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Close doesn’t count in foreclosures, court rules

Justice Wright

A foreclosure by advertisement is void if the assignment recording statute, Minn. Stat. 580.02, is not strictly complied with, the Minnesota Supreme Court ruled last week in Ruiz v. 1st Fidelity Loan Servicing. All assignments of a mortgage must be recorded before the mortgagee begins the foreclosure process, the court continued.

Substantial compliance with the recording requirement is insufficient, said the unanimous court in an opinion written by Justice Wilhelmina Wright.

But it also affirmed the Court of Appeals, which arguably ruled more broadly. Whether Ruiz applies beyond the assignment recording statute is likely to be the subject of further dispute.

Assignee’s name wrong

The plaintiff purchased the property with a mortgage from Chase Bank in 2005. In 2006 Chase assigned the mortgage to JP Morgan Chase Bank, and the assignment was recorded in June 2006. Ruiz defaulted in September 2008. A second assignment was executed in September 2009 and recorded in November. It listed as the assignee “1st Fidelity,” rather than “1st Fidelity Loan Servicing, LLC.”

In March 2010, the defendant sent the plaintiff a demand letter and later commenced foreclosure proceedings by advertisement. On May 18, 2010, 1st Fidelity published the first notice of foreclosure sale and recorded a notice of pendency of foreclosure. In addition, a third assignment was recorded. “JP Mortgage [sic] Chase Bank, NA” is listed as the assignor and “1st Fidelity Loan Servicing, LLC” is listed as the assignee. The law firm representing 1st Fidelity hand-delivered the third assignment and the notice of pendency to the Hennepin County Recorder on May 14, 2010. But this third assignment and the notice of pendency were not recorded until May 18, 2010.

1st Fidelity purchased the property at the foreclosure sale Nov. 30, 2010. The plaintiff did not redeem the property.

The plaintiff subsequently sued, alleging failure to strictly comply with the assignment recording requirement, the notice of pendency of foreclosure requirement and the preforeclosure counseling notice requirement. She also alleged wrongful eviction. Plaintiff sought both a declaration that the sheriff’s sale was null and void and the recovery of monetary damages.

The District Court granted 1st Fidelity summary judgment. Holding that a substantial-compliance standard applies to the statutory requirements at issue, the District Court concluded that 1st Fidelity had at least substantially complied with the assignment and notice of pendency provisions.

The Court of Appeals reversed, holding that a strict compliance standard applies to Minnesota’s foreclosure by advertisement process. It concluded that the foreclosure was void because 1st Fidelity failed to strictly comply with the statutes when it recorded the notice of pendency and the third assignment after publishing the notice of sale. The Supreme Court affirmed but arguably limited its holding to the assignment recording statute.

Plain meaning

The court first examined the assignment recording requirement in Minn. Stat. sec. 580.02 (3), which provides, in relevant part, “To entitle any party to make such foreclosure, it is requisite … that the mortgage has been recorded and, if it has been assigned, that all assignments thereof have been recorded …”

The court examined the plain meaning of the words in the statute and found the law unambiguous, both in requiring recordation prior to foreclosure and also in mandating strict compliance. It rejected the argument that the Curative Act, Minn. Stat. sec. 582.25(3)(a) applied to the facts of the case. “There is nothing in the Curative Act that addresses the defect we confront — namely, the untimely recording of an assignment of a mortgage,” Wright said.

No relation back

The court then said 1st Fidelity did not strictly comply with the statute.

“The third assignment was executed on May 3, 2010. But this third assignment was not recorded until May 18, 2010, the same day as the first publication of the notice of sale. As such, the third assignment was not recorded before the beginning of the foreclosure proceeding,” the court said.

The court rejected the argument that the recording date of the third assignment should relate back to the recording date of the second assignment because the third was a “corrective assignment.” The third assignment did not give notice of a corrective nature and fails to mention any earlier assignment to which it might relate, the court said.

Having determined that the foreclosure was void, the court remanded the case to the District Court for further proceedings on the plaintiff’s wrongful-eviction claim.

Better for lenders

Minneapolis attorney Kevin Dunlevy said the decision “could have been worse” for lenders. He filed a brief for amici Minnesota Land Title Association, the Minnesota Bankers Association and the Minnesota Association of Realtors.

He believes the “strict compliance” required by the Supreme Court applies only to the assignment recording statute. The Court of Appeals, in contrast, said that any technical defect could invalidate a foreclosure, which is contrary to longstanding practice, Dunlevy said. The law traditionally has been that a technical defect makes the foreclosure voidable, not void. The former would require the plaintiff to show substantial prejudice, he explained.

If the broad rule by the Court of Appeals had been upheld by the Supreme Court, Dunlevy continued, the result would be “tons of title problems and 20,000 cases would have to be foreclosed by judicial action.”

Michael Wang, attorney for the plaintiff, said that although the court went out of its way to say that the case applies to recordation, “it is part of a line of cases that say strict compliance with the foreclosure statute is necessary.”

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