Caseflicks

Court of Appeals of Minnesota • 1986

In re Norwest Bank Metrowest National Ass'n

396 N.W.2d 896 | 1986 Minn. App. LEXIS 5098

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Takeaway

In short, this case holds that a timely third-party tender of the actual mortgage arrearage triggers Minnesota's statutory right of reinstatement; a lender cannot evade that result through an uninvoked acceleration or due-on-sale clause.

Background

Jeffrey Brown borrowed $32,000 from Norwest Bank in 1978 and secured the note with a mortgage containing an optional due-on-sale clause. After Brown fell six monthly payments behind, Norwest notified him that it would accelerate the debt and begin foreclosure if he did not cure the delinquency by July 11, 1982.

Before that deadline, Brown sold the property by contract for deed to D & S Properties, which assigned its vendee's interest to Steven and Nancy Schlesinger. On July 9, the Schlesingers tendered $2,044.31 to Norwest, covering the delinquent principal and interest. Norwest held the check while awaiting transaction documents and the Schlesingers' financial information, then returned it and stated it would accept payment only from Brown. The bank never told Brown or the Schlesingers that it was exercising the due-on-sale clause, and it identified no credit or security risk arising from the transfer.

Norwest foreclosed by sheriff's sale on September 20, 1982. The Deputy Examiner of Titles later concluded, without supporting findings or explanation, that the mortgage had not been reinstated under Minn. Stat. § 580.30 and that the foreclosure sale was valid. The district court adopted that conclusion and confirmed the sale. The Schlesingers appealed.

Issues

Issue #1

Whether the Schlesingers' tender of the mortgage arrearages required reinstatement of the mortgage under Minn. Stat. § 580.30, even though they were the mortgagor's vendees rather than the original mortgagor.

Holding

Yes. Section 580.30 required Norwest to accept the tender, reinstate the mortgage, and abandon the foreclosure proceedings.

Reasoning

The statute provides that, before a foreclosure sale, the mortgagor, owner, junior lienholder, or "any one for them" may pay the amount actually due and cure the default. Its express language therefore permits a third party such as the Schlesingers to make the curative payment. Norwest could not reject an otherwise sufficient tender merely because it came from the purchasers under the contract for deed rather than from Brown.

The statute makes reinstatement mandatory once the actual default is paid. Because the Schlesingers tendered the delinquent principal and interest before the foreclosure sale, Norwest was obligated to reinstate the mortgage and terminate the foreclosure rather than return the payment.

Issue #2

Whether Norwest's acceleration clause made the Schlesingers' tender of only the delinquent installments insufficient to reinstate the mortgage.

Holding

No. An acceleration clause does not require tender of the entire accelerated balance for reinstatement under Minn. Stat. § 580.30.

Reasoning

In Davis v. Davis, the Minnesota Supreme Court held that the statutory phrases "actually due" and "the default actually existing" allow reinstatement through payment of the delinquent amounts and statutory costs, without payment of the full principal balance that an acceleration clause might purport to make due.

Davis also described the reinstatement statute as a response to the hardship foreclosure imposed on mortgagors during economic distress. That protective purpose supports construing the statute to preserve a meaningful opportunity to cure a payment default. The Schlesingers' payment of the arrearages was therefore sufficient despite the mortgage's acceleration provision.

Issue #3

Whether the mortgage's due-on-sale clause allowed Norwest to reject the tender and continue foreclosure after Brown transferred the property without the bank's consent.

Holding

No. Norwest could not rely on the due-on-sale clause to defeat statutory reinstatement.

Reasoning

Norwest did not properly preserve the due-on-sale argument in the trial court. Further, the Deputy Examiner's findings and the district court's order did not supply facts or reasoning supporting the conclusion that the reinstatement statute was inapplicable, as required for adequate findings under Minnesota procedural rules.

Even if the issue had been properly presented, the clause was optional rather than self-executing. Norwest never notified Brown or the Schlesingers that it was exercising its option to accelerate because of the transfer. Its statement that it would accept payment only from Brown did not amount to notice that it had invoked the due-on-sale clause.

The clause was likely unenforceable on these facts in any event. Under Viereck, the federal Garn-St. Germain Act's authorization of due-on-sale enforcement did not apply retroactively to this pre-October 15, 1982 loan. Under then-applicable Minnesota law, acceleration of a pre-June 1, 1979 conventional mortgage on borrower-occupied residential property because of a transfer was per se unreasonable absent a valid credit or security risk. Norwest showed no such risk from the Schlesingers' purchase.