Hennepin, Ramsey counties brace for uptick in mortgage foreclosures after low rates during pandemic

Hennepin County set up a team to monitor the expected onslaught of foreclosures as homeowners became unemployed or sick when the pandemic struck more than two years ago.

Much to their surprise, a wave of foreclosures never came in Hennepin County or across the Twin Cities. In Ramsey County, last year's 72 foreclosures was the lowest number since 2003.

Housing officials credit the federal foreclosure moratorium and soaring home prices for the lack of people forced from their homes. In some cases, the strong housing market kept property values high, allowing owners falling behind on payments to sell at a profit.

Now the moratorium has expired, interest rates are rising and economists are raising fresh concerns about a recession that could spark a new round of foreclosures.

"It will be interesting to see if there will be an upswing," said Ramsey County Assessor Luis Rosario. "I suspect there will be."

Hennepin County's figures for the first six months of 2022 signal that mortgage foreclosures are on the rise. So far, the county has logged 154 foreclosures compared with 173 for all of 2021.

"With the health of the job market and property values, I don't think we will see foreclosure numbers like in years past," said Ryan Allen, a professor of urban planning at the University of Minnesota and a member of Hennepin County's foreclosure team.

Nearly 50% of this year's foreclosures are in Hennepin County's core cities of Minneapolis, Brooklyn Center and Bloomington. There are few cities throughout the county that haven't had closure action on a property, like Mound, Dayton and Maple Grove.

Minnesota gives lenders two ways to repossess a home. The state is one of the few to offer a judicial foreclosure, which allows a lender to file a lawsuit asking a court for an order to allow a foreclosure sale. An owner can defend the suit, but if the lender wins, the judge will order the home's sale.

The other process is the more common nonjudicial foreclosure, typically quicker and cheaper than litigating the matter in court. The lender must keep the homeowner apprised of the foreclosure steps and tell them about mortgage counseling options. Under federal law, lenders can't start foreclosure until an owner misses four payments.

The two parties can continue to work out a possible mortgage payment plan to prevent foreclosure. Notice of foreclosure must be published in a newspaper for six weeks, during which time the lender again must send information to the owner about stopping the process. The county's sheriff's office handles the sale of the property.

The national foreclosure rate is at a 20-year low, according to CoreLogic, which tracks national housing data using public records.

Data show that from March 2021 to March 2022, the number of homeowners who fell 30 to 90 days behind on mortgage payments decreased. The share of mortgages in some stage of foreclosure also declined during that time.

Hennepin County used federal COVID-19 relief funds to offer mortgage counseling to residents, said Mark Chapin, the county's director of resident and real estate services. Like Ramsey County, Hennepin allowed owners to delay paying property taxes, too.

Neither county used federal pandemic relief funding to help pay mortgages, but both allotted money to help people pay rent. The state received more than $100 million in federal funding for its HomeHelpMN program to assist renters and homeowners with payments, but it's unclear what impact it had on preventing foreclosures or evictions.

When the pandemic started, Allen said it was impossible to get an accurate look at the foreclosure rate due to the many programs being rolled out or considered by federal, state and local governments.

"But things actually became more stable during the pandemic," he said. "It hasn't been like the recession in 2008" when financially fragile homeowners were socked with a massive increase as part of their adjustable-rate mortgage.

In 2008, Ramsey County logged 3,023 foreclosures and house values plunged, said Rosario. Entire blocks had clusters of foreclosures, and it took neighborhoods a decade or more to recover value wiped out during the financial crisis, he said.

Foreclosures have an impact on households and the community, said Allen, the urban planning professor. For households, it can ruin credit ratings, cause a loss of equity and create dislocation issues for children forced to switch to another school.

Foreclosures also can bring down the value of surrounding houses and signal to potential home buyers that the neighborhood may not be healthy, Allen said.

"The effect of foreclosures is not trivial," he said.