foreclosure sale two days later.
Prior to the date of the foreclosure sale, the mortgage servicer denied the application and gave the borrowers 30 days to appeal the decision. The borrowers filed an appeal with the mortgage servicer, and the servicer had the sale conducted during the appeal period. While the court in Hall properly identified that “[t]he statute states that servicers must ‘halt’ the foreclosure sale” after receiving timely loss mitigation applications, the court later identified that “the statute requires servicers to ‘halt’ the foreclosure, which means that all proceedings should be suspended or stopped pending an application review” (emphasis added). Hall ultimately held that the borrowers’ allegation that the mortgage servicer “continued to pursue foreclosure” after receiving the loan modification application stated a viable claim for a violation of the dual tracking statute. The broader holding in Hall and the court’s analysis of the statute was surprising given that the court could have focused solely on the fact that the foreclosure sale was held during the alleged appeal period in contravention of the plain language of the statute.
While the Hall decision appears to have resulted from a possible misreading of the Minnesota dual tracking statute, that court may not be alone in interpreting the statute to require the termination of foreclosure proceedings in their entirety upon the submission of a timely loss mitigation application by a borrower. The Hall court cited Mann v. Nationstar Mortgage, LLC, 2015 U.S. Dist. LEXIS 87772 (D. Minn. 2015). However the borrowers in Mann did not claim that the mortgage servicer was required to stop all foreclosure proceedings after they submitted their loss mitigation application for review. Instead, the borrowers asserted that the servicer violated the dual tracking statute “based on its failure to postpone the Sheriff’s Sale” despite having timely received a loan modification application. Notwithstanding that narrow claim, the Mann court made a ruling broader than the exact language of the dual tracking statute, stating that “the purpose of the dual tracking statute is to prevent mortgage servicers from having it both ways: a servicer cannot ‘pursue mortgage foreclosure’ while also considering a borrower’s timely submitted application.” Regardless, the Mann court ultimately focused on whether the foreclosure sale should have been halted or conducted, whereas the Hall court also looked to whether the entire foreclosure proceedings should have been stopped.
The Minnesota Court of Appeals has also looked at this issue and appears to be consistent with the federal district courts. In an unpublished decision, the Court of Appeals wrote, “when a servicer receives a loss-mitigation application, it must halt ‘foreclosure proceedings’ until the application has been processed.” Wells Fargo Bank, N.A. v. Lansing, 2015 Minn. App. Unpub. LEXIS 132 (Minn. Ct. App. 2015). That court also appears to have disregarded that language of the Minnesota dual tracking statute requiring the halting of the foreclosure sale, rather than the halting of the foreclosure proceedings.
None of the foregoing cases is actually binding precedent in Minnesota, being that they are either federal district court level decisions or unreported state court decisions. Still, they are highly illustrative of how the courts are viewing the Minnesota dual tracking laws. Although they may not always be precise in how they are citing the language of the dual tracking statute, the courts do set forth logical reasoning in how they are interpreting the more vague statutory portions. Considering the title of the statute at issue, it is clear that the original purpose of the statute is to prevent mortgage servicers from pursuing two activities at the same time; i.e., processing loss mitigation applications and foreclosure proceedings simultaneously.
In the current environment, the safest approach for servicers would be to stop foreclosure proceedings in their entirety during the pendency of loss mitigation applications or other activities, given the tone of the cited cases, and until binding precedent holds otherwise. Failure to take this conservative route could result in an invalidated foreclosure and an award of attorneys’ fees to borrowers under the dual tracking statute.
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