Pending Legislation on Surpluses in Minnesota Mortgage Foreclosures

Current Minnesota law does not provide lenders, owners, and junior creditors with much guidance regarding surpluses that result from a bid at a mortgage foreclosure sale of more than the amount due on the mortgage. Minnesota Statutes § 580.10 merely states that if “there remains in the hands of the officer making the sale any surplus money, after satisfying the mortgage … the surplus shall be paid over … on demand, to the mortgagor, the mortgagor’s legal representatives or assigns.” The statute does not provide any guidance as to when a surplus exists, nor does it provide guidance as to who constitutes “assigns” for purposes of payment of a surplus. Historically, Minnesota case law has provided some guidance on these issues, but a bill recently introduced in the Minnesota House would provide more guidance on issues surrounding surpluses.

The lack of statutory guidance has forced Minnesota’s courts to determine when a surplus exists and who is entitled to it. This is especially true when a foreclosure presents issues of even moderate complexity. For instance, the Minnesota Supreme Court issued a decision in 2002 confirming that where a mortgage securing multiple advances had split priorities, the creditor holding the intervening priority position was entitled to payment of the surplus before the mortgage lender was paid on its junior advances. Appellate litigation in 2010 resulted in a case where the parties had gone so far as to stipulate the amounts due on the mortgage and the portion of the mortgaged property to be sold at the sheriff’s sale.

To address these issues, Rep. Nolan West has introduced Minnesota House Bill HF2484. If adopted, HF2484 would provide significant guidance to parties and likely result in less litigation. Among other changes, HF2482 includes the following provisions:

• any surplus of $100 or greater would be paid first to junior creditors with liens of record at the time of the sheriff’s sale in order of priority;
• parties seeking a surplus, other than the owner, would need to provide an affidavit stating the amount remaining unpaid and the interest creating a right to the surplus;
• sheriffs would be authorized to provide notice to the owner and potential creditors that a surplus exists;
• in an effort to protect owners who wish to redeem, owners would be entitled to request that the sheriff hold any surplus for purposes of applying it to a later payment to redeem the mortgage; and
• to resolve competing claims to a surplus, sheriffs would be provided the ability to apply to the district court for a determination as to whom the surplus should be paid.

It is uncertain if HF2484 will be adopted, but the legislation would provide clarity in Minnesota’s foreclosure process.