Real Estate Legislative Update - 2009 Minnesota Legislative Session
By: MARY S. RANUM, ESQ. & MAYA ZAHN, SUMMER ASSOCIATE
This legislative update contains information on new developments in real estate law from the 2009 Minnesota legislative session that affect real estate developers, lenders, property managers, owners, and investors. Unless otherwise specified, the legislation described below is effective August 1, 2009.
The Legislature made a number of modifications regarding the various procedures and notification requirements related to mortgage foreclosures and sheriff’s sales.
The notice of foreclosure must now specify the date and time (11:59 p.m.) by which the property must be vacated if the mortgage is not reinstated or redeemed. Minn. Stat. § 580.04. This provision only applies where the real estate is an owner-occupied, single-family dwelling.
Two provisions clarify the applicability of foreclosure advice notice requirements. Advice notices provide homeowners with important information about the foreclosure process and the availability of foreclosure prevention counseling, and are served simultaneously with notices of sale. Foreclosure advice notices for tenants inform them about the affects of foreclosure on the terms of their lease. One of the changes to the advice notice requirements makes clear that foreclosure advice notice requirements apply to all foreclosures, those done through the advertisement process and those done by court action. For the requirements to apply, one of the dwelling units on the property must be the owner’s principal residence and the property must contain one to four family dwelling units. Minn. Stat. § 580.041(a). Foreclosure advice notice requirements for tenants also now apply to all foreclosures, whether by advertisement or by action, if the property contains one to four family dwelling units and if the tenant uses one of the units as a residence. Minn. Stat. § 580.042(1).
Minnesota law was changed so that a tenant in a property that is subject to foreclosure receives two-month’s written notice before eviction. Minn. Stat. § 504B.285. This provision applies only if the person was a tenant during the redemption period, and if the lease began after the mortgage was executed but before the redemption period expired. The current law only requires this notice if the tenant entered into the lease after the start of the foreclosure process.
Changes were made to clarify the applicability of notice requirements related to foreclosure prevention counseling. For the requirements to apply, one of the dwelling units on the property must be the owner’s principal place of residence, as of the date a notice of pendency is recorded. Minn. Stat. § 580.021(1).
Notice of the opportunity for foreclosure prevention counseling must be provided before the notice of pendency of the foreclosure is recorded, but no longer needs to be provided at the same time a written notice of default is given. Minn. Stat. § 580.021(2).
Changes provide that some provisions related to foreclosure data collection only apply to foreclosure of mortgages on property which contains one to four dwelling units. Minn. Stat. § 580.025(1).
Foreclosure Consultant Provisions
Foreclosure consultants enter into contracts with a homeowner to help the homeowner attempt to avoid a mortgage foreclosure and negotiate with a mortgage lender to change an existing mortgage loan. The list of services a foreclosure consultant may provide now includes the ability to “negotiate or modify the terms or conditions of an existing residential mortgage loan.” Minn. Stat. § 325N.01(a). The modified statute limits a current exemption that applies to people licensed as mortgage originators or servicers, to say that they are no longer exempt from the requirement that they fully perform the services they promise before collecting a fee if they negotiate changes in an existing residential mortgage. Minn. Stat. § 325N.01(b). The foreclosure consultant provisions include an exemption for nonprofit agencies that offer foreclosure counseling or advice, but now requires that nonprofits only charge a fee after completing performance of whatever services they promise to do. Minn. Stat. § 325N.01b(9). These changes became effective June 21, 2009. Minn. Stat. § 325N.01(e).
Postponement of Foreclosure Sales
The revised statute dealing with the postponement of foreclosure sales now requires that a party conducting a foreclosure, that is the lender or servicer, provide certain notices at their own expense if they request a postponement. The party must (1) publish a notice of postponement and the date of the rescheduled sale in the newspaper, (2) mail a notice of postponement and the rescheduled date of sale to the occupants of the property at least three business days before the postponed sale, and (3) indicate in the notice to the occupants the revised date and time by which they must vacate. If the date of the rescheduled sale is unknown at the time of publication, the foreclosing party must publish the rescheduled date and notify the occupants by mail at least ten days before the rescheduled sale. Minn. Stat. § 580.07.
Postponement of Foreclosure Sale of Homesteads
Minnesota law now allows an owner of a homestead to postpone a foreclosure sale for up to five months after the originally scheduled date of foreclosure sale. Minn. Stat. § 580.07(2). A foreclosure sale may be postponed one time only. In order to qualify for postponement under this statute, the property must be classified as a homestead and contain one to four dwelling units. To postpone the foreclosure sale, the mortgagor or owner must file and record an affidavit with the county recorder, registrar of titles, and the attorney foreclosing the mortgage at least fifteen days prior to the originally scheduled sale date. The affidavit form required to postpone the foreclosure sale of homesteads is provided in the statute. The owner must also file the notice with the sheriff conducting the sale. No notice of the postponement needs to be published. In exchange for the postponement, the owner’s redemption period is automatically reduced from six months to five weeks. This statute became effective as of May 14, 2009.
The Legislature made several modifications related to abandoned and problem properties. The following are the important and noteworthy changes:
A municipality must provide notice to the owner of vacant or unoccupied property that has been deemed hazardous. The notice is given to the owner of the property, the taxpayer identified in property tax records, the holder of the mortgage or sheriff’s certificate, and to any neighborhood association for the neighborhood in which the property is located if they have requested notice. The notice must now include a statement that costs may be assessed against the property if the building is not secured, that a hearing may be requested, and that the holder of a sheriff’s certificate after a foreclosure sale has a duty to protect the premises if there is evidence that the owner has abandoned the property. Minn. Stat. § 463.251(2).
Notice requirements of the sale of a foreclosed property must now include the commonly used street address for the property and must also include a statement specifying that all abandoned properties face a reduced redemption period. Minn. Stat. § 580.041.
Securing of Building by the City
This section modifies the existing law permitting a municipality to secure a building under certain circumstances. This section applies if the owner of the building or the holder of the sheriff’s certificate of sale does not secure the building or request a hearing on the order within fourteen days after being ordered to secure the building. If the owner or holder of the sheriff’s certificate has not acted within fourteen days, the city can secure the building and charge the owner or holder of the sheriff’s certificate for the costs. The changes to this statute extended the deadline for action by the owner of the building or holder of the sheriff’s certificate from six to fourteen days. Minn. Stat. § 463.251(3).
Duty to Protect Premises
This amendment requires a holder of a sheriff’s certificate after a foreclosure sale to enter, secure, and protect the premises if there is evidence that the owner has abandoned the property. This includes changing or installing locks on doors and windows, and permits boarding of windows, installation of a security system, and other measures taken to prevent damage to the property. The holder of the sheriff’s certificate must provide a key to the premises to the owner after changing the locks, upon the request of the owner. Any costs incurred by the holder of the sheriff’s certificate in securing and protecting the premises may be added to the balance of the mortgage. Minn. Stat. § 582.031.
Changes made to Section 582.032(4) allow cities and other political subdivisions to initiate an action to reduce the owner’s redemption period for an abandoned property, if the property was foreclosed using the advertisement process, rather than by court action. Minn. Stat. § 582.032(4).
The Legislature modified the requirements for posting notices and warnings related to trespassing, based on the size of the property. Minn. Stat. § 609.605(1).
TRANSFER ON DEATH DEEDS
Transfer on death deeds allow the owner of real property to designate a beneficiary of the real property, during the life of the owner. The property passes to the beneficiary without the need for probate upon the death of the owner. After the death of the owner, the beneficiary records a death certificate and an affidavit of identity and survivorship in order to become the new owner of the property. Minnesota law now requires that the affidavit include the name and mailing address of the person to whom future property tax statements should be sent. Minn. Stat. § 507.071(20). The revised statute also clarifies jurisdictional issues about which state district court divisions should deal with issues related to transfer on death deeds. Minn. Stat. § 507.071(26). The effective date is retroactive to August 1, 2008, the original effective date of the transfer on death deed statute.
Requirements of Residential Contracts for Deed
When a seller enters into a contract for deed involving residential real property, they must now do the following when executing the contract for the deed: (1) Deliver a copy of the contract for deed, containing original signatures, to the buyer, and (2) pay or reimburse the buyer for any delinquent taxes necessary for the recording of the contract for deed. Minn. Stat. § 507.235.
Medical Assistance Liens
Medical Assistance provides medical coverage for low-income individuals. A medical assistance lien may be filed against a medical assistance recipient’s home or estate for any unpaid balance of a claim. A claim against a medical assistance recipient’s estate will not be filed at a medical assistance recipient’s death if they are survived by a spouse, but may be filed after the death of the spouse. During the 2009 session, the Legislature revised several provisions relating to medical assistance liens.
- Effective January 1, 2010, medical assistance will no longer include Medicare cost-sharing benefits. Minn. Stat. § 256B.15(1).
- The definition of what is included in the estate of a medical assistance recipient was expanded. New items added to the estate include: brokerage accounts; investment accounts; and assets conveyed to a survivor, heir, or assign of the person through survivorship, living trust, or other arrangement. Minn. Stat. § 256B.15(1a).
- Changes were made regarding a medical assistance recipient’s estate where the medical assistance recipient’s death precedes the death of their spouse. Minn. Stat. § 256B.15(c)-(d).
- Claims made against the estate of a surviving spouse who did not receive medical assistance, for assistance rendered for the predeceased spouse, are now limited to the assets that were marital or jointly-owned property during the marriage. This applies to claims against recipients who died on or after July 1, 2009. Minn. Stat. § 256B.15(2).
- Section 256B.15(2b) establishes certain property ownership rights solely for the purpose of medical assistance recovery actions and also modifies the definition of “marital property.”
- The Commissioner of Human Services may intervene as a party in any medical assistance recovery proceeding. Minn. Stat. § 256B.15(9).
- Section 256B.15(a) includes a more detailed list of persons entitled to notice of a claim.
- Conditions were specified for when a person may apply for a waiver of a claim based on undue hardship. Minn. Stat. § 256B.15(5).
The existing statutory implied residential construction warranties must be provided to the buyer in writing. Minn. Stat. § 327A.04. The amended statute prohibits agreements to waive or modify this requirement. Minn. Stat. § 327A.08(e).
Subsurface Sewage Treatment Systems
Sellers or other parties transferring any real property with sewage treatment systems that involve subsurface treatment and disposal or a holding tank must disclose what they know about the compliance status of subsurface sewage treatment systems and straight-pipe systems. The seller or transferring party must include a copy of any available inspection reports with the disclosure statement. Minn. Stat. § 115.55(6).
Payment to Subcontractors and Progress Payments
Minnesota law now requires general contractors to promptly pay subcontractors and material suppliers, including progress payments. The statute no longer excludes residential construction from these requirements. Minn. Stat. § 337.10(3)-(4). Prompt payment is defined as payment within ten days, with an interest penalty of 1.5 percent per month for failure to pay within that time period. Minn. Stat. § 337.10(3).
Nonconforming Lots in Shoreland Areas
The statute dealing with nonconforming lots affects lakeshore property owners whose property met structure and use requirements when originally purchased or constructed, but no longer meets current statutory regulations. The current regulations were created to protect lakes and rivers. Under Minnesota law, these nonconforming lots are usually allowed to exist if they meet septic system and other lot size standards. In 2009, the Legislature made a number of modifications to the laws regarding nonconforming lots in shoreland areas. The changes attempt to prohibit local governments from limiting the ability of an owner of two or more contiguous nonconforming lots to use, develop, or sell one of the lots. Minn. Stat. § 394.36(4)-(5). One of the changes clarifies how to calculate damages to nonconforming property due to fire, water damage, or other similar incidents. Additional changes address conditions such as sewage and water treatment systems, regulating the use and repair of nonconforming lots, and subdividing large nonconforming lots for sale. All changes went into effect on May 22, 2009.
Common Interest Community Certificates of Title (CICCT)
The Minnesota Legislature expanded common element certificates of title to include planned communities. Preexisting planned communities may obtain a CICCT for no additional fee. Minn. Stat. § 508.351.
Disclaimer of Property Interests
The Uniform Disclaimer of Property Interests Act, effective January 1, 2010, provides the authority to make disclaimers. Minn. Stat. § 524.2-1102-1115. A disclaimer allows the beneficiary of an interest or an estate to disclaim, or reject, that interest. A disclaimer extinguishes the interest as if it had never been granted and allows the interest to pass to an alternate beneficiary. People use such disclaimers to reallocate interests in estates, trusts and other kinds of property holdings.
The newly adopted statute describes what interests may be disclaimed, the people who have the power to make such disclaimers, the time when disclaimers are effective, the effect of disclaimers on the distribution of the disclaimed property interests, and the appropriate delivery or filing methods. The statute allows people to disclaim any or all of an interest in property, and also allows fiduciaries and parents to make disclaimers with court approval. Minn. Stat. §524.2-1107.
Regulation of Banks and Mortgage Lenders
The definition of “lender” was changed to include “any residential mortgage originators,” such as mortgage companies and brokers. Minn. Stat. § 47.58(1). This change was intended to clarify that these lenders must comply with state laws regulating reverse mortgage loans.
Changes were also enacted regarding how long a state-chartered bank can own real estate it acquires through a mortgage foreclosure or other debt collection process. Minn. Stat. § 48.21(1). Old legislation allowed state-chartered banks to keep foreclosed real estate for no more than five years. The new statute provides for an additional five years if the bank has not been able to sell the real estate or if disposing of the real estate within the first five years would be detrimental to the bank. This statute makes Minnesota laws for state banks the same as federal laws for national banks.