In a decision issued last month, the Minnesota Supreme Court invalidated a foreclosure, on the grounds that “substantial compliance” is insufficient to proceed by foreclosure by advertisement (which is not supervised by the court).  Rather, strict compliance is required.  It is rather common for mortgage companies to assign the rights to other mortgage companies.  But the new mortgage company needs to file the assignment with the County recorder’s office, for the homeowner can check the public records to see who actually owns the mortgage on their house.  In this particular case, the mortgage company filed the assignment, but not until after it had started foreclosure proceedings in 2010.

According to a story in the Star Tribune, the homeowner was sentenced to a year in prison last year for tax evasion. Her lawyer had no comment about that.  It is unclear from the story whether the homeowner had actually been evicted from the house, as one of the claims was “wrongful eviction.”

The courts in Minnesota have not been supportive of defenses to foreclosure in Minnesota, so this decision is a bit surprising to me. I predict that the mortgage companies will just do a better job of ensuring that their ducks are all in a row prior to commencing foreclosure actions.  A more interesting question is whether Mortgage Electronic Registration Systems (MERS), which is a national clearinghouse for mortgage companies to transfer their rights without having to pay filing fees in county recorder’s offices, might be stricken down in light of this decision. A MN Supreme Court decision in 2009 indicated that it’s okay for MERS not to file the assignments as long as only the rights to the debt are being traded.  Last February, Hennepin and Ramsey County sued MERS over their avoidance of these recorder fees.

So if your next question is, “Tim, can you find a loophole so I don’t have to pay back my mortgage?” the answer is probably not. But this recent decision gives homeowners and their attorneys an additional defense to review, and may even give rise to a cause of action for people who have already been wrongfully foreclosed upon.