Graves v. Wayman

• Decision Date: 25 February 2015
• Docket Number: No. A11–1521.,A11–1521.
• Citation: Graves v. Wayman, 859 N.W.2d 791 (Minn. 2015)
• Parties: Amos GRAVES, Respondent, v. Michael WAYMAN et al., Respondents, First Minnesota Bank, Appellant.
• Court: Minnesota Supreme Court

859 N.W.2d 791

Amos GRAVES, Respondent

v. Michael WAYMAN et al., RespondentsFirst Minnesota Bank, Appellant.

No. A11–1521.

Supreme Court of Minnesota.

Feb. 25, 2015.

Jeramie Steinert, Steinert, P.A., Minneapolis, MN, for respondent Amos Graves.

Thomas G. Wallrich, Peter L. Crema, Jr., Cozen O'Connor, Minneapolis, MN, for appellant First Minnesota Bank.

OPINION

STRAS, Justice.

This case arises out of the distressed real estate market of the past decade. When respondent Amos Graves was on the verge of losing his home to foreclosure, Michael Wayman persuaded Graves to enter into a transaction that would purportedly save his home. The transaction required Graves to execute a quitclaim deed in favor of a corporate entity under Wayman's control. The day after Graves executed the deed, he sent a timely cancellation notice, as was his statutory right, to Wayman, who refused to cancel the transaction. The eventual mortgagee of the property, appellant First Minnesota Bank, sought ownership of the home in foreclosure when Wayman ceased making mortgage payments. The district court awarded the property to First Minnesota based on the bank's status as a bona fide purchaser, but the court of appeals reversed and awarded the property to Graves free of any interest of the bank. For the reasons that follow, we affirm in part, reverse in part, and remand to the district court for further proceedings consistent with this opinion.

I.

Amos Graves and his late wife bought a home in Saint Paul in 1999. Graves fell behind on his mortgage payments in early 2007, and his mortgage lender, Wells Fargo Bank, foreclosed on the home. Wells Fargo purchased the home at a sheriff's sale on March 13, 2007, which meant that Graves had 6 months, or until September 13, 2007, to redeem the home. See Minn.Stat. § 580.23, subd. 1(a) (2014) (providing a mortgagor with 6 months to redeem a property following a foreclosure sale).

During the redemption period, Michael Wayman contacted Graves and offered to help Graves save his home. On August 15, 2007, Wayman met with Graves, who executed a quitclaim deed purporting to transfer the home to REA Group, a company controlled by Wayman. In return, Wayman signed a purchase agreement on behalf of C&M Real Estate Services Group, another of Wayman's companies, which agreed to pay $182,000 to Graves. Graves and Wayman also executed a “residential lease” and a “rent-back agreement” that obligated Graves to pay $1,302 per month to C&M. The rent-back agreement stated that Graves could “purchase the home back for the amount of $170,000” within 6 months. Wayman provided Graves with a form containing the following caption: “Cancellation of Contract Notice.” The cancellation form notified Graves that he could cancel the transaction, “without any penalty or obligation, within three business days.”

After the meeting with Wayman, Graves changed his mind about the transaction.

He signed and dated the cancellation form later that same night, and mailed it to Wayman the next day. Wayman responded by telling Graves that he would not honor the cancellation because, according to Wayman—and contrary to the undisputed facts—Graves did not timely execute the cancellation form.

On September 5, 2007, Wayman recorded the quitclaim deed that Graves had given him at the August 15 meeting. On September 11, 2007—just 2 days before the expiration of the redemption period for the March 2007 sheriff's sale—Wayman took steps to redeem the property through C&M. Specifically, Wayman had REA (which purportedly held title under the quitclaim deed) grant and record a $100 mortgage to C&M. C&M then filed and recorded a notice of intent to redeem Graves's home as a junior creditor.

To carry out the redemption, C&M borrowed $145,000 from First Minnesota Bank and purportedly granted a mortgage to First Minnesota on Graves's home to secure the loan. Wayman faxed the quitclaim deed and the purchase agreement to First Minnesota on September 13, 2007, and the loan closed 4 days later. Of the loan proceeds, roughly $110,000 went to the Ramsey County Sheriff to redeem the property. Approximately $30,500 was supposed to go to Graves, but he never received that money. Graves also never received any part of the $182,000 that Wayman and C&M owed him under the purchase agreement. Nevertheless, Graves continued to live in the home and, for whatever reason, pay $1,302 per month to C&M through mid–2009.

At some point in 2008, Wayman and C&M defaulted on the loan from First Minnesota. In October 2008, First Minnesota sued Wayman, C&M, and REA in Ramsey County District Court to foreclose its mortgage. Graves was not a party to that action. In May 2009, the district court granted summary judgment to First Minnesota and entered an order of foreclosure. Based on that order, the sheriff conducted a second foreclosure sale in August 2009, and First Minnesota bought Graves's home for $145,000. The district court subsequently entered an order confirming the sale, and the redemption period for that sale expired in February 2010.

Graves brought this action against Wayman, his companies, and First Minnesota in June 2009, shortly after First Minnesota prevailed in the foreclosure action. Graves's amended complaint included 13 separately labeled counts alleging common-law claims as well as violations of Minnesota's Home Ownership and Equity Protection Act (“MHOEPA”),¹ see Minn.Stat. §§ 325N.10 –.18 (2014); federal lending laws; and various consumer-protection statutes. Graves's kitchen-sink complaint boiled down to two principal theories.

First, Graves argued that he did not lawfully sell his home to Wayman in August 2007, and that First Minnesota's mortgage was therefore invalid. To support his argument, he contended that the August 2007 transaction with Wayman was “in fact an equitable mortgage.” He also asked that the transaction be declared “void” under Minn.Stat. § 334.05 (2014), which governs usurious contracts, and MHOEPA. And he requested that the transaction, “[i]f voidable,” be “rescind[ed]” under the Truth in Lending Act, 15 U.S.C. §§ 1601 –67f (2012); under Minn.Stat. § 8.31 (2014) (a provision authorizing the Attorney General to investigate and punish consumer fraud); under Minn.Stat. § 325N.13 (a provision granting a cancellation right to foreclosed homeowners under MHOEPA); or “as equitable relief under the Minnesota Prevention of Consumer Fraud Act and common law fraud.”

Second, Graves argued that, even if he did lawfully sell his home to Wayman in August 2007, he retained a “vendor's lien” on the property that was superior to First Minnesota's mortgage. Under that theory, Graves argued that he was owed roughly $71,000 in proceeds from the sale to Wayman and that he should be entitled to foreclose on his lien and then sell the property to satisfy the outstanding debt.

The district court held a 1–day bench trial. Before the trial, the district court ordered Graves to pick a single theory of the case for trial. Under protest, Graves agreed to proceed on the theory that “the transaction in question was a sale, rather than a mortgage.” During and after the bench trial, however, Graves shifted his focus to his arguments under MHOEPA—arguments that have no clear connection to the theory that the transaction was a sale that gave rise to a vendor's lien.

At trial, Graves's counsel elicited testimony about the cancellation notice and asserted that the effect of the cancellation should be determined under MHOEPA. In a written closing argument submitted to the district court after the bench trial, Graves argued both that the transaction was void at the outset and that Graves had cancelled the transaction “[w]hether by statutory right or contract right.” Specifically, Graves stated:

[T]he transaction was far from compliant with §§ 325N.11–.14 and was void. To be sure, transactions that are contrary to public policy or law are illegal, void and null. The deed conveyed nothing and neither could the subsequent mortgages.

Even if the transaction were valid, [Graves] elected to cancel the transaction that evening. The following day, [Graves] also mailed [his] signed Notice of Contract Cancellation to Mr. Wayman at the address indicated on the form. A void transaction cannot be ratified.

Graves framed his vendor's-lien argument as an alternative to his argument that the transaction was void.

The district court issued the first of three orders for judgment in January 2011. In a January 2011 order, the court found that, “whether by contractual or statutory right, [Graves] exercised [his] right of rescission” with respect to the August 15, 2007, transaction. The court also declared “the contracts in this case” to be “void as against public policy.” Accordingly, the court held that the August 15, 2007, quitclaim deed did not convey any interest to REA, and that REA therefore “had nothing to convey to C&M” when REA ostensibly granted a mortgage on the property to C&M. The court awarded damages to Graves to be “secured by a ‘vendor's lien’ on the real property.”

With respect to First Minnesota, the district court found that it was not a bona fide purchaser because it had “made no inquiry of [Graves] or [his] possession of the premises.” The court therefore held that Graves's “rights in the Property, whether via Minn.Stat. §§ 325N.10 –.18, common law fraud and/or a vendor's lien” were superior to First Minnesota's mortgage. The court awarded title to the home to Graves “free of the interest of any Defendant.” Yet the district court also—inconsistently—declared Graves's “vendor's lien” to be “superior to that of First Minnesota.” It is not clear whether the district court meant to say that First Minnesota had no interest in the property at all, or that First Minnesota had an interest that was subordinate to Graves's interest.

In any event, after a post-judgment motion by First Minnesota, the district court changed its mind and entered a second order for judgment in April 2011. With respect to the August 15,...