Foreclosure sales are an excellent opportunity for real estate investors in Minnesota to buy a property at a significantly reduced price. However, before beginning to look for scheduled foreclosure auctions, you must understand how the foreclosure process works.
The last thing you want to do is build your entire investment strategy around a property scheduled for auction, only to have the sale canceled at the last minute. This is especially true if you passed on other investment opportunities in favor of the current property.
With that in mind, the following is a brief guide on the foreclosure process in Minnesota and how to land your next investment opportunity.
How Foreclosures Work In Minnesota
The foreclosure process varies somewhat from one state to another. However, there are two main types of foreclosure processes across the country: judicial and non-judicial. Judicial foreclosures are heard in court, while non-judicial foreclosures are not.
Instead, the lender can initiate the foreclosure process without a court hearing by sending a notice of default to the borrower. They can do this if the deed of trust or mortgage agreement contains a power of sale clause.
Minnesota is a non-judicial foreclosure state, meaning the foreclosure process does not go through the court system. As a result, lenders do not have to obtain a court order to begin the foreclosure process if a borrower defaults.
The following is a breakdown of how the foreclosure process works in Minnesota:
1. Preforeclosure
It’s important to note that a lender can’t just foreclose on a house when a borrower misses their first payment. There is an entire pre-foreclosure process that the lender must follow in which the lender must officially announce their intent to foreclose – both to the borrower and the public.
In most cases, federal law prevents lenders from starting this process until the borrower is 120 days delinquent. During this period, the borrower has the right to apply for mortgage assistance and the lender is legally obligated to try to work out a repayment plan with the borrower.
The lender must do this by sending the borrower a pre foreclosure notice that outlines the steps that they can take to avoid foreclosure.
Notice Of Default
If 120 days pass and no loss mitigation agreement has been made between the borrower and lender, the foreclosure process will begin with a formal notice of default being sent to the borrower. This notice informs the borrower of how many payments they have missed and that the foreclosure process will begin if they do not bring their payments up to date.
2. Notice Of Sale
A notice of sale is the next step in the foreclosure process. By law, the lender must include information about the loan amount, default amount due, names of involved parties, time and location of sale, property description, and more when sending this notice to the borrower.
The notice of sale must also be published in a newspaper in the county where the property is located. Additionally, lenders are required to post the notice of sale at least six weeks before the scheduled date of the sale.
It’s worth noting that the notice of sale can be sent to the borrower after the notice of default has been received – although it can also be combined with the notice of default. The borrower has a chance to pay the amount owed right up until the sale date to reclaim the property.
3. Option To Postpone The Sale In Minnesota
The notice of sale isn’t necessarily the final step in the foreclosure process. In Minnesota, the borrower can postpone the sale date by filing and executing a sworn affidavit with the county recorder. This will give the borrower an additional six months to bring their payments up to date and avoid foreclosure.
However, if the borrower does this, they will only have a five-week redemption period (meaning that they have five weeks to pay what’s owed) after the sale date instead of the standard six-month redemption period that follows if the sale isn’t postponed.
4. Foreclosure Sale
The foreclosure sale is the final step in the foreclosure process. This is when the property is auctioned off to the highest bidder. If nobody bids on the house, the lender will become the property owner.
The property then becomes a real estate-owned (REO) asset if this happens. The new owner will then be responsible for any back taxes, homeowner’s association dues, and any other outstanding debts associated with the property.
In most cases, the borrower will be responsible for any deficiency balance remaining after the sale. As a result, they may still owe money to the lender even after the foreclosure sale.
Redemption Period
Minnesota has a six-month redemption period, giving the borrower the right to reclaim their property after the foreclosure sale. To do so, the homeowner must pay the full amount of the outstanding loan, plus any interest, costs, and fees.
Suppose the borrower does not redeem the property during the redemption period. In that case, the new owner will receive a deed to the property. At this point, the borrower will no longer have any ownership rights and may be subject to eviction.
How To Acquire A Property During The Pre-Foreclosure Period
For an investor, the best time to buy a property is during the pre-foreclosure process. At this point, the borrower has defaulted on their loan, and the lender has started the foreclosure process. However, the property hasn’t been sold at a foreclosure sale yet. Investors often go after properties during the pre-foreclosure period because they’ll have less competition than at an auction.
Additionally, they might be able to get the property for a better price since the homeowner is motivated to sell before the property is foreclosed on. If investors wait until the auction, other buyers may bid on the property and increase the price of the house.
With that in mind, follow these steps to successfully invest in properties during the pre-foreclosure period:
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- Talk To The Homeowner Or Selling Representative: As an investor, you’ll likely want to talk to the homeowner or their selling representative. Doing so can help you to better understand the circumstances leading to the foreclosure, which can help you gauge how motivated the homeowner is to sell.
In some cases, the seller might be exploring their options to avoid foreclosure and won’t be that motivated. In other cases, they may have run out of options, which means selling to you is one of their only solutions. As a result, you’ll have greater negotiating power.
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- Visit And Inspect The Property: Once you’ve talked to the owner or selling representative, you’ll want to visit and inspect the property. Doing so will give you a better idea of its condition and help you to determine if it’s a good investment.
One of the advantages of going after properties in the pre-foreclosure stage is that you get a chance to do this. When buying at auction, you won’t have a chance to perform an inspection.
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- Make An Offer: If you’re interested in buying the property, you’ll need to make an offer. It’s important to remember that the owner is motivated to sell, so you might be able to get the property for a discount.
How To Acquire Property In Public Foreclosure Auctions
Although you’re more likely to find a better deal during the pre-foreclosure period in Minnesota, there are still good investment opportunities during public foreclosure auctions. If anything, buying foreclosures at auction is less time-consuming. However, you’ll want to make sure to keep the following in mind if you plan on shopping for properties during a foreclosure auction:
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- Contact The Lender’s Representative: To start, you’ll want to contact the lender’s representative. This person is responsible for handling the auction and can provide you with important information about the property, such as the minimum bid.
- Check Out The Property: Once you have the minimum bid, you’ll want to inspect the property to ensure it’s worth the price. Remember, you’re buying the property as-is, so you’ll be responsible for any repairs that need to be made. If you don’t inspect the property before the auction, you risk bidding on a property that needs more work than anticipated.
- Bid On The Property During The Auction: If you’re satisfied with the property and feel confident that you can make a profit, it’s time to bid on the property during the auction. You’ll need to determine the maximum amount you’re willing to bid for, and then stick to it.
As there are other buyers at foreclosure auctions, it’s possible to find yourself in a bidding war. But the last thing you want is to get caught up in the heat of the moment and end up overpaying for a property.
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- Prepare Your Earnest Money Deposit: If your bid is accepted, you’ll need to put down an earnest money deposit. This deposit shows that you’re serious about buying the property and helps to secure the deal.
- Prepare To Close: After your bid is accepted and you’ve put down an earnest money deposit, you’ll need to prepare to close on the property. This process can take a few weeks, and you’ll need to have the necessary financing in place.
Land Your Next Best Deal In Minnesota With Us
As a real estate investor, there are many potentially great deals to be had during the foreclosure process in Minnesota. Buying foreclosed real estate is an excellent way to get a discount on a property. However, you may need to access quick financing, especially if you’re planning to bid on foreclosed properties at auction.
Here at Pine Financial Group, we offer a wide range of financing options for real estate investors in Minnesota. We understand the foreclosure process and can help you secure the funding you need to land a great deal.