Auction Or Not To Auction

Comments(3)

• 
  JohnMichael28th December, 2004

  Minnesota allows foreclosure in two ways:
  
  By advertisement and by court action.
  
  If court action is selected, the lender must file a lawsuit and obtain a judgment for the amount due and a court order commanding the property to be sold. Prior to attempting any foreclosure, the lender should give at least 30 days' notice of the existence of default. For agricultural property, complex mandatory mediation procedures must be followed.
  
  Non-judicial Sale by Advertisement
  If the mortgage contains a power of sale clause, it may be foreclosed by advertisement. However, a number of conditions must be met before sale by advertisement can be undertaken.
  1. There must be a default on the mortgage,
  2. no lawsuit to collect on the mortgage may be underway,
  3. the mortgage itself and any assignments of the mortgage to new lenders must have been recorded and
  4. the notice must be given eight weeks before foreclosure on a homestead.
  If an attorney is involved in the foreclosure, the attorney's authority must be shown by a power of attorney that has been properly recorded. Attorney's fees are set by statute for foreclosure sales. Hence, the borrower cannot be billed indiscriminately for attorney's fees during the foreclosure process.
  
  Certificate of Sale
  After the sale, the sheriff will prepare a certificate showing the amount of the sale and the amount left unpaid on the loan.
  
  Special Procedure - Right of First Refusal
  Borrowers have a complex right of first refusal when land is acquired by a state agency, a federal agency, a limited partnership or a corporation (other than a family farm corporation). Once the agency or business acquires land by foreclosure, it will ultimately try to resell it. When it tries to resell, the old owner who lost the property in foreclosure must be offered the property in preference to any other purchaser at the price and terms an outside buyer is willing to accept for the property. The lender must make a good-faith effort to let the old owner buy it first, hence the term right of first refusal. The law applies for the first five years after the property was foreclosed on. The right of first refusal may not be waived or assigned, except to family members by inheritance.
  
  Deficiency
  Any deficiency is limited to the difference between the fair market value of the property, as determined by a jury, and the unpaid balance remaining on the old loan. To recover a deficiency judgment against the borrower, the lender must file a lawsuit against the borrower. If the lender already seeks foreclosure by a lawsuit, then all the lender has to do is add a claim to the existing lawsuit. However, when the foreclosure is by advertisement, then an independent lawsuit must be filed to recover a deficiency.
  
  Redemption
  Redemption is unusual in Minnesota. The borrower or a junior lien holder has up to one year after the foreclosure to redeem the property however there are stipulations on the time frame due to acreage and abandonment.
  
  See your state statutes at:
  http://www.revisor.leg.state.mn.us/stats/325N/17.html
  See foreclosure grid: http://www.tchabitat.org/process.doc
  
  Buying a property at an auction seems to have some concerning factors for me as an investor,
  
  Question: 1- Although interest is earned, however Long time (6 months) tying your money before you find out you have a title or not.
  
  Answer: Yes the property and your funds will be tied up during the 6 month time frame, but buying well below market value will justify the hold time. Minnesota's redemption period (either 6 or 12 months, depending on the age of the mortgage, amount of equity, and property size)
  
  Question 2- Junior liens have the right to redeem, and some are so cute that they do it one day before the redemption period is up on the senior lien. Answer: Most will not redeem, but yes you will have some that do but a return on your investment is good because the interest is more then most bank rates. When I deal with this I will have a pre purchase of the junior liens to avoid this redemption right.
  
  Question 3-once you obtain title I am not sure if you can sell the property for almost a year if an IRS lien is present, since they have the right to redeem 120days or longer. Answer: Yes you can sell the property subject to the IRS lien's right to redeem, but it is better to purchase the IRS lien. Most IRS liens are not redeemed with SFRH's but they do have the option.
  [addsig]

• 
  yeswinner28th December, 2004

  Thanks JohnMichael for the detailed information, after reading the statue I wonder if it would make sense to even send letters to the foreclosed homeowner in MN that is, since the property has to be bought at 82% of fair market value, it doesn't seem that they realize further expense are attached. in addition as I understand it from the statue, you can't get a deed from the homeowner while being foreclosed on. and you can't act as an advisor, I wonder if sending the letter would be considered as such? after reading the statue, liability is huge when dealing with a homeowner in distress. may be the auction is one alternative, although I prefer to deal with the homeowner prior to that.
  
  I might need to call the attorney general.
  
  Again thanks for sharing.

• 
  JohnMichael29th December, 2004

  yeswinner
  
  For me it would make sense to market homeowners in foreclosure as this will provide a great opportunity to help those facing such financial distress.
  
  You should never act as an advisor as this will put you into a professional category and many states require you to be licensed or even bonded. Your only part in this process is to acquire the property, you are an investor stay within this category and you will safe your self a lot of potential problems.
  
  Marketing homeowners to purchase their home would not be considered as an advisor.
  
  Please understand this is based upon my own experience and understanding of the legal system and should not be considered legal advise. When in doubt seek the advise of a professional in the respective field.
  [addsig]