Legal Memorandum: Good Faith Requirement for Foreclosures by Advertisement

Issue: Whether a bid approximating either the fair market value of the foreclosed property or the amount of the outstanding loan balance, standing alone, could be considered bad faith under Minn. Stat. 581.05.

There does not appear to be any authority that references § 581.05 or its predecessor statutes, Minn. Gen. Stat. § 4490 (1905) or 83 Mason’s Minn. Stat. § 9638 (1927).  However, there is some authority pertaining to the good faith requirement of Minn. Stat. 580.11, which applies to foreclosures by advertisement.  The following authorities are instructive:

Sprague Nat’l Bank v. Dotty, 415 N.W.2d 725 (Minn. Ct. App. 1987) (Where bank bid $100,000 less than the loan amount, which increased the deficiency amount sought against guarantors, a genuine issue of material fact of the bank’s bad faith bid existed.);

Cox v. Mortgage Elec. Registration Sys., Inc., 794 F. Supp. 2d 1060 (D. Minn. 2011) (Minn. Stat. § 580.11 does not create a fiduciary duty owed by the mortgagee to the mortgagor to act in good faith before the foreclosure sale.);

Berke v. Resolution Trust Corp., 483 N.W.2d 712 (Minn. Ct. App. 1992) (When mortgagee stated an outstanding loan balance of $1.1 million, but purchased the property for $357,000, mortgagor’s claim that the mortgagee inflated the amount due in order to deter competing bidders did not amount to bad faith under § 580.11.);

Bradley v. Bradley, 554 N.W.2d 761 (Minn. Ct. App. 1996) (Mortgagee’s purchase of the property $1 million lower than the original mortgage amount was not bad faith or fraud because the mortgagor’s redemption rights allowed it to gain the benefit of the mortgagee’s bargain.);

Kantack v. Kreuer,