In re Collier

• Decision Date: 01 February 2007
• Docket Number: No. A05-1178.,A05-1178.
• Citation: 726 N.W.2d 799
• Parties: In the Matter of the Petition of Joshua S. COLLIER, in Relation to Property Registered in Certificate of Title No. 1596547 for an Order Directing Entry of a New Certificate and Declaratory Relief.
• Court: Minnesota Supreme Court

726 N.W.2d 799

In the Matter of the Petition of Joshua S. COLLIER, in Relation to Property Registered in Certificate of Title No. 1596547 for an Order Directing Entry of a New Certificate and Declaratory Relief.

No. A05-1178.

Supreme Court of Minnesota.

February 1, 2007.

Allen E. Christy, Jr., Timothy J. Grande, Joanne Horwood Turner, Mackall, Crounse & Moore, PLC, Minneapolis, MN, for Appellant.

Arthur D. Walsh, A.D. Walsh & Associates, Woodbury, MN, for Respondent Wager.

John G. Westrick, Kirk M. Anderson, Westrick & McDowall-Nix, PLLP, St. Paul, MN, for Respondent Collier.

Edward A. Bock, Jr., Kimball Foster, Beth Asmunsen, Matthew Foli, Minneapolis, MN, for Amicus Curiae Hennepin Cty. Exam. of Titles.

Heard, considered, and decided by the court en banc.

OPINION

ANDERSON, PAUL H., Justice.

Joshua Collier purchased a parcel of Torrens property with the knowledge that M & I Bank FSB had an unregistered mortgage and purchase interest in the property. After purchasing the property, Collier filed a petition in Ramsey County District Court, seeking an adjudication and declaration of rights in the property. Collier's petition named M & I as a party. M & I moved for summary judgment, and the district court granted its motion, concluding that M & I's interest in the property was superior to Collier's interest because Collier was not a good faith purchaser under Minnesota's Torrens Act. The Minnesota Court of Appeals reversed the district court, concluding that Collier's actual knowledge of M & I's unregistered interest did not preclude him from being a good faith purchaser. The court of appeals then held that Collier's interest in the property was superior to M & I's interest. We reverse.

In September 2000, Joseph Conley obtained a loan from Great Northern Mortgage Corporation. The loan was secured by a mortgage on a parcel of Torrens property Conley owned. The Torrens property subject to Great Northern's mortgage is located in Ramsey County, Minnesota, and was described in the mortgage as Lot 2, Stipe's Rearrangement. It is this property that is the subject of this action. Later in September, Great Northern assigned the mortgage and its rights in the loan to appellant M & I Bank FSB. M & I or its title company filed the mortgage with the Ramsey County Recorder's office, but did not file the mortgage with the county's Registrar of Titles.

In 2002, Conley defaulted on his loan. M & I then filed a power of attorney to foreclose on the mortgage and served notice of the foreclosure on Conley. The Ramsey County Sheriff's office held a mortgage foreclosure sale on the property and M & I purchased it for $118,000. M & I filed a Sheriff's Certificate of Sale in the Ramsey County Recorder's office, but failed to file its purchase interest with the Registrar of Titles. Shortly thereafter, respondent Joshua Collier learned of the foreclosure sale through a notice published by the Ramsey County Sheriff's office. Collier contacted M & I and offered to purchase M & I's interest in the property on behalf of a real estate investment company. M & I declined Collier's offer to purchase the property.

Collier subsequently conducted a title search on the property, and thereby learned that M & I had not filed its mortgage or purchase interest with the Ramsey County Registrar of Titles. Knowing that the property was Torrens property, Collier concluded that M & I did not have a validly recorded interest in it. Collier then contacted Conley on his own behalf and offered to purchase any interest Conley may have had in the property. Conley agreed to sell Collier any such interest for $5,000 and conveyed his interest to Collier by a warranty deed. On the same day he received the deed from Conley, Collier obtained a loan from Dennis Wager, repayment of which was secured by a mortgage on the property Collier had just purchased from Conley. Collier then filed the Conley warranty deed and the Wager mortgage with the Registrar of Titles.

A few months later, Collier initiated this action by filing a petition for a proceeding subsequent to registration with the Ramsey County District Court. In his petition, Collier acknowledged that, based on Great Northern's assignment of its mortgage on the property to M & I and the Sheriff's Certificate of Sale, M & I claimed an interest in the property. But Collier asserted that neither the mortgage nor Great Northern's assignment of its mortgage to M & I had been properly filed and registered with the Registrar of Titles and that neither interest appeared on the property's certificate of title. Consequently, Collier asserted that M & I had no interest in the property and requested an adjudication and declaration of the rights of all parties in the property, including Wager.

In its answer to Collier's petition, M & I admitted that its mortgage had not been registered on the certificate of title. But as an affirmative defense, M & I asserted that Collier and Wager were not bona fide purchasers of the property because Collier had knowledge of M & I's interest in the property before purchasing the property from Conley.

Collier, Wager, and M & I all filed motions for summary judgment. Following a hearing, the district court issued an interlocutory order denying Collier's and Wager's motions, denying M & I's motion against Wager, and granting M & I's motion against Collier. The district court granted M & I's motion against Collier based on its interpretation of the term "in good faith" as used in Minnesota's Torrens Act, Minn.Stat. ch. 508 (2004). The court cited Minn.Stat. § 508.25 (2004), which states:

Every person receiving a certificate of title pursuant to a decree of registration and every subsequent purchaser of registered land who receives a certificate of title in good faith and for a valuable consideration shall hold it free from all encumbrances and adverse claims, excepting only the estates, mortgages, liens, charges, and interests as may be noted in the last certificate of title in the office of the registrar * * *.¹

(Emphasis added.)

In a memorandum accompanying its interlocutory order, the district court stated that the meaning of the good faith requirement in section 508.25 was "[a]t the heart of this case." The court noted that Collier had actual knowledge of M & I's mortgage interest in the property, M & I's foreclosure of the mortgage, and M & I's purchase of the property at the sheriff's sale. The court concluded that because Collier knew of M & I's interest in the property, Collier was not a good faith purchaser of Conley's interest in the property. Therefore, the court held that M & I's interest in the property was superior to any interest Collier obtained from Conley. Following the court's order, Wager and M & I executed a stipulation for dismissal with prejudice, ending Wager's involvement in this case.

Collier appealed to the court of appeals, arguing that his knowledge of M & I's unregistered interest should not have affected the court's analysis. Specifically, Collier asserted that under the Torrens Act, M & I's failure to file its mortgage with the Registrar of Titles left M & I with no "effective" interest in the property of which Collier could have known.

The court of appeals reversed the district court, holding that Collier was a good faith purchaser under the Torrens Act and that his registered interest was superior to M & I's unregistered interest. In re Collier, 711 N.W.2d 826, 831 (Minn.App. 2006). The court's analysis began with the premise that the Torrens Act requires a mortgage interest in registered property to be filed and registered with the registrar of titles in order to encumber the property. Id. at 830 (citing Minn.Stat. § 508.54 (2004)). The court concluded that because M & I failed to file its mortgage on Conley's property with the Ramsey County Registrar of Titles, M & I did not have an interest in the property that affected subsequent purchasers such as Collier, and instead had only a private contract with Conley. Id. at 831. The court further concluded that "[a]ctual notice of a private contract is not the type of notice that prevents a purchaser from being a good-faith purchaser." Id. The court reasoned that Collier's actual notice of M & I's private contract with Conley was not inconsistent with his own purchase of Conley's interest in the property, because under the Torrens Act, the land was unencumbered by M & I's interest. Id.

M & I subsequently petitioned our court for review and we granted its petition. M & I asks us to resolve two issues on appeal: (1) whether Collier's actual notice of M & I's unregistered interest in the Torrens property precludes him from being a good faith purchaser under Minn.Stat. § 508.25; and (2) whether Collier's purchase of Conley's interest in the property for $5,000 constitutes "valuable consideration" under section 508.25.

On appeal from summary judgment, we determine whether there are any genuine issues of material fact and whether a party is entitled to judgment as a matter of law. Christensen v. Milbank Ins. Co., 658 N.W.2d 580, 584 (Minn.2003). When the material facts are not in dispute, we review the lower court's application of the law de novo. Leamington Co. v. Nonprofits' Ins. Ass'n, 615 N.W.2d 349, 353 (Minn.2000). Here, the material facts are not in dispute. The parties agree that M & I did not file its mortgage or Sheriff's Certificate of Sale with the Registrar of Titles. The parties also agree that Collier purchased Conley's interest in the property with actual knowledge of M & I's interest. Accordingly, we exercise de novo review.

This case involves the Minnesota Torrens Act and Torrens property, and because the Torrens property system is distinct from the abstract property system, we begin our analysis with a brief overview of the two property systems and the policy underlying the Torrens system. Until Minnesota adopted the Torrens system in 1901, all real property in the state was...