FAQs Frequently Asked Questions
Minnesota’s Loss Mitigation/Dual Tracking Statute, §582.043
What were the effective dates of Minnesota’s new statute?
For loss mitigation, Minn.Stat. §582.043, subd. 5 became effective on August 1, 2013.
The dual tracking prohibition in Minn.Stat. §582.043, subd. 6 became effective on October 31, 2013.
When can a servicer send a new foreclosure referral?
After a servicer sends a written list of loss mitigation options to a borrower(s), the servicer may then send a mortgage foreclosure referral. If the borrower(s) requests help with loss mitigation prior to the referral, the servicer must also exhaust certain loss mitigation options before referral, including the exercise of reasonable diligence to assist the borrower(s) with completing a loss mitigation application. The following pre-referral checklist may be useful:
___ Servicer sent Borrower(s) a written notice of available loss mitigation options,
and please check one of the following:
a. __ Borrower(s) did not request loss mitigation;
b. __ Borrower(s) requested loss mitigation, but after exercising reasonable diligence to collect info/docs from Borrower(s), Servicer was unable to receive a complete loss mitigation application;
c. __ Servicer determined the borrower was not eligible for any loss mitigation and sent a written denial of the loss mitigation application, and any appeal expired or was properly denied;
d. __ Borrower(s) failed to timely accept a loss mitigation offer; or
e. __ Borrower(s) declined a loss mitigation offer in writing.
Important Notes: we cannot proceed with a foreclosure sale if Borrower(s) is performing under a loan modification or other loss mitigation option, or if the Borrower(s) has been approved for a short sale, and proof of funds or financing has been provided to the servicer
CFPB Note: a servicer must not make the first notice or filing required to foreclose unless the mortgage loan is more than 120 days delinquent.
How does a servicer comply with the requirement of sending a list of loss mitigation options?
Most servicers already comply with this requirement particularly on GSE loans, where servicers send the Borrower Response Package to borrowers at set intervals, such as 30 and 60 days after delinquency. Starting on January 10, 2014, the CFPB required servicers to send a list of options prior to 45 days delinquency. Some servicers may wish to send a written list of options along with their 30 day breach letter.
Does the statute apply to non-owner occupied properties or junior liens?
No. The statute only applies to first lien mortgages for owner-occupied residential real property containing no more than 4 dwelling units.
What are the triggers that invoke the statutory prohibitions?
If a servicer receives a “request for a loan modification or other loss mitigation option” prior to referral, the servicer must not refer the file to an attorney until exhausting loss mitigation options. The same exhaustion requirements may be applicable after referral, but the statute is unclear. Under the dual-tracking prohibition, the obligation to “hold” or “halt” the sale occurs when a servicer “receives an application for loss mitigation.”
What if none of the statutory triggers occur after referral?
If a borrower cannot be reached at all or has not asked for help with seeking loss mitigation, the statute does not cause any delays in the foreclosure proceedings. The statute is only implicated where the borrower actually asks for help by communicating with the servicer about loss mitigation. A servicer can still try to contact borrowers to voluntarily offer loss mitigation.
What constitutes a “request” for loss mitigation?
Nobody knows for sure. The legislature didn’t give direction on what form a request must take. We recommend a conservative approach. Specifically, each time a borrower asks about options to help stay in their home, orally or in writing, formal or informal, the servicer should respond as though the borrower has made a statutory “request” for loss mitigation under subdivision 5.
Can we proceed with a foreclosure referral from a Small Servicer?
Yes. The statute is not applicable to Small Servicers, except that a Small Servicer cannot refer a matter for foreclosure if the borrower is performing under a loan modification or other loss mitigation option.
What is a Small Servicer?
“Small Servicer” means the definition in Reg X, 12 CFR 1026.41(e)(4)(should exempt most community banks and credit unions), Housing Finance Agency regulations, 24 CFR 266.5, and under Minnesota’s statute, it also means a servicer that has conducted 125 or fewer foreclosure sales during the prior 12 months.
If a borrower contacts WGC to “request” loss mitigation, orally or in writing, how does our law firm staff respond?
Our staff training requires us to collect detailed information from the borrower, including the nature of their request and their contact information. We must let the borrower know they should work directly with the servicer to discuss loss mitigation options, and that they may be asked to provide information and documentation to apply for any eligible loss mitigation programs. We then provide the borrower with loss mitigation contacts for the servicer. We also immediately escalate to the servicer for further handling and provide details about the request and contact information for the borrower. We will add detailed notes to our system.
Is there a bright line test for when to hold and when to halt a foreclosure sale?
Yes. The bright line is Minnesota’s first legal milestone, which is the first date of publication. Before a sale is scheduled and publication begins, we can simply hold a foreclosure referral, since no sale is formally scheduled yet. Once a sale has been scheduled, however, Minnesota law does not allow us to simply hold a foreclosure, and we must either postpone or entirely cancel the proceeding (more on postponing below).
When and how does a servicer “hold” the foreclosure sale?
Trick question. The statute doesn’t mention placing a sale on “hold.” Functionally, however, most servicer platforms rely on holds. A servicer that receives an application may wish to utilize a hold process to coordinate with us. If received prior to referral, a servicer “holds” a foreclosure by not referring the loan to us for foreclosure.
After referral, but prior to scheduling a sale, a servicer in receipt of an application “holds” the referral by not moving for an order of foreclosure, seeking a foreclosure judgment, or conducting a foreclosure sale. It’s unclear what it means to halt or not conduct a foreclosure sale. Should a servicer execute or record any foreclosure documents, such as assignments or notices of pendency, or schedule and publish a sale? The most conservative approach would be to hold off on executing any foreclosure documents until loss mitigation is fully exhausted, including AOMs. We do not recommend executing NOPs or POAs, or scheduling or publishing a foreclosure sale, while a foreclosure is on hold for the evaluation of an application.
When must a servicer “halt” a foreclosure sale?
If a servicer receives a loss mitigation application after first legal, but before midnight of the 7th business day prior to sale, the statute requires us to “halt” the foreclosure and evaluate the application. A servicer is not allowed to wait for a loss mitigation agreement to be executed before halting a sale; the servicer must halt the sale upon receipt of the loss mitigation application.
What does it mean to “halt” a foreclosure sale?
Nobody knows for sure. The Minnesota legislature did not define it, or provide unambiguous language in the statute for clear direction. We recommend cancelling any scheduled sale if an application is received after first legal (and before midnight of the 7th business day prior to sale). We believe that halting the sale in this context requires us to cancel and bill to avoid violating the dual tracking statute. A postponement may be viewed as violating the statute.
Must the application be a complete application?
The Minnesota statute provides no direction, unlike the CFPB rules, but we recommend that a servicer require a complete application before halting a foreclosure sale. Unless the application is complete, the servicer won’t be able to evaluate it or help the borrower, which does not further the spirit of the statute.
Can we just postpone a scheduled sale to save the time and cost of re-starting later?
We recommend against it. After scheduling a sale, we can postpone foreclosure sales liberally under Minn.Stat. §580.07, but we recommend against postponing sales if a borrower has actually sent in a complete “application.” We believe that dual tracking is arguably violated if a servicer is actively working with a borrower to evaluate a loss mitigation application and simultaneously postponing a sale date. A servicer choosing to postpone a foreclosure sale under these circumstances is at greater risk of facing litigation and a challenge to the postponed foreclosure sale, since the borrower will have received a loss mitigation denial letter followed quickly by a foreclosure sale. A Minnesota court may believe this is dual-tracking.
To put the dual tracking statute in perspective, servicers undertake all kinds of loss mitigation activities before, during and even after foreclosure sales. All of those activities are good, and very few foreclosure sales are prohibited while a servicer is offering loss mitigation. If a servicer didn’t receive an application, and is just trying to reach the borrower to offer loss mitigation, a sale can be postponed without risk of dual tracking. It’s only when a borrower actually sends in an application for evaluation that a servicer must halt the foreclosure. Once we’re less than 7 business days from the foreclosure sale, the dual tracking prohibition goes away, so a servicer may voluntarily postpone a sale for receipt of an application during this short window.
If a servicer places a generic hold on a file for loss mitigation, will WGC immediately cancel the sale and bill our file?
Not necessarily. A servicer may want to postpone for its own loss mitigation processes even in the absence of any statutory triggers. Our law firm staff is trained to follow up with clarifying questions about the status of any loss mitigation requests or partial/complete applications. If a servicer places a file on hold prior to the first legal, WGC will place a hold on the file in our system, and schedule follow up steps. If a sale date has been scheduled, and we have begun publishing or postponing a sale, our staff will request additional information from the servicer about the status of loss mitigation efforts before we make any recommendation.
If I’m not sure how to proceed, what should I do?
Immediately ask one of our attorneys for advice and assistance.
Version Date: December 8, 2014