When a homeowner is worried that they might lose their house to foreclosure, they are usually also worried about whether their state is a “recourse” or “non-recourse” state. In a non-recourse state, if the funds from the sale of the mortgaged property (the house) are not enough to cover the outstanding debt (the amount the homeowner owes on the mortgage), the mortgage-holder may not have recourse against the borrower (through a deficiency judgment) after foreclosure. In a recourse state, the homeowner remains responsible for any remaining debt through a deficiency judgment.
Minnesota is generally considered to be a “non-recourse” state, although in certain situations mortgage-holders (or other creditors) may seek a deficiency judgment. Generally, if a foreclosure sale of a home is done by advertisement in Minnesota, no deficiency judgment is allowed. If, however, the homeowner has more than one mortgage on that property (a second mortgage, for example), then that mortgage-holder may sue for a deficiency judgment. In Minnesota, most foreclosure sales are done by advertisement.
Minnesota permits deficiency judgments in cases of a foreclosure by action. A foreclosure by action occurs when a lender forecloses on a property in court. This is a rare occurrence in Minnesota, but if your house is foreclosed on in this manner, it’s important to know that a deficiency judgment is permitted.
This is pretty confusing, right?
Luckily, there are some great resources available online that do a good job of explaining this in easy-to-understand language.
The blog entry “Sued – After a Foreclosure” on the Minnesota Home Ownership Center’s blog does a great job of explaining the operation of the Minnesota deficiency statute and Minnesota’s status as a “non-recourse” state.
The fact sheet “Understanding Deficiency Judgments” by the Minnesota Home Ownership Center, Volunteer Lawyers Network, and the Housing Preservation Project does an excellent job of explaining deficiency judgments in Minnesota.
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