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First Construction Credit, Inc. v. Simonson Lumber of Waite Park

June 10, 2003

FIRST CONSTRUCTION CREDIT, INC., RESPONDENT,
v.
SIMONSON LUMBER OF WAITE PARK, INC., APPELLANT.



Crow Wing County District Court File No. CX01781

Considered and decided by Toussiant, Chief Judge, Klaphake, Judge, and Shumaker, Judge.

SYLLABUS BY THE COURT

A recorded real estate purchase agreement that contains a non-merger clause is not sufficient to create a security interest in the property unless it also contains an express intention to do so.

The opinion of the court was delivered by: Gordon W. Shumaker, Judge

Affirmed

OPINION

Appellant Simonson Lumber of Waite Park, Inc. (Simonson Lumber) foreclosed a mortgage and bought the property at the foreclosure sale. Respondent First Construction Credit, Inc. (First Construction) later redeemed the property from Simonson Lumber. To redeem the property, First Construction paid Simonson Lumber $14,000 more than was necessary to redeem the property from the foreclosed mortgage. It did so because Simonson Lumber alleged that it held a purchase agreement for the property that created an additional $14,000 security interest in that property. Because First Construction believed that the purchase agreement did not create an additional secured interest in the property, First Construction paid the additional $14,000 under protest.

First Construction then brought an action seeking a district court order to determine the rights and priorities of redemption from the sheriff's sale. In dispute was whether the original purchase agreement created a second lien or mortgage upon the real estate and, hence, whether First Construction had to pay the additional $14,000 to fully redeem the real estate. First Construction also wanted the district court to cancel the recorded notice of lis pendens filed by appellant Simonson Lumber upon the redeemed real estate. Finally, First Construction sought costs, disbursements, and attorney fees.

The district court determined that the purchase agreement did not constitute a second lien or mortgage upon the real estate and awarded First Construction a judgment against Simonson Lumber for $14,000 (plus pre-judgment interest), which constituted First Construction's overpayment on redemption. The district court also canceled the notice of lis pendens and awarded First Construction $750 in attorney fees. After the district court denied Simonson Lumber's motion for reconsideration, Simonson Lumber brought this appeal. On appeal, Simonson Lumber argues that the purchase agreement created a second lien or mortgage and, therefore, was secured by the real estate. First Construction also challenges the amount of attorney fees it was awarded.

FACTS

First Construction financed a construction project for Oscarson Development Company (Oscarson Development), who bought unimproved real estate from the Lutheran Church of the Cross (the church) for $196,000. Oscarson Development intended to build 28 townhouses on the property, and the purchase agreement the parties signed on May 4, 1996, provided that, upon the sale of each unit, Oscarson Development would pay $7,000 to the church and would deposit $1,000 in escrow. The escrow account was to be used for construction expenses if the church elected to build a community center for the townhouse residents.

To secure payment of the purchase price of the land, Oscarson Development gave the church a purchase-money mortgage. Oscarson Development also signed a promissory note for the purchase price, and Glen Oscarson personally guaranteed the note. On May 4, 1996, the parties contemporaneously signed the mortgage, note, guarantee, and purchase agreement that included a non-merger clause. The church recorded the mortgage and the purchase agreement in August of 1996.

In return for financing the project, First Construction received a second mortgage on the real estate. Subsequently, Oscarson Development gave a third mortgage to appellant Simonson Lumber, a material supplier, in exchange for Simonson Lumber's release of mechanics' liens Simonson Lumber filed because Oscarson Development failed to pay for materials. Oscarson Development also defaulted on the loan from First Construction.

With 14 lots unsold, there were three mortgages against the property. The church assigned all of its interest in the mortgage and purchase agreement to Simonson Lumber, who then foreclosed the church's purchase-money mortgage. As a lienor, Simonson Lumber bid at the foreclosure sale the mortgage balance plus the $14,000 payable into escrow upon sale of the remaining 14 lots, and thereby purchased the property.

Following the foreclosure sale, First Construction started two successive lawsuits against Simonson Lumber. In the first action, the district court determined that the amount necessary to redeem the purchase-money mortgage was the mortgage balance and that the purchase ...


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