Foreclosure reconveyance
A foreclosure reconveyance is a transaction in which a homeowner facing foreclosure transfers title to someone else, with an arrangement to remain in the property and recover it later.
Minnesota defines it broadly and regulates it closely, because it was the standard vehicle for foreclosure rescue schemes.
The statutory definition#
Under Minn. Stat. 325N.01, a property reconveyance covers the transfer of title by an owner — either by transferring an interest or by creating a mortgage, lien or encumbrance allowing the acquirer to obtain title by redeeming as a junior lienholder or by other legal process — occurring before the expiry of:
the reinstatement right under 580.30 or the redemption right under 580.25;
the redemption right under chapter 281 or the repurchase right under sections 282.241 to 282.324;
or the period to cure a contract for deed default.
That reach is the point. It follows the homeowner through every window in which they still hold something.
Why it needed regulating#
The structure is easy to make fail.
An owner deeds the house away. The rent set is higher than they were paying on the mortgage. The repurchase price is set above what they could finance. The option period is short.
Every term is disclosed and the arrangement was never survivable. At the end the homeowner has lost the property and the equity, and has been paying rent in the interval.
What the statute requires#
Contract requirements, in writing and in prescribed form.
A five-business-day cancellation right that does not begin until the contract is fully executed and the purchaser has complied — and a timely cancellation renders any deed executed beforehand void.
An ability-to-pay standard on the repurchase terms, so the arrangement must be one the homeowner could realistically perform.
Minimum consideration to the homeowner where the reconveyance fails, which prevents a failed arrangement operating as a transfer of the whole equity.
An independent closing. The closing may not be conducted by the purchaser or by an affiliate, an employee of an affiliate, or anyone with a business or personal relationship with the purchaser.
Prohibited representations. A purchaser may not represent that they are acting on the homeowner's behalf — as adviser, consultant, or helping to save the house — where the result is the homeowner's failure to redeem.
The scope was widened#
Amendments extended the protections beyond the residence in foreclosure to property owned by the purchaser or consultant, or by an affiliate, and to properties in delinquency or default and contracts for deed.
For a homeowner considering one#
Take it to a lawyer or a HUD-approved housing counsellor before signing anything.
A legitimate reconveyance is possible. The statutory requirements exist because most of the ones the legislature examined were not, and the homeowners involved did not discover that until the option period had run.