Minnesota Home Foreclosure

In Minnesota the second mortgage holder can obtain a judgement for a deficiency after a property goes through foreclosure. The second mortgage holder would either have the property go through foreclosure by action or redeem the property and then pursue the homeowner for the deficiency balance. In the recent environment where the second mortgages are oftentimes getting paid nothing on their secured interest if a property is sold at a short sale or foreclosed upon, they second mortgage holders are getting more aggressive when pursuing these types of claims against homeowners. The other issue involved when a home is foreclosed on is the potential tax liability of the owner of the property. Lenders are increasingly sending former homeowners 1099 forms reporting the phantom gain as income. An example of this is if a house sells at a sheriffs sale for $100,000, but the loan securing the house was taken out for $150,000, the lender can send a 1099 for the difference between what the home sold for and what was owed on the loan. This will almost always be the case on rental properties or second homes, but now always the case on a homestead property. A tax consultant should be advised regarding the applicability of the 1099 liability for each individual situation, since the rules are complex. A bankruptcy filing before the sheriffs sale will prevent many of the above issues from occurring. The other advantage of filing a bankruptcy before the sheriffs sale is it allows the Debtor to deduct the secured mortgage expense on the bankruptcy means test.