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Jay Novak, et al v. Tmst Home Loans

April 8, 2013

JAY NOVAK, ET AL., RESPONDENTS,
v.
TMST HOME LOANS, INC., APPELLANT.



Washington County District Court File No. 82-CV-11-2101

The opinion of the court was delivered by: Ross, Judge

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2012).

Affirmed

Considered and decided by Peterson, Presiding Judge; Ross, Judge; and Chutich, Judge.

UNPUBLISHED OPINION

ROSS, Judge

Mortgage Electronic Registration Systems (MERS) assigned to mortgage company TMST Home Loans a mortgage recorded later than a mortgage held by private lenders Jay and Jennifer Novak. The Novaks commenced a foreclosure action naming the mortgage debtors and MERS but not TMST. TMST learned of the foreclosure and intervened only after the Novaks prevailed in a summary judgment decision that deemed their mortgage superior. TMST appeals from the district court order denying its motion to reopen the mortgage-priority judgment, arguing that the Novaks' failure to name TMST as a party denied it the opportunity to conduct discovery that might produce evidence that TMST's mortgage has priority on an equitable-subrogation theory. Because TMST did not meet its burden of showing a reasonable defense on the merits, we affirm the district court's order.

FACTS

Walter and Amy Jungbauer borrowed $200,000 from their friends, Jay and Jennifer Novak, to fund High Point, a struggling business venture. In addition to receiving a promissory note and personal guarantees, the Novaks secured the loan with a mortgage on the Jungbaeurs' Washington County home-a mortgage the Novaks recorded on August 19, 2005. Two weeks after the Novaks recorded their mortgage, the Jungbauers obtained a loan from Bremer Bank, secured by a mortgage held by Mortgage Electronic Registration Systems (MERS). The Jungbauers used the Bremer Bank proceeds to extinguish two pre-existing mortgages, but not the Novak mortgage. MERS assigned its mortgage interest to TMST Home Loans in November 2009.

The Jungbauers eventually defaulted on the loan secured by the Novak mortgage, and the Novaks began a foreclosure action in April 2011. The Novaks named and served High Point, the Jungbauers, and MERS, but not TMST. Only the Jungbauers filed an answer to the foreclosure complaint, and neither High Point nor MERS appeared in court. After discovery, the district court granted summary judgment to the Novaks. It found the Jungbauers to be in default and held that the Novaks were entitled to foreclose. It awarded a deficiency judgment against the Jungbauers and, most relevant here, it determined that the Novaks' mortgage was "prior and superior to any interest in the Real Property held by Defendants."

TMST first heard of the Novaks' foreclosure action after the district court entered its priority judgment. TMST tried but failed to settle through negotiations with the Novaks, and it then intervened and filed a motion to vacate the district court's judgment under rule 60.02 of the Minnesota Rules of Civil Procedure.

The district court conducted a hearing at which TMST argued that the district court should vacate the judgment because it had decided the mortgage priority without considering TMST's interest. It contended that the Novaks' failure to name TMST as a party had denied it the opportunity to conduct discovery that might have revealed facts that could undermine the Novaks' claim to first priority despite the order of recording. The district court denied TMST's motion, ruling that TMST had made "no showing [of a] reasonable defense on the merits," reasoning that TMST's "whole argument comes down to maybe we can find something. And that's not a showing at all."

TMST ...


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