Minnesota May Pass Nations Strongest Foreclosure Moratorium

by Alex Stenback on March 5, 2008

Audio only from MPR.  A few highlights we pulled from a quick listen:

  • The measure would block foreclosures for a full year.
  • Applys to owner occupied properties only.
  • It is intended to force lenders to modifyout the loan, rather than foreclose.
  • Borrowers would be required to Keep making payments – 65% of payment at the time of default, or initial interest rate, whichever is lower.

Here’s a link to the text of the bill, we’ll scan through it and share any further thoughts later:

UPDATE: More highlights, from the bill:

  • Loan must have closed between January 1st 2001 and August 1st 2007.
  • Must be a sub-prime or a loan with negative amortization for which the minimum payment increased.
  • To suspend foreclosure, borrower must send an affidavit to the lender, which states:
    • I am the borrower
    • A foreclosure sale has been scheduled
    • I currently reside at subject property
    • I intend to reside at the subject property for 12 months.
    • I believe that the mortgage loan is sub-prime or has negative amortization and the payment has increased.
  • There are criminal penalties (2yrs, $2000 fine) for misrepresentation in affidavit above.
  • If the borrower does not make the reduced payment, the lender may re-initiate the foreclosure process and schedule a foreclosure sale.
  • During the deferrment period, lender cannot charge an eligible foreclosed borrower any other amount than the reduced payment.

Questions, questions.  Chief among them: What happens when the 12 month deferrment period is up?  Can the lender go after the borrower for unpaid principal and interest during the deferrment period after it is over? What about unpaid amounts that pre-date the deferrment?  If that’s the case, aren’t we just postponing the inevitable?

Will the wholesale we-writing of these contracts make lenders less likely to lend in MN in the future?

{ 2 comments… read them below or add one }

Tyler March 6, 2008 at 9:58 am

Great info here ,Alex. I’d say everything that is being proposed is a band aid fix. I’m in Iowa and I’m not seeing a lot of legislation targeted at helping foreclosures, it’s all targeted at mortgage brokers. I wish we’d be more proactive like MN in that respect.

My OPINION is that the government can only do so much before they ‘over step their bounds’ and start making decisions for the lenders that originated the loans. Once they over step the bounds, lenders will pull out of MN or have different requirements for borrowers.

Keep us in the loop of the updates. I’m interested to follow this story!

Micky March 6, 2008 at 12:27 pm

Thanks for putting this out here for all to see, it’s a shame the government is provding welfare at the expense of the lenders. These loans need to fail, the lenders need to feel the burn of making a stupid loan, and the home prices need to fall. I imagine that many of these people fell behind their payments even before these loan interest rates reset, why are we protecting them from bad decisions. They need to go back out to the rental market and come back once they’ve learned their lesson.

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