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Minnesota: Is a Deadline Really a Deadline for Borrowers Challenging Foreclosures for Dual Tracking?

Posted By Rachel Ramirez, Thursday, January 18, 2018
Updated: Thursday, January 18, 2018

January 18, 2018

by Paul Weingarden and Brian Liebo
Usset, Weingarden & Liebo, PLLP – USFN Member (Minnesota)

During the mortgage foreclosure crisis, Minnesota adopted its own borrower relief provisions through Minnesota Statutes Section 582.043, also known as the “Minnesota Dual Tracking Statute.” This statute imposes specific requirements for mortgage servicers with loss mitigation procedures and includes dual-tracking prohibitions. Minnesota’s version is even more expansive than the federal rules; it contains no explicit limitation on the number of loss mitigation applications that borrowers may submit, providing borrowers the ability to file applications up to seven days prior to foreclosure sales to stop foreclosures, and awarding attorneys’ fees for noncompliance, among other requirements. The statute did, however, provide borrowers with only a narrow time-window to bring actions asserting violations. Specifically, the statute provides:

Subd. 7. Relief.

(a) A mortgagor has a cause of action, based on a violation of this section, to enjoin or set aside a sale. A mortgagor who prevails in an action to set aside or enjoin a sale, or who successfully defends a foreclosure by action based on a violation of this section, is entitled to reasonable attorney fees and costs.

(b) A lis pendens must be recorded prior to the expiration of the mortgagor’s applicable redemption period under section 580.23 or 582.032 for an action taken under paragraph (a). The failure to record the lis pendens creates a conclusive presumption that the servicer has complied with this section. (emphasis added)

This subdivision was recently discussed by the Minnesota Supreme Court in Litterer v. Rushmore Loan Management Services, LLC, No. A17-0472 (Minn. Jan. 10, 2018). After defaulting on their note and mortgage, borrowers Thomas and Mary Litterer (Borrowers) applied unsuccessfully for a loan modification. In 2014 their home was sold in a foreclosure sale, subject to the usual six-month redemption period. Just prior to the expiration of the redemption period, Borrowers initiated suit without an attorney, alleging a number of violations of Section 582.043; they failed to record a notice of lis pendens (NLP) with the county. Upon retaining counsel, the delayed Notice of Pendency was recorded after the redemption period had already expired.

After the Borrowers’ suit was removed to the U.S. District Court for the District of Minnesota, summary judgment was granted for the foreclosing lender based on the failure to record the NLP in a timely manner, without reaching the merits of Borrowers’ complaint. Upon appeal to the Court of Appeals for the Eighth Circuit, Borrowers asked for discretionary relief from the judgment based on excusable neglect under Rule 6.02 of the Minnesota Rules of Civil Procedure, seeking reversal in order to have their case heard on the merits. Prior to oral argument before the Eighth Circuit, Borrowers filed a Motion for Certification of Question to Minnesota Supreme Court. After the argument, the Eighth Circuit certified the following question to the Minnesota Supreme Court: “May the lis pendens deadline contained in Minn. Stat. § 582.043, subd. 7(b) be extended upon a showing of excusable neglect pursuant to Minn. R. Civ. P. 6.02?”

Rule 6.02 reads in relevant part, “[w]hen by statute, by these rules, by a notice given thereunder, or by order of court, an act is required or allowed to be done at or within a specified time, the court for cause shown may, at any time in its discretion, … upon motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.”

Borrowers asserted a litany of reasons for their failure to timely file the NLP, based mostly on their inexperience and pro se status when they first brought suit. The sole question before the Minnesota Supreme Court was whether the deadline to file the NLP was procedural (and Rule 6.02 might have afforded relief) or substantive in nature (in which case the action ends for failure to meet the deadline). The Minnesota Supreme Court decided the requirement was substantive and answered the certified question in the negative.

Supreme Court’s Review
In its analysis, the Minnesota Supreme Court rejected the Borrowers’ contention that procedural law applied, akin to the analysis in Stern v. Dill, 442 N.W.2d 322 (Minn. 1989), which found the expert witness deadlines in malpractice cases to be procedural, and thus subject to expansion at the discretion of the court. In noting that, unlike Stern which solely impacted the litigation between the parties and was filed in the trial court, failing to file the NLP in the appropriate county recorder’s office creates a “conclusive presumption” that the mortgage servicer complied with the section.

The Court determined that failure to follow the plain reading and unambiguous nature of the statute would affect the servicer’s substantive rights, as well as be misleading to third parties who rely on the document recording statute to alert them of pending litigation, which may interfere with their purchase or security interests sought post-foreclosure. The Court was sympathetic to the harsh result to Borrowers but was constrained by constitutional separation of power principles. While the judiciary has the power to regulate procedural rules, it has “no authority to intrude upon legislative declarations of substantive law.”

In sum, if borrowers fail to strictly meet the Minnesota procedural requirements for pursuing dual-tracking claims against foreclosing lenders in a timely manner, those dual-tracking claims will be lost, and mortgage servicers can proceed without this potential cloud on title affecting their ability to move forward with transitioning properties to new homeowners. Regardless, mortgage servicers should ensure diligent compliance with dual-tracking laws to help ensure that such claims are not pursued by borrowers in the first place.

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January e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."


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