Minnesota Foreclosure Strategy: Advertisement vs. Action for Lenders

Strategic Considerations for Lenders

When a borrower defaults on a mortgage, Minnesota lenders face a critical strategic decision: pursue foreclosure by advertisement or foreclosure by action. This choice fundamentally affects the timeline, costs, deficiency judgment rights, and overall litigation risk. This guide, prepared by Minnesota attorney David Lutz, examines the key considerations financial institutions must weigh to protect their security interests while minimizing exposure.

Foreclosure by Advertisement vs. Foreclosure by Action

A loan officer recently asked, “David Lutz, as the attorney handling our foreclosure, which method should we choose?” Minnesota law provides two distinct paths, each with specific advantages and limitations.

Foreclosure by advertisement, codified in Minnesota Statutes Chapter 580, offers a streamlined non-judicial process that avoids court involvement. This method is faster and less expensive than judicial foreclosure, making it the preferred choice when the mortgage documentation is solid and the lender does not require a deficiency judgment.

Foreclosure by action, governed by Minnesota Statutes Chapter 581, is a judicial proceeding commenced by summons and complaint. While more time-consuming and costly, this method preserves the lender’s right to pursue a deficiency judgment and provides court supervision of the entire process. Judicial foreclosure becomes necessary when the mortgage lacks a power of sale provision, when title or priority disputes exist, or when document defects require court resolution.

Requirements for Foreclosure by Advertisement

Minnesota law strictly construes the requirements for foreclosure by advertisement because it is a statutory remedy that operates outside judicial oversight. A lender pursuing this path must satisfy several mandatory prerequisites. The mortgage must contain a valid power of sale provision. A default must have occurred that triggers the power of sale. No action or proceeding at law to collect the debt can be pending, and no execution upon a judgment can have been returned unsatisfied in whole or in part. The mortgage and all assignments must be properly recorded.

Before initiating foreclosure, lenders must comply with Minnesota’s foreclosure prevention counseling requirements under Minnesota Statutes Section 580.021. For properties consisting of one to four family dwelling units where the owner occupies the property as a principal residence, the lender must provide the mortgagor with information about available foreclosure prevention counseling services. The lender must transmit the homeowner’s name, address, and telephone number to an approved foreclosure prevention agency. These notices may be provided concurrently with the notice of default.

Additionally, for first lien mortgages on owner-occupied residential property containing no more than four dwelling units, Minnesota Statutes Section 582.043 imposes loss mitigation and dual tracking restrictions. This statute prohibits residential mortgage servicers from referring a mortgage loan to an attorney for foreclosure unless the servicer has first notified the mortgagor in writing of loss mitigation options offered by the servicer that are applicable to the mortgagor’s loan. The statute also restricts the servicer’s ability to commence foreclosure or conduct a foreclosure sale while a mortgagor has filed a loss mitigation application and such application remains pending.

Notice and Publication Requirements

Proper notice constitutes a critical element of valid foreclosure by advertisement. The Notice of Pendency must be recorded before the first publication of the Notice of Foreclosure Sale. For Torrens property, the Registrar of Titles generally requires that the Power of Attorney be of record or recorded with the Notice of Pendency. The Notice of Mortgage Foreclosure Sale must contain specific information: the names of the mortgagor, mortgagee, and any assignee; the original principal amount of the mortgage; the date and recording information of the mortgage; the amount claimed due; a legal description of the premises that substantially conforms to the mortgage description and the commonly used street address; the time and place of sale between 9:00 a.m. and 4:00 p.m.; and the applicable redemption period.

For properties consisting of one to four family dwelling units, Minnesota Statutes Section 580.025 requires additional foreclosure data to be included in the notice, such as the physical street address, transaction agent information, tax parcel identification number, and related details. Good faith or commercially reasonable errors in providing this information do not invalidate the foreclosure.

Service of the notice must be made upon the person in possession if the premises are occupied. Notice must be served four weeks prior to the sale in the manner of service of a summons in a civil action. The notice must also be mailed to any party who has filed an appropriate Request for Notice under Minnesota Statutes Section 580.032. Publication must occur for six full weeks prior to sale, meaning the sale must be at least 42 days after the first publication.

Redemption Periods and Their Strategic Implications

Minnesota’s statutory redemption periods significantly affect the foreclosure strategy and timeline. The standard redemption period following foreclosure by advertisement is six months for most mortgages. However, several variations exist.

For mortgages executed prior to July 1, 1967, or where the amount claimed in the notice of foreclosure sale is less than two-thirds of the original principal amount secured by the mortgage, the redemption period extends to twelve months. Agricultural properties exceeding ten acres at the time of mortgage execution also receive a twelve-month redemption period. The same extended period applies to mortgages executed prior to July 1, 1987, where the mortgaged property exceeded ten acres at execution, and to certain mortgages executed prior to August 1, 1994, on agricultural property not exceeding forty acres.

A shortened five-week redemption period applies only to abandoned properties meeting specific statutory criteria under Minnesota Statutes Section 582.032. The property must have been mortgaged after December 31, 1989; be less than ten acres in size; consist of a residential dwelling with fewer than five units; not be a model home or dwelling under construction; not be used in agricultural production; and be abandoned. Prima facie evidence of abandonment includes broken or boarded-up windows and doors, vandalism, and similar indicators. A defendant’s failure to appear at the hearing after proper service provides conclusive evidence of abandonment.

Certain mortgages qualify as reverse mortgages under Minnesota Statutes Section 47.58, which carry a twelve-month redemption period. Understanding which redemption period applies is crucial for timeline planning and for advising clients when the title will ultimately vest in the purchaser.

Deficiency Judgment Limitations

One of the most significant strategic considerations in choosing a foreclosure method involves deficiency judgment rights. Minnesota Statutes Section 582.30 substantially limits a lender’s ability to obtain a deficiency judgment following foreclosure by advertisement when the property has a six-month or five-week redemption period. In such cases, the amount received from the foreclosure sale is deemed full satisfaction of the debt, except as specifically provided in the statute.

Deficiency judgments are permitted following foreclosure by action regardless of the redemption period. For agricultural property foreclosures under Minnesota Statutes Sections 582.30 and 582.31, special procedures and restrictions apply that limit deficiency judgments between the fair market value of the property and the amount owing on the debt or the money judgment obtained in judicial foreclosure

When deficiency exposure exists, and the lender needs to preserve collection rights against the borrower or guarantors, judicial foreclosure becomes the necessary path despite increased costs and time. For properties where the anticipated sale price will likely exceed the debt or where the borrower has no collectable assets, foreclosure by advertisement’s speed and efficiency often outweighs the loss of deficiency rights.

Post-Sale Procedures and Confirmation

Following the foreclosure sale, specific post-sale procedures must be completed to perfect the purchaser’s interest. The purchaser receives a certificate of sale from the sheriff, which must include a description of the mortgage, a description of the property sold, the price paid for each parcel, the time and place of sale and name of the purchaser, and the redemption period. The certificate must be recorded within specified timeframes depending on the redemption period. For standard six-month or twelve-month redemption periods, recording must occur within twenty days after the sale date. For five-week redemption periods, recording must occur within ten days after the sale date.

An affidavit of costs must be recorded within ten days after filing the sheriff’s certificate, except when the five-week redemption period applies, in which case it must be recorded within ten days after the date of sale. Additional documents must also be recorded, including affidavits of publication, service, non-military status, and compliance with tax lien notice requirements.

Redemption Rights and Mechanics

Both owners and junior lien creditors hold redemption rights under Minnesota law, though the mechanics differ. Mortgagors may redeem by paying to the sheriff or purchaser at foreclosure sale the amount for which the premises were sold, plus interest on the mortgage debt as stated in the certificate of sale, along with statutorily permitted additional costs.

Junior lien creditors have successive seven-day periods in which to redeem, commencing immediately after expiration of the mortgagor’s redemption period. To preserve redemption rights, creditors must record a Notice of Intention to Redeem at least one week before the expiration of the period allowed for redemption by the mortgagor. The creditor must also record all documents necessary to create the lien on the mortgaged premises and to evidence the creditor’s ownership of the lien.

Redemption annuls the foreclosure sale, and each junior encumbrance is revived. However, redemption by a lien creditor operates as an assignment to the redeeming party of rights acquired by the purchaser at the sale. Understanding these mechanics is critical when multiple lienholders exist and when advising clients about the risk that junior creditors may redeem and complicate the title picture.

Foreclosure by Action: Procedural Considerations

When circumstances require judicial foreclosure, lenders must navigate Minnesota’s civil procedure rules along with mortgage-specific statutes. The plaintiff should be the holder of the mortgage and mortgage debt, with proper parties including the mortgagor, successors, assigns, and anyone who has acquired rights or interests in the mortgagor’s estate or holds interests junior to the mortgage.

The complaint must include a description of the parties and their interests, a description of the plaintiff’s mortgage and the obligation it secures, the defaults entitling the plaintiff to foreclosure, facts establishing compliance with statutory and contractual pre-foreclosure notice requirements, and facts supporting any requested relief such as reformation of the mortgage. A demand for relief requesting personal judgment against the mortgagor and foreclosure of the mortgage as provided in Minnesota Statutes Section 581.03 must be included.

The Notice of Lis Pendens should be filed with the county recorder immediately after filing the complaint in district court. This notice gives constructive notice to subsequent purchasers and encumbrances of the pending action and the rights and equities of the parties filing the notice. The notice remains effective for ten years unless a new notice is filed within such period.

Following the entry of judgment and decree, the sheriff conducts the sale with six weeks’ posted and published notice. The sale is treated as a judgment sale pursuant to Minnesota Statutes Chapter 550, with the property sold to the highest bidder. After the sale, the court must confirm the sale upon motion by the plaintiff, and the sheriff then issues a certificate of sale. The redemption period in foreclosure by action runs from the date of confirmation.

Reinstatement Rights

Minnesota Statutes Section 580.30 permits reinstatement at any time prior to sale for both foreclosures by advertisement and foreclosure by action. To reinstate, the mortgagor or holder of junior lien or encumbrance must pay the amount actually due at the time of tender, attorneys’ fees not exceeding one-half of the fees authorized by Minnesota Statutes Section 582.01 or $150, publication costs, service costs, and other lawful disbursements necessarily incurred in the foreclosure proceeding. Payment may be made to the holder of the mortgage, foreclosing attorney, or sheriff. The right of reinstatement applies to non-monetary defaults as well, though foreclosing on non-monetary defaults requires careful documentation of the default and efforts to cure.

Conclusion

Minnesota’s foreclosure laws provide lenders with flexible tools to enforce their security interests, but the choice of method requires careful strategic analysis. Foreclosure by advertisement offers speed and cost efficiency when deficiency rights are not critical and when documentation is sound. Foreclosure by action provides court oversight, preserves deficiency rights, and resolves title disputes, making it the appropriate choice despite higher costs when those factors are in play.

Understanding the statutory requirements, notice procedures, redemption periods, and deficiency limitations allows lenders to chart the most effective course while minimizing legal risk and maximizing recovery.

DISCLAIMER

This article is provided for informational purposes only and does not constitute legal advice. The information contained herein is general in nature and may not apply to your specific situation. No attorney-client relationship is created by reading this article or contacting the author in response to it. For legal advice regarding your particular circumstances, please consult with a qualified attorney.

About the Author:

David Lutz is an attorney and the owner of Lutz Law Firm in Minneapolis, Minnesota, representing financial institutions, businesses, and individuals in banking law, secured transactions, real estate, and commercial litigation. He can be reached at david@lutzlawfirm.com or 612-424-2110.