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Laws-info.com » Cases » Minnesota » Court of Appeals » 2009 » A08-534, MidCountry Bank, f/k/a First Federal fsb, Appellant, vs. Frederick C. Krueger, Respondent, Nancy Krueger, Respondent, Cherolyn A. Hinshaw, et al., Respondents.
A08-534, MidCountry Bank, f/k/a First Federal fsb, Appellant, vs. Frederick C. Krueger, Respondent, Nancy Krueger, Respondent, Cherolyn A. Hinshaw, et al., Respondents.
State: Minnesota
Court: Court of Appeals
Docket No: A08-534
Case Date: 03/31/2009
Preview:STATE OF MINNESOTA IN COURT OF APPEALS A08-0534 MidCountry Bank, f/k/a First Federal fsb, Appellant, vs. Frederick C. Krueger, Respondent, Nancy Krueger, Respondent, Cherolyn A. Hinshaw, et al., Respondents. Filed March 10, 2009 Reversed Stauber, Judge Scott County District Court File No. 70CV0624231 Justin P. Weinberg, Charles W. Hanson, Gislason & Hunter LLP, 2700 South Broadway, P.O. Box 458, New Ulm, MN 56073-0458 (for appellant) Frederick C. Krueger, 4420 Blakewood Drive, Shakopee, MN 55379-5826 (pro se respondent) Nancy Krueger, 4420 Blakewood Drive, Shakopee, MN 55379-5826 (pro se respondent) James M. Lockhart, Christopher R. Grote, Karla M. Vehrs, Lindquist & Vennum, P.L.L.P., 4200 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402-2205 (for respondents Hinshaw and PHH Home Loans, LLC) Considered and decided by Stauber, Presiding Judge; Kalitowski, Judge; and Shumaker, Judge.

SYLLABUS A purchaser of real property is charged with constructive notice of the contents of a mortgage recorded in a county's grantor-grantee index and tract index. OPINION STAUBER, Judge Appellant mortgage company challenges the district court's summary judgment in favor of respondent purchaser and her lender, arguing that the court erred as a matter of law in finding that respondent was a bona fide purchaser because she was charged with constructive notice of appellant's underlying priority mortgage interest in her property. Because respondent is charged with constructive notice of the mortgage that appeared in the county's grantor-grantee index, we reverse. FACTS On March 21, 2000, James and Nancy Krueger purchased and acquired legal title to a parcel of land (the Hinshaw property). On May 13, 2004, they purchased two additional parcels of land (parcels 1 and 2) and simultaneously executed a mortgage securing both these parcels and the Hinshaw property in favor of appellant lender MidCountry Bank (MidCountry). On May 19, 2004, they delivered the warranty deed conveying parcels 1 and 2, and MidCountry's mortgage securing parcels 1, 2, and the Hinshaw property to the Scott County Recorder for recording. The Scott County Recorder's office, as required by statute, maintains two indices: the historically primary grantor-grantee index, which indexes recorded real estate

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documents by parties' names; and the more recently required tract index, which indexes recorded real estate documents by legal description. During the recording process of MidCountry's mortgage, the Scott County Recorder neglected to index the legal description for the Hinshaw property as one of three parcels encumbered by the MidCountry mortgage on the tract index.1 The effect of this error was that the MidCountry mortgage did not appear in the tract index for the Hinshaw property. The MidCountry mortgage was, however, properly and timely recorded, and assigned document number A657036. The MidCountry mortgage was indexed in the Scott County grantor-grantee index in association with the Kruegers' names as an encumbrance against parcels 1, 2, and the Hinshaw property. Thus, a search of the grantor-grantee index would reveal the document number of MidCountry's mortgage (A657036), and upon viewing the mortgage document one would find that it encumbered the Hinshaw property. In 2006, respondent Cherolyn Hinshaw sought to purchase the Hinshaw property from the Kruegers. Hinshaw hired Burnet Title, Inc., to examine the title to the Hinshaw property. Burnet Title, Inc.'s abstractor examined the Scott County tract index, and found no encumbrance indexed against the Hinshaw property. The abstractor admits that

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Scott County engages in a practice it calls "cloning" when it indexes documents. Essentially, if two documents affecting one property are delivered to the recorder's office, the county copies or "clones" the legal description from the first document to the second document so as to avoid typing the information into the system twice. Here, it appears that the Recorder erred in that it cloned the two newly acquired Krueger parcels from the warranty deed to the companion MidCountry mortgage, neglecting to observe that the companion mortgage encumbered three parcels, including the Hinshaw property. 3

she did not examine Scott County's grantor-grantee index before closing on the Krueger to Hinshaw transaction. On May 12, 2006, Hinshaw closed on her purchase of the Hinshaw property. The Kruegers delivered a warranty deed, and simultaneously Hinshaw executed a mortgage deed in favor of her lender PHH Home Loans LLC (PHH). On May 31, 2006, the Hinshaw deed and PHH mortgage were properly recorded with the Scott County Recorder, in both indices, as documents numbered A740490 and A740491, respectively. The underlying MidCountry mortgage was not satisfied at closing. Some time thereafter the Kruegers stopped making their mortgage payments to MidCountry. In October 2006, MidCountry brought a judicial foreclosure action against the Kruegers, Hinshaw, and PHH. On October 18, 2006, MidCountry delivered a notice of lis pendens on the Hinshaw property to the Scott County Recorder for recording. It appears that in late October 2006, Scott County corrected its records by indexing MidCountry's mortgage in the tract index for the Hinshaw property. The mortgage foreclosure lis pendens was indexed in the Hinshaw tract index in March 2007. MidCountry pursued its judicial foreclosure action in the Scott County District Court by a summons dated October 3, 2006, naming the Kruegers, Hinshaw, and PHH as defendants. The parties made cross-motions for summary judgment. MidCountry argued that it was entitled to summary judgment because, while its mortgage interest in the Hinshaw property did not appear in the Scott County tract index, it did appear in conjunction with the Kruegers' names in the grantor-grantee index, which Hinshaw was obligated to search. MidCountry claimed that Hinshaw could not be a bona fide 4

purchaser because she was charged with constructive notice of the contents of the documents recorded in both indices. Hinshaw and PHH argued that MidCountry's mortgage was not properly recorded because it did not appear as an encumbrance in Scott County's tract index until October 2006; therefore, Hinshaw did not have constructive notice at the time she purchased the Hinshaw property in May 2006. Hinshaw claimed she was a bona fide purchaser, against whom MidCountry's mortgage interest was void. The district court found that MidCountry's prior mortgage was not properly recorded because the tract index searches did not reveal that it encumbered the Hinshaw property. The court held that the date, time stamp, and recording document number on the MidCountry mortgage were not evidence that it was properly recorded. Thus Hinshaw and PHH, who recorded their interests in the Hinshaw property in May 2006, could not be charged with actual, implied, or constructive notice of MidCountry's mortgage, and were entitled to judgment as a matter of law. MidCountry brought this appeal. ISSUES I. Did the district court err in granting summary judgment to Hinshaw on the basis that she was a bona fide purchaser? Did the district court err in failing to grant summary judgment to MidCountry on the basis that its prior mortgage was properly recorded? ANALYSIS I. MidCountry contends that the district court erred in granting Hinshaw summary judgment and ruling that she was a bona fide purchaser. "On an appeal from summary 5

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judgment, we ask two questions: (1) whether there are any genuine issues of material fact and (2) whether the [district] court[] erred in [its] application of the law." State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). Here, the factual issues are not in dispute and the only question we must decide is whether the district court erred as a matter of law. A reviewing court is not bound by and need not give deference to a district court's decision on a purely legal issue. Modrow v. JP Foodservice, Inc., 656 N.W.2d 389, 393 (Minn. 2003). The Minnesota Recording Act protects the property interests of purchasers of property who purchase in good faith, for valuable consideration, and who properly record their interests: Every conveyance of real estate shall be recorded in the office of the county recorder of the county where such real estate is situated; and every such conveyance not so recorded shall be void as against any subsequent purchaser in good faith and for a valuable consideration of the same real estate, or any part thereof, whose conveyance is first duly recorded, and as against any attachment levied thereon or any judgment lawfully obtained at the suit of any party against the person in whose name the title to such land appears of record prior to the recording of such conveyance. Minn. Stat.
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