What is foreclosure by advertisement?

Minneapolis real estate attorney John Koneck explains what a foreclosure by advertisement is.

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In order to answer the question of what foreclosure by advertisement is, I have to talk a little bit about Minnesota Foreclosure Law. There are basically – the way foreclosure works is when the borrower defaults on a mortgage loan, the lender can do one of two things. Either sue the borrower on the promissory note or foreclose the mortgage. In Minnesota, there are two ways to foreclose the mortgage. And when I say the term foreclose the mortgage, what I mean is the process under law by which the lender causes the property that it has a mortgage on to be sold at a public sale. And the proceeds that are obtained from that public sale are applied against the mortgage debt. As I said, there are two ways to do it.

One is foreclosure by action, which means starting a lawsuit and serving the borrower. The lender starts a lawsuit, the lender’s the plaintiff, sues the borrower. And if there are fact issues or legal issues, they’ll have motions and a trial. And ultimately, if the lender wins, the lender gets a judgment that allows it to have this public sale of the property in order to get paid back. That process sometimes is long, it’s complicated, and it’s expensive.

Minnesota has another way to foreclose. The second way to foreclose is foreclosure by advertisement. And it is by far – except in some situations, special situations, it’s by far the most common way to foreclose in Minnesota. Why? Because it’s faster, cheaper, and less complicated. And with that process, the only thing you have to do if you’re a lender after there’s a default on the mortgage is serve a notice on the borrower, and the period of time that you have to serve the notice is determined by statute, it’s usually six weeks before the sale, but under some circumstances, it can be shorter, that says you’re going to have a foreclosure sale on a specific date provided in the notice.

And you have to publish that notice also in a legal newspaper in the county where the property is located once a week for that six-week period. And you have to serve the occupants of the property a month before the sale. Once you do that, you have that public sale and whatever you get at that public sale you apply – if you’re the lender, you apply that against the mortgage note, and that’s the foreclosure by advertisement process.