Minnesota Torrens Law Clarified

Almost two years ago I wrote here about a Minnesota mechanics lien case where the Minnesota Court of Appeals further muddied the waters surrounding Minnesota’s Torrens system of land registration.  The Minnesota Supreme Court has since reviewed and ruled in the case and has reversed the lower court’s questionable decision.

The facts of the case, entitled Imperial Developers, Inc. v. Calhoun Development, LLC, 790 N.W.2d 146 (Minn. 2010), as written in my earlier post, are as follows:  one developer sold three lots to another developer, who financed the purchase and granted mortgages on the three lots to two separate lenders.  The Hennepin County Registrar of Titles recorded the warranty deed and the mortgages, but failed to memorialize the mortgages on the certificate of title for two of the three lots.  By the time the error was corrected, two mechanics lien claimants completed work on one of the lots and recorded mechanics liens against that lot.  Predictably, the developer defaulted on the mortgages and failed to pay the mechanics lien claimants, which landed everyone in court fighting over priority to foreclose upon the property. 

The District Court found that the mortgages were of record and the mechanics lien claimants had actual knowledge of them, even though they were not memorialized on the certificates.  The Court of Appeals, in reversing the District Court’s finding as to the mortgages being “of record”, concluded that to be “of record” for purposes of the Torrens system, Minnesota Statutes Section 508.55 requires that a mortgage must be filed for recording and memorialized on the certificate of title; one without the other is not sufficient.  The Court of Appeals, in remanding the case back to the District Court for further determination of whether the mechanics lien claimants had “actual knowledge” of the mortgages given the reversal on whether the mortgages were “of record”, alluded to the mistake by the Hennepin County Registrar in not memorializing the mortgages on the appropriate certificates, and suggested that the lenders should seek redress through the general assurance fund established by Minnesota Statutes Section 508.76, subd. 1. 

At the close of my January 2010 post I offered my prediction on how the Supreme Court would handle the case upon further appeal:

It is my prediction that this case will be appealed to the Minnesota Supreme Court and Judge Schellhas’ dissenting opinion will be adopted by a majority of the Justices. 

Lo and behold, that’s exactly what happened.  Reversing the Court of Appeals decision, the Supreme Court held that because a mortgage document is “of record” under Minn. Stat. §514.05, subd. 1, when it is filed with the registrar, date and time stamped, and assigned a document number, the mortgages had priority over the mechanics liens in the foreclosure proceeding.

The debate over whether Minnesota needs to maintain the separate Torrens system of registration will continue, but at least one point of confusion has been resolved thanks to the Minnesota Supreme Court’s decision in Imperial Developers, Inc.