Many homeowners in foreclosure may not be aware there's another option that would allow them to keep their homes. Under state law, they can buy their home back after the sheriff's sale for the price of the winning bid. That bid can be tens or even hundreds of thousands of dollars less than what they owed on the house.
But the law is not widely known, and as a result many homeowners have lost out on the chance to stay in their homes. Marie Forsell, who owned a home in Washington County, is one of them.
Forsell, 45, slowly untangles what's happened since her house went into foreclosure. Before she even begins telling her story she's reaching for a tissue to catch her tears.
"I feel so stupid, you know?"
After Forsell's house was sold at a sheriff's sale this fall, people started showing up at her doorstep with offers of help. Investors offered her money -- $5,000 -- in exchange for her deed.
The $5,000 sounded pretty good at that time, because Forsell figured she could never scrape together enough money to redeem her house.
What Forsell didn't know was how much her house had sold for at the sheriff's sale. After she'd agreed to take the $5,000, Forsell found out that her house -- on which she owed close to $600,000 -- had sold at auction for only about $86,000.
"I was absolutely sick to my stomach," she said. "You mean to tell me I've worked for years with the mortgage company, and they just dumped it for $86,000 -- which I never would have ever guessed, and now I had already signed the house away."
That's when Forsell discovered something else: under state law she could have bought her home back during the redemption period that follows the sheriff's sale, for far less than what she owed.
Forsell says if she had known that, her family could have lent her the money. While people going through foreclosure probably couldn't get a loan from a bank, they could potentially borrow the money elsewhere.
"They say it's embarrassing to be in foreclosure. No, it's embarassing to sign away your house for $5,000 and realize what you did," said Forsell.
The investors who bought Forsell's deed also bought her rights to redeem her house. Now, they can put it back on the market for a profit.
Forsell could have bought her home back during the redemption period following the sheriff's sale, for far less than what she owed.
The deal Forsell agreed to amounts to equity stripping, according to her attorney Jerome Ritter. He says homeowners in foreclosure are vulnerable to such deals because they may not know their rights.
"They trusted people who said, 'I am here to help, here is some money, it's the best you can get,'" he said. "They made it work because they did not tell the homeowner the true set of facts, and that is wrong."
Minnesota updated its foreclosure laws this year in an effort to prevent mortgage fraud. The law requires people seeking title to a foreclosed property after the sheriff's sale -- and before the end of the redemption period -- to notify the homeowner that the house can be redeemed for the sheriff's sale price, if it's less than the amount owed before the sale.
But sometimes written notice isn't enough. Homeowners in foreclosure receive stacks of complicated documents. They're often overwhelmed and confused by the process.
"And until you know that information, you can't make a good decision about what to do next," said Amber Hawkins, who investigates mortgage fraud for the Hennepin County Attorney's Office.
Hawkins started seeing lots of deals like Forsell's about a year ago. But Hawkins says even clear-cut cases of fraud can sometimes be hard to prosecute.
"A lot of times it's going to be 'He said, she said' -- what did this person actually say to the homeowner? Because I'll tell you right now, the documents in many cases are going to be clean," she said.
Lenders and loan servicers underbidding on their own properties at sheriff's sales is nothing new. But with record high numbers of foreclosures, and low home values, lenders are more eager than ever to get foreclosed properties off their books.
Twin Cities attorney Paul Weingarden handles foreclosures for many of the nation's top banks. He says lenders are doing their best to get foreclosed properties back on the market as quickly as possible and recoup some of their investment.
"There is no secret agenda," said Weingarden. "It's trying to get what they can for the property, for what they think it's worth, and trying to spur people who are interested in retaining their homes to redeem -- and sometimes that happens."
Advocates say homeowners need to protect themselves by doing their homework.
Former Washington County homeowner Marie Forsell thought she did her homework, but she still feels she was duped. Now that she's lost her house, she wants to help other people save theirs.
"Go to your sheriff's sale. Find out that number, and then that is the number you have to pay off," she said.
Forsell is suing the investors she made the deal with, claiming they broke the law. She hopes a judge will grant her a second chance to get her house back.