Update (December 17, 2012): In Mattson Ridge v. Clear Rock Title, the Minnesota Supreme Court declined to hold a title insurer liable for damages in excess of policy limits when it wrongfully denied coverage. The Court did, however, stick the title insurer with a whopping bill: [...]]]>

Update (December 17, 2012): In Mattson Ridge v. Clear Rock Title, the Minnesota Supreme Court declined to hold a title insurer liable for damages in excess of policy limits when it wrongfully denied coverage. The Court did, however, stick the title insurer with a whopping bill: One over 100 times greater than it would have been if the title insurer had simply honored its policy.

A quick refresher on the facts: Mattson Ridge, a developer, bought vacant land in Chisago City for $1,286,000. Mattson bought title insurance from Ticor Title, LLP in that amount. The legal description of the property included a reference to “the intersection of road leading from the county road at or near Charles Magnuson’s place in Sunrise City.” Despite the ambiguous description (Which county road? Which Charles Magnuson?), Ticor insured against loss or damage due to unmarketability of title.

In 2006, at the market’s peak, Mattson tried to sell the property. The buyer couldn’t get title insurance because of the ambiguous legal description. Mattson tendered a title insurance claim to Ticor. Ticor denied the claim, contending that the ambiguity concerned roadways, which were excluded from coverage. While Ticor denied coverage, the real estate bubble burst and the property value tumbled from the agreed upon peak-of-market sale price of $2.9 Million to $1.3 Million.

Mattson went ahead and hired a lawyer to cure the title defect at a what all agreed was a very reasonable cost ($11,169). Mattson then brought suit against Ticor, seeking not only a refund of the attorneys’ fees and costs, but also the lost profit resulting from Mattson’s inability to sell the property at its market-peak pric

After a trial, the district court awarded Mattson the policy limit of $1,286,000 for its consequential damages, plus Mattson’s legal fees and costs incurred to complete the reformation action. The Minnesota Court of Appeals disagreed with the trial court’s decision to limit Mattson to policy limits, and bumped up the damages award to $1.9 M. That’s when Ticor appealed to the Minnesota Supremes.

 Justice Stras, writing for the Minnesota Supremes, reversed the court of appeals and reinstated the district court’s judgment. As Justice Stras points out, upon tender of a title insurance claim, a title insurer has two principal choices:

1. Take appropriate action to cure the title defect (in which case it is only responsible for the attorneys’ fees and costs related to curing the defect); or,
2. Refuse the claim (in which case it can be held liable for consequential damages arising out of the unmarketable title).

The court held that, because Ticor selected Option 2, it could be held liable for up to the policy limits.

The Court held that Ticor could not be held liable for amounts in excess of the policy limit because Ticor’s breach of contract did not cause the title to be unmarketable. In fact, the parties had stipulated at trial that Ticor could not have completed the title registration any sooner than Mattson had. Justice Stras reasoned:

Because of that stipulation, Ticor’s failure to defend and indemnify Mattson Ridge by timely prosecuting an action to cure the defects in the legal description of the Property was not, and could not have been, the cause of Mattson Ridge’s lost profits.

Mattson would have lost its buyer and been unable to cure before the market crash, regardless of whether Ticor had performed or not.

Justice Stras agreed with the district court that, even though Ticor isn’t liable for damages caused by its own breach (except for the $11,169 of attorneys’ fees), it is responsible for all damages, up to the policy limit, caused by the unmarketability of title.

In this fight, it would seem Ticor has won the battle, but lost the war. Yes, it prevailed before the MN Supreme Court, resulting in an approximately $600,000 reduction in damages. But, it is still stuck having to pay Mattson $1.2 M when, had it honored its policy, it would have paid legal fees of $11,169, and nothing more.

Update (Nov. 11, 2011): The Minnesota Supreme Court has granted the title insurance company’s Petition for Review in the Mattson Ridge case. The Court also permitted both the Minnesota Land Title Association and  the American Land Title Association to submit amicus curiae briefs. Oral argument is scheduled for December 5, 2011. 

Original Post (June 13, 2011): Thanks to a recent Minnesota Court of Appeals decision, title insurance companies will wrongfully deny claims at their peril.  In Mattson Ridge v. Clear Rock Title, the Court held that when an insurance company breaches its contract, the insured can recover damages in excess of the policy limits.

Mattson Ridge, a developer, bought vacant land in Chisago City for $1,286,000.  Mattson bought title insurance from Ticor Title, LLP in that amount.  The legal description of the property included a reference to “the intersection of road leading from the county road at or near Charles Magnuson’s place in Sunrise City.”  Despite the ambiguous description (Which county road? Which Charles Magnuson?), Ticor insured against loss or damage due to unmarketability of title.

When Mattson tried to sell the property, the buyer couldn’t get title insurance because of the ambiguous legal description.   Yet, Ticor denied Mattson’s title insurance claim, contending that the ambiguity concerned roadways, which were excluded from coverage.  While Ticor denied coverage, the real estate bubble burst and property values tumbled.

Had Ticor honored the policy, it would have paid about $11,000 to cure the title defect.  Instead, it got stuck with a bill for well over $1 million.

Image by Refracted Moments.

Original Post (September 8, 2012): In Big Lake Lumber v. Security Property Investments, Inc. et. al, the Minnesota Court of Appeals ruled that a contractor’s mechanics lien can take priority over a [...]]]> Update (November 27, 2012): The Minnesota Supreme Court has accepted Big Lake for review. 

Original Post (September 8, 2012): In Big Lake Lumber v. Security Property Investments, Inc. et. al, the Minnesota Court of Appeals ruled that a contractor’s mechanics lien can take priority over a previously-recorded mortgage only if the contractor’s work related back to “one continuous project of improvement” that started before the mortgage was recorded. Logic would have it that the construction of a house, starting with excavation and continuing through completion, would constitute one continuous project. Not so, says the Minnesota Court of Appeals.

A Fickle Owner Changes His Mind, A Lot

This is the story of a somewhat fickle property owner.  He bought a lot, where he initially planned to build himself a home.  In August 2005, he hired an excavator to clear a path onto the lot.  Then, instead of building a house for himself, he decided he would build a spec home.  A few months later, he entered into an agreement to sell the lot, but without a spec home.  Later still, the new buyer of the lot decided that he wanted a home after all, so plans changed to include a home. The property was sold in October 2006, at which time a lender financed the construction of the home and recorded a mortgage against the property. After the mortgage was recorded, Big Lake Lumber and DesMarais provided labor and material for the construction of the new buyer’s home.

The timeline of this case is important.  Here it is:

• August 2005: Excavator clears path on the property for property owner’s future home.
• October 2006: Bank records mortgage.
• November 2006: Big Lake Lumber provides labor and material for new buyer’s home.
• January 2007:  DesMarais provides labor for new buyer’s home.

When Is Construction Of A Home Not One Continuous Project?

Big Lake Lumber and DesMarais argued that their liens should relate back to the excavator’s 2005 improvement.  Their argument went like this:

The excavator excavated to build a single-family home. Our work was also to build a single-family home.  The construction of a single-family home on the site constituted “one continuous improvement.” Therefore, our lien should relate back to the excavator’s first item of work, and should have priority over the lender’s mortgage.

The Minnesota Court of Appeals rejected this argument. Instead it held as a matter of law that Big Lake Lumber’s and DesMarais’s work was not a part of the same continuous improvement as the 2005 excavation work. Therefore, their liens did not relate back to the 2005 excavation, and the lender’s mortgage had priority over their liens.

The appeals court held that the determination about whether post-mortgage work is part of the same continuous project as the pre-mortgage work should turn on four factors: (1) the parties’ intent; (2) the contracts’ scope; (3) the financing; and, (4) time lapsed. While the court considered each factor, its focus seemed to be overwhelmingly on the intent of the property owner, although he was not a party to the case (he had already defaulted on the mortgage, and walked away from the property).

At the end of the day, the appeals court determined that it wasn’t enough that the pre-mortgage excavation and post-mortgage work all contributed to the construction of a house.  The mere fact that a house resulted from all the work was not sufficient to prove that the house was “one continuous project.” To the contrary, the excavation was done for the original owner, so that he could build a home for himself.  The post-mortgage work was done to build a home for the new buyer.  The court held that different homes = different projects.

Photo by concrete forms.

In Marine Credit Union v. Delefson-Delano, a husband signed a quit claim [...]]]> Grade schoolers know the often harsh rule that once you give something away you can’t take it back.  The Minnesota Court of Appeals recently held that the same applies for a spousal interest in real estate.

In Marine Credit Union v. Delefson-Delano, a husband signed a quit claim deed conveying his interest in property to his wife.  The husband signed the deed so that his wife could sell the couple’s property while he was out of town.  The property, however, was never sold.  Six months later, the wife received a loan, secured by a mortgage against the property.  Only the wife signed the mortgage.  The wife later defaulted on the loan.  The wife defended against the lender’s foreclosure by arguing that the mortgage was invalid because her husband hadn’t signed. (Incidentally, husband didn’t have much to say since, by the time of the lawsuit, the couple were divorced and, the Court tells us, wife hadn’t heard from husband in several years.)

The Minnesota Court of Appeals held that a husband’s signature was not required to make the mortgage valid because the husband had given up his interest in the property by deeding it to the wife. According to the Court, “[H]usband’s quitclaim deed to wife was a valid, unlimited transfer of all of his interest in the homestead to wife, and, as a result, husband’s signature was not required on the subsequent mortgage.”

To many members of Minnesota’s family law bar, this decision seemed like an affront to the commonly held understanding that a spouse holds an “inchoate” interest in jointly held property, which cannot be severed without the spouses signed consent to the precise transfer at issue.  In Marine Credit, the Minnesota Court of Appeals construed the law applicable to spousal interests in property and applied an exception that allowed spouses to convey property between each other.

So, what we teach our children still applies to us adults: Once you give something away, no taksies backsies.

Original Post (Sep. 22, 2011):

In a new published decision, Dimke v. Farr, the Minnesota Court of Appeals has called into question [...]]]> Update (Jan. 27, 2012): On November 22, 2011, the Minnesota Supreme Court denied Naomi Farr’s petition for review.  Looks like, for better or worse, this one is on the books. 

Original Post (Sep. 22, 2011):

In a new published decision, Dimke v. Farr, the Minnesota Court of Appeals has called into question the effectiveness of the statutory process for cancelling residential purchase agreements. Minnesota’s statutory cancellation process afforded sellers three primary benefits: (1) no need for court, (2) finality, and (3) certainty. Has this new decision thrown these benefits out the window?

Before getting into the Dimke decision, a little background on statutory cancellations is in order. The Minnesota legislature has provided for a non-judicial process to cancel residential purchase agreements. The process works like this: If either the buyer or seller refuse to mutually cancel a purchase agreement, either one of them can serve a Notice of Cancellation on the other. If the party served with the Notice believes that the PA should stay in effect, they must go to court and seek an injunction within 15 days. If they don’t, then the PA is deemed cancelled. The principal benefit of this process is that it allows a PA to be cancelled without the need to go to court.

Before Dimke, I also believed the process brought the benefits of certainty and finality: Once you serve the Notice of Cancellation and the deadline to respond expires, the PA is cancelled…done,…finished. How else can a seller feel comfortable entering into a new PA with a new buyer?

The provision of the statutory cancellation statute at issue in Dimke reads like this:

[i]f an unfulfilled condition exists after the date specified for fulfillment in the terms of the purchase agreement for the conveyance of residential real property, which by the terms of the purchase agreement cancels the purchase agreement, either the purchaser or the seller may confirm the cancellation by serving upon the other party to the purchase agreement…a [cancellation] notice.

Now, on to the Dimke case. In Dimke, a seller served a buyer with a Notice of Declaratory Cancellation. The buyer never sought a court order suspending the cancellation.  Instead, the buyer sued the seller, seeking to enforce the purchase agreement. The district court decided that the Notice of Cancellation effectively cancelled the purchase agreement.  Case closed.

The buyer appealed, arguing that the case was not so open-and-shut. According to the buyer, the district court could not declare the PA cancelled without first considering whether the Notice of Cancellation was valid. The Court of Appeals accepted this argument, and held that a Notice of Cancellation under Minnesota Statute 559.217, subd. 4 would be effective only if there was an “unfulfilled condition” in the PA. Otherwise stated, a Notice of Cancellation is not valid unless preceded by an “unfulfilled condition.” On that basis, the Court of Appeals remanded the case back to the district court to decide whether there was an “unfulfilled condition.”

The Dimke case risks depriving sellers of the certainty and finality that they expected from the statutory cancellation proceeding. Now, all but the clearest instances of “unfulfilled conditions” might end up in court, where a judge will have to decide: “Is this really an unfulfilled condition?” Of perhaps greater concern, the Minnesota Court of Appeals seems to have left open the possibility that deciding whether a contract clause is an “unfulfilled condition” presents a genuine issue of material fact. If so, it will require a trial. Ughh!

In the meantime, the moral of this one is clear to me: Before serving a statutory cancellation, a turf warrior must carefully review the PA and the facts and circumstances to make darn sure that there is an unfulfilled condition warranting service of a declaratory cancellation. If not, then a cancellation with a right to cure under Minnesota Statute 559.217, subd. 3 may be the better option.

In Maday v. Grathwohl, the Minnesota Court of Appeals held that a written “Manure Easement” superseded a prior oral promise to deliver all manure to a neighboring farm.  As [...]]]> Oral promises are, by their nature, fleeting and unreliable.  This is apparently even more true when the promise is about manure.

In Maday v. Grathwohl, the Minnesota Court of Appeals held that a written “Manure Easement” superseded a prior oral promise to deliver all manure to a neighboring farm.  As a result, the neighboring farm that wants more manure is, quite literally, SOL.

Maday sold some of his Iowa farmland to the Grathwohl brothers. As a condition for financing the purchase, the Grathwohls’ lender required that the bros also secure a manure easement that would allow for the transportation and disposal of the manure from their hog farm. The manure easement ultimately provided that, in exchange for allowing the Grathwhol bros to dispose of manure on the Maday farmland, Maday would receive discounted fertilizer from the bros.

For a few years after the agreement, Maday would help himself to manure from the pits on the Grathwhol bros’ property.  Eventually, the bros started selling manure to third parties, and Maday didn’t get all the manure he wanted. Maday sued the Grathwhol bros, alleging that they had promised to give him all of their manure as another condition for the manure easement.

The trial court refused to consider evidence of the oral manure agreement, based on the parol evidence rule. That rule requires courts to exclude evidence that contradicts or seeks to modify an integrated written contract.

Maday’s only hope of overcoming the parol evidence rule was to prove that the oral agreement was really about something different than the manure easement agreement (The theory being that, if the oral agreement was about something different, then the evidence would not be inconsistent with the written agreement, and therefore, would be admissible). This was an uphill battle from the start, what with the narrow likelihood that anyone would have two separate agreements about manure.

The Minnesota Court of Appeals agreed with the trial court, that the evidence of the oral promises should be excluded.

The result: Maday was SOL. The lesson: Oral agreements are terribly difficult to enforce.  Make sure you get what you need in writing.

Photo by markie 37.

The one thing I learned in high school is that it’s easier to be a part of a crowd than to stand alone. For a while, I thought I might have been blawging into the wilderness. But, alas, my efforts have been rewarded. Turfwars has been named one of Minnesota’s Top 25 Blawgs [...]]]>  

The one thing I learned in high school is that it’s easier to be a part of a crowd than to stand alone. For a while, I thought I might have been blawging into the wilderness. But, alas, my efforts have been rewarded. Turfwars has been named one of Minnesota’s Top 25 Blawgs by MSBA’s Legal News Digest and Practice Blawg. Here’s what the editors had to say about Turfwars:

Turf Wars caught our attention because blogger Rob Shainess’ posts offer compelling titles and lead paragraphs. It makes the reader want to read the posts which is a sign of a good blog. The posts are also entertaining.

OMG, did they say that my posts…about the law…are entertaining. I couldn’t really ask for a better compliment.

Click here to read the full article and here to check out the other honorees.