Shaw Acquisition Co. v. Bank of Elk River, C2-00-1803.
| Decision Date | 29 May 2001 |
| Docket Number | No. C2-00-1803.,C2-00-1803. |
| Citation | 627 N.W.2d 365 |
| Parties | SHAW ACQUISITION COMPANY, d/b/a Stewart Lumber Company, Respondent, v. The BANK OF ELK RIVER, Appellant. |
| Court | Minnesota Court of Appeals |
Mark J. Johnson, Lang, Pauly, Gregerson & Rosow, Ltd., U.S. Bank Place, Minneapolis, (for respondent).
James M. Neilson, Matthew A. Anderson, Babcock, Neilson, Mannella, LaFleur & Klint, P.L.L.P., Anoka, (for appellant).
Gerald G. Workinger, Jr., Edina, (for amici curiae Minnesota Bankers Association, Mortgage Bankers Association of Minnesota and Independent Community Bankers of Minnesota).
Considered and decided by SHUMAKER, Presiding Judge, RANDALL, Judge, and PETERSON, Judge.
Appellant challenges the district court's order granting respondent's motion for summary judgment. Appellant argues that the district court erred in concluding that appellant's foreclosure sale produced a surplus after appellant's first-priority mortgage was satisfied. Appellant claims that its split-priority junior mortgage must be satisfied also before respondent's second-position mechanic's lien gets paid. We affirm.
On March 5, 1998, appellant Bank of Elk River acquired two mortgages, $105,000 each, and two notes from Allied Mortgage on two properties (North and South) Allied sought to develop. Both mortgages were recorded the same day. Allied and appellant did not enter into a construction-loan agreement. Appellant advanced $61,731.41 on the North note and $36,731.41 on the South note between March 5, 1998, and March 23, 1998. On the March 23, the first improvements on the North and South properties were visible.
The district court found respondent Shaw Acquisition Company provided lumber and other building materials to the North property in the amount of $26,432.75 and plans and specifications for the improvement of the South property. No lien waivers were requested or given. On December 24, 1998, respondent filed and recorded a mechanic's lien against both the North and South properties.
On January 26, 1999, respondent filed a summons and complaint to foreclose its mechanic's lien. After negotiations, the bank and Stewart Lumber entered into a stipulation, which split the priority of appellant's mortgages. Appellant had advanced approximately $98,000 before respondent's mechanic's lien and an approximate $112,000 (excluding costs and interest) after respondent's mechanic's lien. The negotiations between the parties gave appellant first position on its initial $98,000 advances, gave respondent's mechanic's lien of $43,253.76 a second-priority position, and gave appellant a third position on its remaining advances. Appellant's advances prior to March 23, 1998, in the amount of $61,731.41 (plus $134.62 in taxes) for the North property and $36,731.41 (plus $183.90 in taxes) for the South property, received first-priority positions. Appellant's advances on the mortgage after March 23, 1998, were the third priority.
On March 3, 2000, judgment was entered on the mechanic's-lien foreclosure. The judgment confirmed the stipulation that split the priority of appellant's mortgages and gave respondent's mechanic's lien second position. This judgment was not appealed.
As part of its argument, both appellant and the amici curiae allege facts that would challenge the mechanic's lien second-priority position. We quickly conclude that the stipulation between the parties and the resulting judgment, which was not appealed, properly gave respondent's mechanic's lien a true second-priority position. The primary issue remains, namely, what steps will respondent have to take to receive a distribution from a foreclosure sale. Appellant chose to foreclose on its mortgages by advertisement. At the foreclosure sale on March 23, 2000, appellant bid approximately $245,000 for both parcels. That figure represented the total amount of its first and third-priority mortgages plus all costs and accrued interest. Appellant then sent respondent two letters (one for the North property and one for the South property) on April 4, 2000, informing it that it had until May 23, 2000, to redeem from its second-priority position. The letters noted that respondent could redeem by paying just the first-priority positions amount (approximately $99,000 plus costs).
On April 12, 2000, appellant filed notices of intent to redeem from its third-priority positions (in the event that respondent redeemed from its second-priority position). Respondent then filed a summons and complaint alleging that appellant improperly withheld a surplus from the foreclosure. Respondent defined the surplus as the amount remaining out of appellant's bid of $245,000 after appellant's first position of approximately $99,000 was satisfied. The district court granted respondent's summary-judgment motion concluding the foreclosure produced a surplus after satisfying the first-priority parts of the mortgages. It awarded respondent judgment in the full amount of its second-priority mechanic's lien. This appeal followed.
Should the proceeds from a foreclosure sale in excess of the amount necessary to satisfy a part of a mortgage with seniority be distributed to valid intervening lienors according to their priority without requiring the junior lienor to redeem? With a split-priority mortgage, when is the most junior portion entitled to distribution when there is a valid intervening lien?
When the district court grants summary judgment based on the application of a statute to undisputed facts, the result is a legal conclusion reviewed de novo by the appellate court. Lefto v. Hoggsbreath Enters., Inc., 581 N.W.2d 855, 856 (Minn. 1998). The district court determined that there were excess proceeds after appellant's first-priority parts of the mortgages were satisfied and determined that the excess should be used to extinguish respondent's second-priority lien prior to application of the proceeds to appellant's remaining parts of the mortgages in third priority. Appellant argues that under Minn.Stat. § 580.10 (2000), a surplus exists only if the mortgage has been satisfied. Appellant defines its multiple advances, which resulted in both a first and a third position, as "a mortgage." Appellant cites the statute, which states:
In all cases not provided for in section 580.09, if, after sale of any real estate, made as herein prescribed, there remains in the hands of the officer making the sale any surplus money, after satisfying the mortgage, with interest, taxes paid, and costs of sale, the surplus shall be paid over by such officer, on demand, to the mortgagor, the mortgagor's legal representatives or assigns.
Id. (emphasis added). We do not dispute the plain language of the statute. We simply note that the words of the statute, when drafted, impliedly understand the word "mortgage" to be a simple undivided mortgage, and appellant concedes that. With that understanding, the statute and respondent's legal argument, and the stipulation and judgment between the parties for a split priority for appellant falls into place.
That statute does not describe split mortgages. Minnesota's "race-notice" statute, which has stood for decades and is understood by all lenders and their attorneys, contemplates such a situation. See Axel Newman Heating & Plumbing Co. v. Sauers, 234 Minn. 140, 145, 47 N.W.2d 769, 772 (1951) (). Appellant argued consistently that its first and third positions, to which appellant stipulated, are not separate mortgages, but are single mortgages with split priorities. In a race-notice state, it is a distinction without a difference. Under appellant's theory, a lender with a first position could then, with impunity, lend money, after five valid intervening liens, take a seventh, eighth, ninth, etc. position, and even if that lender forecloses by advertisement (not by action so as to get a judicial lien), all it would have to do is bid in the cumulative total of...
To continue reading
Request your trial
-
Shaw Acquisition Co. v. Bank of Elk River
...first-priority mortgages be distributed to satisfy [Stewart Lumber's] second-priority mechanic's lien." Shaw Acquisition Co. v. Bank of Elk River, 627 N.W.2d 365, 369 (Minn.App. 2001). We At issue is whether the Bank's bid at the foreclosure sale resulted in a surplus, under Minn.Stat. § 58......
- Johnson v. Johnson, C0-00-1654.
-
First Minn. Bank v. Overby Dev. Inc
...of mortgage debt that is foreclosed. Although no statute or caselaw is directly on point, the supreme court's decision in Shaw Acquisition v. Bank of Elk River provides some guidance on this issue. 639 N.W.2d 873 (Minn.2002). In Shaw, a bank had a mortgage on property that was being Id. at ......