Homeowners who are facing a foreclosure of their home are understandably concerned about the impact this will have on them and whether they will owe money to the mortgage company (hereafter “bank”) after the foreclosure.
This is part four of a series on Minnesota foreclosures, explaining deficiency judgments that result from a foreclosure in Minnesota.
The first consequence of a foreclosure is on a homeowner’s credit report as reported by the credit bureaus. It goes without saying that this is bad. However, most homeowners already know this. What homeowners care about most is whether the bank (mortgage company) will be able to pursue the homeowner for amounts still owed on the mortgage after the foreclosure sale.
A “deficiency judgment” is a bank’s legal right to pursue the homeowner for the amount owed by a homeowner after a foreclosure. But bank’s don’t always have this right.
A bank’s right to obtain a deficiency judgment only exists if
So if a homeowner’s property does not fulfill one of the above three conditions, the bank has no right to any more money from the homeowner. For example, by doing a foreclosure by advertisement, the bank gives up its right to get more money from the homeowner.
This is explained in legal terms in this excerpt from Minnesota Foreclosure and Repossession, written by Daniel C. Beck, Mark W. Vyvyan, and Cass S. Weil, National Business Institute, 2001:
A bank may not obtain a deficiency judgment against a homeowner in a foreclosure by advertisement. The amount the bank receives from a foreclosure sale is full satisfaction of the mortgage debt except as provided in Minn. Stat. § 582.30, Minn. Stat. § 581.09 (foreclosure by action) and Minn. Stat. § 580.225 (foreclosure by advertisement).
If the redemption is six months under Minn. Stat. § 580.23 or five weeks under Minn. Stat. § 582.032 and the mortgage is foreclosed by advertisement, no deficiency judgment is available against the homeowner. See Minn. Stat. § 582 subdiv. 2.
If Minn. Stat. § 580.23 provides for a six month redemption period, a bank cannot foreclose by advertisement and preserve its right to a deficiency by electing a twelve month redemption period. See American Nat’l Bank v. Blaeser, 326 N.W.2d 163 (Minn. 1982).
If Minn. Stat. § 580.23 provides for a six month redeption period and the mortgage is foreclosed by action rather than by advertisement, a deficiency judgment is available against the homeowner. See. Norwest Bank Hastings, Nat’l Ass’n v. Franzmeier, 355 N.W.2d 431 (Minn. Ct. App. 1984).
Why would a bank give up its right to a deficiency judgment against a homeowner? Because the bank is concerned it would cost more money doing a foreclosure by action than it is worth:
Thus, banks are often willing to cut their losses and move on by letting homeowners avoid a deficiency judgment.
Learn more about Minnesota Foreclosures:
If you are facing a foreclosure in Minnesota, you are welcome to contact our law firm to schedule a meeting with a Minnesota real estate attorney to understand your legal rights, risks, and options.