Minn. SC rules against 1st Fidelity in foreclosure case

ST. PAUL, Minn. (Legal Newsline) - The Minnesota Supreme Court has remanded a foreclosure case back to the trial court because the mortgage holder failed to "strictly comply" with the "foreclosure by advertisement" statute.

Justice Wilhelmina Wright wrote the opinion, released by the court on April 17.

In 2005, Doris Ruiz executed a promissory note on a duplex in Minneapolis along with a mortgage deed securing the indebtedness to Chase Bank, NA.

After the mortgage was assigned to 1st Fidelity in November of 2009, 1st Fidelity sent Ruiz a demand letter. 1st Fidelity did not respond to the letter or "cure the default" and so the lien holder commenced foreclosure proceedings "by advertisement," according to the opinion.

1st Fidelity purchased the property at the foreclosure sale on Nov. 30, 2010, and Ruiz failed to redeem the property in the allowable time.

After the sale, Ruiz filed a complaint alleging four claims:

-Failure to strictly comply with the assignment recording requirement, Minn. Stat. § 580.02(3);

-Failure to strictly comply with the notice of pendency of foreclosure requirement, Minn. Stat. § 580.032, subd. 3;

-Failure to strictly comply with the pre-foreclosure counseling notice requirement, Minn. Stat. § 580.021, subd. 2; and

-Wrongful eviction, in violation of Minn. Stat. §§ 557.08-.09 (2012).

Ruiz subsequently amended the complaint to include a quiet-title action, as well, and sought both a declaration that the sale was null and void and monetary damages on all the claims.

The district court dismissed Ruiz's complaint for failure to state a claim, although there were several instances where 1st Fidelity had not strictly complied with the statutes at issue. The court held that a "substantial-compliance standard applied to the statutory requirements at issue" and 1st Fidelity "had at least substantially complied with the assignment and notice of pendency provisions."

The Court of Appeals reversed the district court, holding that a strict compliance standard applies to the Minnesota foreclosure by advertisement process. The state Supreme Court granted 1st Fidelity's petition for review.

"Foreclosure by advertisement is governed by Minn. Stat. ch. 580. An alternative to foreclosure by action, foreclosure by advertisement was devised to avoid the delay and expense of judicial proceedings," Wright wrote.

"Foreclosure by advertisement provides a foreclosing party with a faster and more efficient means to foreclose and allows a party to foreclose in the absence of judicial supervision. A foreclosing party may foreclose by advertisement pursuant to a power of sale in the mortgage, but the exercise of that power is regulated by statute.

"Although 1st Fidelity argues that it strictly complied with this statute, this argument is founded on 1st Fidelity's contention that the statute requires the recording of all assignments of the mortgage before the foreclosure sale, rather than before the initiation of foreclosure by advertisement proceedings.

"Ruiz contends that strict compliance with foreclosure by advertisement statutes is required, and she maintains that 1st Fidelity failed to strictly comply with the assignment recording requirement, rendering the foreclosure void."

Alternatively, 1st Fidelity argued that it needed only to "substantially comply" with the statutory requirements and the foreclosure was not voidable because Ruiz had not established that she was the "intended beneficiary of the protection afforded by the statutory requirements" and that any failure to strictly comply with the statutes was prejudicial to her.

"[T]he plain meaning of section 580.02(3) requires all assignments of the mortgage to be recorded before the mortgagee has the right to engage in the process of foreclosure by advertisement," Wright stated.

"Additionally, in light of the statutory language that recording all assignments of the mortgage is 'requisite' to make such foreclosure 'by advertisement,' the statute unambiguously mandates strict compliance.

"Having concluded that section 580.02(3) requires a foreclosing party to record all assignments of the mortgage before the foreclosing party has the right to begin the foreclosure by advertisement process and that the recording requirement must be strictly complied with, we now determine whether 1st Fidelity strictly complied with the statute.

"1st Fidelity argues that the recording date of the third assignment should relate back to the recording date of the second assignment of the mortgage, because the third assignment was a 'corrective assignment.' We are not persuaded.

"The case on which 1st Fidelity relies to advance this argument held that a corrective mortgage related back to the date of execution and delivery of an earlier mortgage that contained a mutual mistake when 'full notice of the nature, character, and purpose of the [corrective] mortgage was given in the instrument itself, and would have been discovered upon examination of its record.'

"Here, the third assignment does not relate back to the recording of the second assignment."

Having concluded that the foreclosure was void for failure to strictly comply with the statute, the court declined to address the other arguments advanced by the parties.

"In light of our decision that the foreclosure is void for failure to strictly comply with Minn. Stat. § 580.02(3), we remand to the district court for further proceedings on Ruiz's wrongful-eviction claim," Wright wrote.