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Slowly Clarifying Minnesota’s Vague Dual Tracking Statute

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Eric D. Cook and Orin J. Kipp
Wilford Geske & Cook, P.A. – USFN Member (Minnesota)

Since its enactment in 2013, Minnesota and Eighth Circuit courts have gradually whittled away at the ambiguities of Minnesota’s dual tracking statute (Minn. Stat. § 582.043). Most recently, the Eighth Circuit sided with the lender — while also declining to make a determination on a key question that remains unclear within the statute: what constitutes a “complete loss mitigation application.” [Wilson v. Wells Fargo Bank, N.A., No. 16-3213 (8th Cir. July 17, 2018) (unpublished).]

Background
In Wilson the borrower challenged the underlying foreclosure based on alleged violations of Minnesota’s dual tracking statute. The borrower’s primary argument was that Wells Fargo violated subdivision 6(c) of the dual tracking statute. This subdivision provides that if a servicer receives a loss mitigation application after the sale has been scheduled, it must halt the foreclosure sale and evaluate the application.

The borrower contended that her submission of a Hardship Affidavit Form (which stated she was requesting review of her current financial situation to determine if she qualified for temporary or permanent mortgage relief options) was her loss mitigation application. The court disagreed; stating that while “loss mitigation application” has not been defined by Minnesota state courts it was persuaded by the ruling in Wells Fargo Bank, N.A. v. Lansing, No. A14-0868, 2015 WL 506655 (Minn. Ct. App. 2015). Lansing did not elaborate on what constituted a “complete” application, and the Wilson court similarly did not define what constituted a complete application because it was undisputed that the application was not even substantially complete.

Appellate Analysis
Servicers have been challenged to design policies and procedures for Minnesota loss mitigation in the face of statutory silence as to what constitutes a loss mitigation application. The Bureau of Consumer Financial Protection (BCFP) regulations define and require a complete application. The Eighth Circuit focused its analysis on subd. 6 by distinguishing between a request for loss mitigation and an application for loss mitigation. In the past, receipt of a Hardship Affidavit may have been enough to meet a core documents standard and necessitated halting the foreclosure, but the Eighth Circuit viewed receipt of the Hardship Affidavit as merely a request for loss mitigation, not a formal loss mitigation application. Consequently, Wells Fargo was not required to halt the foreclosure.

Takeaways
The Wilson court’s higher standard of completeness is akin to BCFP regulations that require a borrower to provide all information and documents requested by the servicer. If Minnesota courts follow the Eighth Circuit’s non-binding decision in Wilson, the inconsistency between Minnesota law and BCFP standards for loss mitigation applications goes away. For now, Wilson is a lender-friendly court’s attempt at imposing a “completeness” requirement under a vague statute.

The borrower also contended that Wells Fargo failed to give her a “reasonable amount of time” to provide the documents requested in order for Wells Fargo to complete the application review. Subdivision 5(2) of the dual tracking statute provides that after a servicer receives a request for a loan modification, it must exercise reasonable diligence in obtaining documents and information from the mortgagor in order to complete the application and review it. The borrower did not introduce any evidence showing that 32 days was an unreasonable amount of time. As such, the court found that the borrower’s claims under this subdivision failed as well.

Minnesota’s dual tracking statute remains vague and silent on a few requirements that differ from federal law, presenting challenges for servicers and their attorneys.

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