Foreclosure Redemption in Minnesota: How to Redeem by Buying a Judgment Lien

Real estate investors in today’s market are commonly involved in purchasing properties which are in foreclosure.  However, with short sales having a low success rate, most Minnesota investors look for ways to get in line behind the owner and other junior creditors to exercise post-sale redemption rights.

Minnesota has a post-sale redemption period that works like this:  with some narrow exceptions, the homeowner has six (6) months after the sheriff’s sale to redeem the property by paying off the foreclosing lender.  If the homeowner does not exercise his or her redemption rights, each junior creditor, in order of priority, has a seven day period to redeem the property (but they have to file a notice of intent to redeem not later than seven (7) days prior to the expiration of the owner’s redemption period).  If a junior creditor fails to exercise its redemption rights, that junior creditor’s lien is extinguished from the property.  If a junior creditor does so redeem, any other junior creditors still have the right to redeem by paying the foreclosing lender’s balance (plus costs) as well as any amounts owed to the redeeming creditor.

For investors, a property that is in foreclosure may represent a good investment if the investor can purchase the property free and clear of some of the junior liens.  Hence, a very common approach is for the investor to find a property where there is a judgment lien placed against it, purchase the judgment lien for a fraction of the amount of the judgment, wait for other junior creditors whose liens are senior to the judgment lien not to redeem, then redeem and own a property with instant equity. 

Finding the property which is subject to such a judgment and making a deal with the judgment creditor to purchase the judgment are the easy parts of the process.  The tricky part comes when the investor (as assignee of the judgment) seeks to exercise its redemption rights.

Minnesota law  provides that a judgment, once docketed, becomes a lien against any property located within the county where the judgment was docketed; no further filing on the part of the judgment creditor is required.

Minnesota law  also provides, however, that if a junior creditor wishes to redeem from a foreclosure sale, that creditor must record a notice of intent to redeem and records “all documents necessary to create the creditor’s lien and to evidence the creditor’s ownership of the lien, and delivers to the sheriff copies of all of these documents that show when and where the documents were recorded.”  If a creditor fails to do this, then that creditor is not entitled to redeem.

What happens, then, with a judgment creditor, where the lien automatically attaches by law without any recording requirement?  The Minnesota Court of Appeals, in a 2008 Minnesota Court of Appeals case entitled Northern Realty Ventures vs. Minnesota Housing Finance Agency, held that regardless of the fact that the judgment lien attaches automatically to property within the county of docketing, the judgment creditor must record a certified copy of the notice of entry of judgment issued by the court along with its notice of intent to redeem during the time prescribed for doing so by statute.  For a purchaser of a judgment, the notice of assignment and the notice of entry must be recorded. 

For Minnesota real estate investors seeking to redeem from a foreclosure as the assignee of a judgment creditor, take heed of the Northern Realty Ventures case.  Plan accordingly so that you can execute the purchase documents for the judgment, file the assignment of judgment with the court of record, obtain certified copies of both the notice of entry and the notice of assignment (and keep in mind that court schedules are tight these days so the likelihood of immediate filing and delivery of a certified copy is not guaranteed) and get them recorded in the appropriate recording office (county recorder for abstract property and registrar of titles for Torrens property) along with your notice of intent to redeem.  Otherwise, all of your efforts in locating the right property to redeem will be for naught.