Real Property Law Update[1]
This presentation is a general review of recent developments in case law and legislation over the last few years which impact the use and ownership of real property. If you have further questions about these recent developments, please feel free to contact the authors.
I. FORECLOSURE: IS FORECLOSURE BY ADVERTISEMENT DEAD IN MINNESOTA?
A. Ruiz v. 1st Fidelity Loan Servicing, LLC
Under Minn. Stat. § 580.02, all assignments of a mortgage must be recorded before the mortgagee begins the process of foreclosure. Absent strict compliance with this requirement, a foreclosure by advertisement is void. 829 N.W.2d 53 (Minn. 2013).
i. Background
Doris Ruiz received a mortgage loan from Chase Bank in 2005. Chase Bank assigned the mortgage to JP Morgan Chase Bank by assignment in 2006. In 2008, Ruiz defaulted on the loan and mortgage. In 2009, the mortgage was assigned a second time to 1st Fidelity Loan Servicing, LLC. However, the recorded assignment listed the assignee as “1st Fidelity.”
In 2010, 1st Fidelity sent Ruiz a demand letter, and upon receiving no response, commenced with a foreclosure by advertisement. 1st Fidelity published a first notice of foreclosure sale and recorded a notice of pendency of foreclosure on May 18, 2010. On that same day, a third assignment was recorded from JPMorgan Chase Bank to 1st Fidelity Loan Servicing, LLC. 1st Fidelity was the high bidder at the sheriff’s sale; Ruiz did not redeem and was evicted.
Subsequently, Ruiz brought this action, alleging four claims:
(1) failure to strictly comply with the assignment recording requirement, Minn.Stat. § 580.02(3); (2) failure to strictly comply with the notice of pendency of foreclosure requirement, Minn.Stat. § 580.032, subd. 3; (3) failure to strictly comply with the pre-foreclosure counseling notice requirement, Minn.Stat. § 580.021, subd. 2; and (4) wrongful eviction, in violation of Minn.Stat. §§ 557.08–.09 (2012). Ruiz sought both a declaration that the sheriff's sale was null and void and the recovery of monetary damages. Ruiz subsequently amended the complaint to include a quiet-title action.
Id. at 55.
ii. Analysis
Minn. Stat. § 580.02 (3) states: “To entitle any party to make such foreclosure, it is requisite…that the mortgage has been recorded…”
The Supreme Court held looked at the plain meaning of the words in the statute, saying “make” has the plain meaning of “causing to exist or happen” or “to bring about;” and the plain meaning of “requisite” is “required or essential.” They concluded that the statute therefore requires all assignments of mortgage to be recorded before the mortgagee has the right to engage in the process of foreclosure by advertisement. Further, all recording requirements must be strictly complied with.
Since recording an assignment on the same day as the notice of pendency is not recording the assignment before the beginning of the foreclosure process, the Court held that the foreclosure was void.
B. Hunter v. Anchor Bank: Foreclosure after Ruiz
This case, recently considered by the Court of Appeals, confirms the court’s move towards strict, rather than substantial, compliance with the foreclosure by advertisement statutes which we saw first in Ruiz.
Under Minn. Stat. § 580.08, a mortgage which is secured by 2 separate parcels of land, each parcel must be sold separately at a foreclosure sale. The failure to strictly comply with this requirement causes a non-compliant foreclosure sale to be void. 2013 WL 6785761 (Minn. App.).
Here, Margaret Hunter received a mortgage loan from Anchor Bank to purchase a home for her adult son—the loan was secured by her home and her son’s home. The mortgage was assigned to Emigrant Bank, and Hunter defaulted a few years later in 2011. Emigrant foreclosed by advertisement but sold both homes together, contrary to 580.08. Guided by Ruiz, The Court of Appeals held that the foreclosure sale was void because the foreclosure-by-advertisement statutes —all of them, not just the statute discussed in Ruiz—require strict compliance.
C. Impact on Foreclosure
Federal courts only require substantial compliance with foreclosure requirements.
Ruiz may persuade lenders to foreclose by action rather than risk a foreclosure by advertisement, and this also may deter title companies from issuing clean commitments on foreclosed by advertisement properties.
II. Changes to Boundary AND ACCESS Law for Torrens Property
A. Introduction.
Minnesota law specifically prohibits establishing rights against Torrens property by use, over time, under the doctrines of adverse possession (where one possesses property for fifteen years and thereafter may claim ownership of it), and easement by prescription (where one uses property in a non-possessory way for the same period of time, and thereafter may claim the right to continue the use).
“No title to registered land in derogation of that of the registered owner shall be acquired by prescription or by adverse possession . .” Minn. Stat. § 508.02.
Although the Torrens statute is over 100 years old, and the common law doctrines concerning boundaries, ownership, and use are much older than that, the laws of boundary and access law for Torrens Property have proven surprisingly fluid in the last few years.
B. Background of Torrens Law.
The purchaser of Torrens property does not have to pay for an expensive abstract to ascertain the quality of title, but may simply consult the Certificate of Title:
Under the Torrens system, time-consuming and expensive title searches, which characterize the abstract system, are alleviated because the purchaser of Torrens property may, subject to limited exceptions, determine the status of title by inspecting the certificate of title.
In re Collier, 726 N.W.2d at 804. For such a system to work, property purchasers and owners must be able to rely on their certificates of title:
Registered land stands on a different footing than unregistered land: The purpose of the Torrens law is to establish an indefeasible title free from any and all rights or claims not registered with the register of titles, with certain unimportant exceptions, to the end that anyone may deal with such property with the assurance that the only rights or claims of which he need take notice are those so registered. Mill City Heating and Air Conditioning Co. v. Nelson, 351 N.W.2d 362, 364 (Minn. 1984) (emphasis added).
Thus, when one purchases Torrens property, then, they take subject only to “the estates, mortgages, liens, charges, and interests as may be noted in the last certificate of title in the office of the registrar.” Minn. Stat. § 508.25. And, the Minnesota Supreme Court has held that “mere possession of Torrens property will never ripen into title against the owner.” Moore v. Henriksen, 165 N.W.2d 209, 218 (Minn. 1968) (emphasis added).
C. Recent Decisions Limiting Use of De Facto Takings, Statutory Dedication, Common Law Dedication.
Beginning in 2008, the Court of Appeals and the Minnesota Supreme Court have expanded the prohibition against adverse possession to specifically apply to other doctrines in which ownership is established by possession. The first of these was de facto takings, a doctrine which provides that where government takes possession of property and makes improvements to it, it cannot be divested of the property. As the Minnesota Supreme Court observed in Brooks Investment Company v. City of Bloomington:
It is well settled that a de facto taking creates in the condemnor a protectable legal interest in the property which is equivalent to title by condemnation; the condemnor can be forced to compensate to the original owner of the property, but the owner cannot eject the condemnor nor can he require discontinuance of the public use.”
232 N.W.2d 911, 920(Minn. 1975). However, the Minnesota Supreme Court recently held that governmental entities cannot establish a protectable interest in Torrens property through de facto takings. The basis for the ruling was that de facto takings functioned similarly to adverse possession:
[A]llowing the City to acquire the land at issue here by de facto taking would operate in the same way as if the City acquired the land by adverse possession in that in both situations, a landowner is deprived of rights to land due to actions of another. . . . Adverse possession, however, is an exception to the general proposition that Torrens property is subject to the same “burdens, liabilities, or obligations created by law” as unregistered property, because acquisition by adverse possession is specifically disallowed by the Torrens Act. Minn.Stat. § 508.02. We cannot ignore this legislative prohibition.
Hebert v. City of Fifty Lakes, 744 N.W.2d 226, 231-32 (Minn. 2008) (emphasis added). It is worth noting that the Minnesota Supreme Court limited its ruling concerning de facto takings to Torrens property, thereby implying the doctrine may yet be valid for abstract property
Of course, this ruling had implications for other doctrines where ownership of Torrens property was established by possession. And, in a second appeal of the same case, the Minnesota Court of Appeals explicitly broadened the principle to apply to statutory dedication, and one type of common law dedication. By statutory dedication, a government can establish ownership of property by possessing and maintaining it for six years:
When any road or portion of a road has been used and kept in repair and worked for at least six years continuously as a public highway by a road authority, it shall be deemed dedicated to the public to the width of the actual use and be and remain, until lawfully vacated, a public highway whether it has ever been established as a public highway or not.
Minn. Stat. § 160.05. The Minnesota Supreme Court found that statutory dedication was sufficiently analogous to adverse possession that it, too, was prohibited:
Thus, our analysis is similarly focused on the operation of statutory dedication compared to adverse possession. [R]ecently, the supreme court characterized the user statute as a “substitute” relief for an adverse-possession claim.Barfnecht v. Town Bd. of Hollywood Twp.,304 Minn. 505, 505, 232 N.W.2d 420, 422 (1975). . . . The supreme court held that “[a]s a substitute for common-law creation of highways by prescription or adverse use, the [user] statute provides [a] method for acquisition of highways by adverse public use.”Id. The city argues that these cases analogize statutory dedication to adverse possession only in dicta and cites instead to authority from other jurisdictions.See, e.g.,Carter v. Michel,403 Ill. 610, 87 N.E.2d 759, 764 (1949)(concluding that an easement was valid despite not appearing on the certificate of title);Duddy v. Mankewich,75 Mass.App.Ct. 62, 912 N.E.2d 1, 5-6 (2009)(concluding that Torrens landowners intended to give an easement in a subdivided lot for the benefits of the other subdivisions despite the easement not appearing on the certificate of title),review denied(Mass. Oct. 29, 2009). Because recent supreme court precedentin this caseinstructs us to look to the operation of an action when comparing it to adverse possession prohibited by the Torrens Act, and because statutory dedication operates fundamentally similar to adverse possession, we conclude that statutory dedication is prohibited by the Torrens Act.
Hebert v. City of Fifty Lakes,784 N.W.2d 848, 853 -855 (Minn. Ct. App. 2010) (italics in original; underline added).
Common-law dedication provides for dedication of land to the public if two showings are made: The demonstration of “the landowner's intent, express or implied, to have his land appropriated and devoted to a public use,” and “acceptance of that use by the public.” Id., citing to Barth v. Stenwick,761 N.W.2d 502, 511 (Minn.App.2009). The Hebert Court ruled that if the owner’s intent is merely implied from the owner’s conduct– and not expressly stated – it is another example of establishing ownership through possession of Torrens property, and also sufficiently analogous to adverse possession that it is prohibited:
But if statutory dedication is tantamount to adverse possession, common-law dedication based on an implied intent to dedicate is prohibited under the Torrens Act as well. As the supreme court held in Moore v. Henricksen,“[s]ince, by [Minn.Stat. § ] 508.02, possession may not ripen into title against the holder of a registration certificate, a purchaser has no reason to assume that possession is adverse to the registered title.”282 Minn. 509, 520, 165 N.W.2d 209, 218 (1968). Thus, even if a landowner is aware of another's possession or use of his Torrens property-which is the nature of an implied intent to dedicate-this awareness does not diminish the owner's interest in the Torrens property. Seeid.(concluding that use of the property by another for 30 years did not diminish the owner's property interests). The city's assertion that common-law dedication occurred is unavailing, and the district court's grant of the city's summary-judgment motion was erroneous.
784 N.W.2d at 855 (emphasis added).
D. The Doctrine of Boundary by Practical Location Has Been Expanded Via Statutory Change.
In marked contrast, the Minnesota legislature recently expanded the applicability of the doctrine of boundary by practical location to Torrens law. Boundary by practical location is another means of establishing ownership based on use, where parties have abided by some definite location of a boundary line, such as a fence or tree line. There are three specific means of claiming boundary by practical location – by acquiescence, agreement, and estoppel: