460 N.W.2d 63 (Minn.App. 1990), C2-90-504, Fingerhut Corp. v. Suburban Nat. Bank

Docket Nº:C2-90-504.
Citation:460 N.W.2d 63
Opinion Judge:The opinion of the court was delivered by: Norton
Party Name:FINGERHUT CORPORATION, Respondent, v. SUBURBAN NATIONAL BANK, a United States Corporation, Appellant.
Attorney:Patrick J. McLaughlin, Mary E. Senkus, Patrick T. Skelly, Oppenheimer Wolff & Donnelly, Minneapolis, Minnesota, for Respondent.
Case Date:August 21, 1990
Court:Court of Appeals of Minnesota
 
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460 N.W.2d 63 (Minn.App. 1990)

FINGERHUT CORPORATION, Respondent,

v.

SUBURBAN NATIONAL BANK, a United States Corporation, Appellant.

No. C2-90-504.

Court of Appeals of Minnesota.

August 21, 1990

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Syllabus by the Court

1. Registration is the operative act to convey or affect registered land; unregistered mortgage is a contract which does not affect title to registered land.

2. Duly registered notice of lis pendens is effective, pending outcome of litigation, to preserve claim of constructive trust in registered property.

3. Mortgage registered after duly registered notice of lis pendens is subsequent encumbrance and subject to outcome of pending litigation.

4. Notice of adverse claim is not appropriate where notice of lis pendens may be registered.

Patrick J. McLaughlin, Mary E. Senkus, Patrick T. Skelly, Oppenheimer Wolff & Donnelly, Minneapolis, for respondent.

Bradley N. Beisel, Scholle and Beisel, Ltd., Minneapolis, for appellant.

Considered and decided by NORTON, P.J., and GARDEBRING and KLAPHAKE, JJ.

OPINION

NORTON, Judge.

Appellant seeks review of trial court judgment that respondent, which registered its notice of lis pendens against registered property before appellant registered its mortgage, was entitled to priority.

FACTS

This appeal follows a court trial upon stipulated facts. Appellant Suburban National Bank ("Suburban") and respondent Fingerhut Corporation ("Fingerhut") both lost money to a third party, one Connelly. Connelly was a former employee of Fingerhut who engaged in a scheme to defraud Fingerhut of a large amount of money. Connelly and his wife used some of that money to purchase and improve a home in Carver County, which is the subject real estate of this suit. That real estate has been registered, or Torrens, property since 1956.

In 1986, Fingerhut discovered Connelly's scheme. On August 1, 1986, Connelly wrote Suburban regarding a second mortgage

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he was seeking against the house. He sought $100,000. On August 25, 1986, Suburban entered into an agreement to loan the Connellys $50,000 and receive a mortgage interest in the Carver County real estate. Suburban was unaware of the Fingerhut dispute. On August 28, Fingerhut filed suit against Connelly, claiming that Connelly held the real estate in constructive trust for the benefit of Fingerhut; it also prepared a notice of lis pendens. On August 29, the notice of lis pendens was filed with the registrar of titles in Carver County and duly registered on the certificate of title. On the same day, Mrs. Connelly signed a confirmation of the mortgage agreement and Suburban disbursed the $50,000 loan proceeds to the Connellys. Not until September 2, 1986 was Suburban's mortgage filed with the registrar of titles and duly registered on the certificate of title. Fingerhut did not know that the Connellys had given a mortgage to Suburban.

On April 1, 1987, Fingerhut informed Suburban that the Connellys were trying to sell the premises and that, based on its notice of lis pendens, Fingerhut claimed priority over any interest Suburban had. On April 10, 1987, Suburban responded that it had become aware of Fingerhut's suit against Connelly when Connelly's account records were subpoenaed from Suburban. On December 23, 1987, an order was entered in federal district court concluding, among other things, that the subject property was obtained by the Connellys specifically with money obtained fraudulently from Fingerhut while Connelly was a fiduciary of Fingerhut. The federal court found that the sum of at least $141,000 could be traced directly from funds fraudulently obtained by Connelly from Fingerhut to the purchase and improvement of the real property. The federal court concluded that a constructive trust arose at the time the Connellys became owners of the real estate. The federal court ordered that legal title be vested in Fingerhut as of "on or before August 29, 1986."

In May of 1988, Fingerhut brought this quiet title action against Suburban. Suburban opposed on the grounds that its mortgage was prior to any interest Fingerhut had in the premises. Fingerhut and Suburban entered into an escrow...

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