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Minnesota Appellate Court Doubles Down on Strict Compliance

Posted By USFN, Monday, June 15, 2020

by Paul A. Weingarden, Esq. & Kevin T. Dobie, Esq.
Usset, Weingarden & Liebo PLLP
USFN Member (MN)


In navigating the rocky shores of nonjudicial foreclosures, the recent decision in Larsen v. Wells Fargo Bank, No. A19-0952, 2020 WL 1129880 (Minn. App. 2020), has just made life a bit more difficult for practitioners: the Minnesota Court of Appeals vacated a foreclosure sale after finding that the lender gave the mortgagor too much time to redeem.


Ever since the landmark decisions of Jackson v. MERS, 770 N.W.2d 487 (Minn. 2009) and Ruiz v. 1st Fid. Loan Servicing, 829 N.W.2d 53 (Minn. 2013), the Minnesota Supreme Court has held that lenders and practitioners of Minnesota foreclosures must strictly comply with the requirements of the nonjudicial foreclosure process or risk avoidance of a sale.  In the case of minor irregularities, based on precedent, many hoped that mortgagors might have to show a modicum of prejudice before courts reach the drastic conclusion to avoid an otherwise proper sale.  In Larsen, a recent unpublished opinion, the Minnesota Court of Appeals reversed a trial court and ruled that where the foreclosing lender published a redemption period double that to which the mortgagor was legally entitled, despite no prejudice to the mortgagor, the nonjudicial sale was void.


The facts in the case are fairly straightforward. After defaulting on her mortgage loan, Wells Fargo commenced a nonjudicial foreclosure proceeding.  When the title search revealed a junior mortgage in favor of the United States, Wells Fargo's counsel drafted and published a foreclosure sale notice advertising a 12-month redemption period, six months longer than the period the mortgagor was otherwise entitled by Minnesota statutes.  In our state, most properties are entitled to a six-month redemption, with 12 months being reserved for agricultural properties, much older mortgages, and those loans with steep equity.


Wells Fargo's counsel took this action relying on 28 U.S.C. § 2410(c), which provides for a one-year redemption period for the United States from a foreclosure sale in judicial proceedings and felt the longer period was required to avoid redemption issues caused by giving 6 months to the mortgagor. The county sheriff ultimately sold the property to Wells Fargo at a nonjudicial sheriff’s sale subject to the 12-month redemption period. The mortgagor sued, alleging the sale was invalid because she received a longer redemption period than allowed by statute, i.e., Wells Fargo gave her an additional six months to possibly redeem from the sale and to stay in her home before the foreclosure purchaser could commence an eviction proceeding. The trial court determined that Wells Fargo’s actions were valid and dismissed the case. The mortgagor appealed.


In reversing the trial court decision, the appellate court decided that 11 U.S.C. § 2410 did not mandate a change from six to 12 months for either the notice or the sale.  The court noted that the statutory provision establishing the six-month redemption period in Minnesota statutes 580.23 and required in the publication under Minnesota statutes 580.04(a)(6) applied to the mortgagor’s rights, not to those of junior lienholders. The court followed with a review of the strict compliance standard in Jackson v. MERS and Ruiz v. 1st Fid. Loan Servicing governing nonjudicial mortgage foreclosures and explained that although the mortgagor received a longer period of time to remain in the home and perhaps redeem, Minnesota law mandates strict compliance with the applicable foreclosure statutes. The court ultimately held the foreclosure sale was void because Wells Fargo gave her too much time to redeem, noting that the mechanics of redemption by junior liens after 6 months was known to any redeeming creditors or could be fixed by legislative amendment if truly needed.


Usset, Weingarden & Liebo has always foreclosed nonjudicially using the six-month redemption period despite the existence of a junior mortgage in favor of the United States, and the United States has not objected or asserted a right to a one-year redemption period.  Although not explicitly stated in 11 U.S.C. § 2410, the text of that statute clearly implies that the 12-month redemption period applies to foreclosures by judicial action, but a judicial action is not required.  Where the United States has a junior mortgage and the lender commences a judicial foreclosure, the lender may name the United States as a defendant and the United States is entitled to a 12-month redemption. But the choice of forum is permissive and where a lender forecloses under state nonjudicial foreclosure statutes, the United States is not guaranteed the 12-month redemption period. Instead, state law applies. See U.S. vs. Brosnan, 363 U.S. 237 (1960).


Finally, in Larsen, the court did not find persuasive Wells Fargo’s argument that the sale was valid because the mortgagor was not prejudiced by the longer redemption, despite cases holding otherwise, e.g., Wells Fargo v. Terres, 2008 WL 3287817 (Minn. App 2008) (amending sheriff’s certificate where no prejudice to mortgagor); Young v. Penn Mutual Life, 265 N.W. 278 (Minn. 1936)(overstated amount due by $116.55 not prejudicial to mortgagor and sale was valid). Decisions like Larsen serve as a reminder that lenders and their counsel will be subject to ever more scrutiny and the phrase “Get it Right" will be with us for the foreseeable future.  Lenders and Minnesota attorneys are advised to follow the strict compliance standard of Minnesota Statute 580 on each file or risk a void sale. 

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