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In Re the Matter of the Petition of Mortgage Electronic Registration

April 22, 2013


Hennepin County District Court File No. 27-ET-CV-11-0518


SYLLABUS In proceedings subsequent to initial registration, (1) preponderance of the evidence is the standard of proof for the amendment of the certificate of title, and (2) district courts may apply the doctrines of contemporaneous transaction and instantaneous seisin so as to accurately depict the real estate transaction and avoid an absurd result.

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


Considered and decided by Cleary, Presiding Judge; Hooten, Judge; and Smith, Judge.



Appellants challenge the district court's grant of summary judgment and order amending the certificate of title to appellants' Torrens property so that respondent's mortgage precedes appellants' deed in priority. Because we conclude that the district court correctly applied the equitable doctrine of instantaneous seisin, we affirm.


On February 23, 2005, Appellants Kurt and Lisa Pflug granted a mortgage to Wells Fargo Bank to secure a corresponding $400,000 note to purchase a home in St. Bonifacius. Appellants had difficulty keeping up with their mortgage payments, and in April of 2007, devised a plan to "sell" the home to Kurt Pflug's sister, Karin Pflug, because she could qualify for and obtain a mortgage with better payment terms. Karin, as a straw-buyer, was then to convey the home back to appellants and herself with the understanding that appellants would maintain and live in the home and make the mortgage payments. Kurt provided the loan application paperwork to Karin, who filled it out and gave it back to him. Karin's application for a mortgage was approved by Aegis Wholesale Corporation. Appellants and Karin dispute whether appellants agreed to assume the mortgage payments. Karin claimed that appellants agreed to assume the mortgage and remove Karin from the title within two years, whereas appellants presented an affidavit stating that "[t]here had been some discussions about us assuming the mortgage at some point in the future, but we never agreed on any terms."

The closing date of the transaction was May 24, 2007, at which time appellants and Karin met at appellants' home with a notary to execute several documents, including the three documents at issue here. These documents included a deed from appellants to Karin; a deed from Karin to appellants and herself, as joint tenants; and a mortgage on the property executed only by Karin. Karin and appellants also signed, among other documents, a settlement statement detailing closing costs and indicating that a new loan was being taken out that would satisfy the old loan.

The documents themselves do not indicate the precise order in which they were signed. Karin stated that she did not remember the order in which the documents were signed, but Kurt stated in an affidavit that:

I distinctly remember the order in which the various instruments were signed and executed. First, my wife and I conveyed the property by warranty deed to Karin Pflug. Second, Karin Pflug conveyed the property to Lisa, Karin, and myself as joint tenants. After that, Karin signed a mortgage on the property. The reason I remember that this was the order in which the documents were signed is because my wife and I finished the conveyances in the kitchen of the house with Karin and the notary. After we were finished, my wife and I left the room so that Karin could finish the mortgage transaction on her own. I did not need to be with her at this time, because Lisa and I never intended to have any obligations under the mortgage, which we did not sign.

However, Karin stated in an affidavit that "the refinancing plan, as it was understood by me, was for [appellants] to deed their home to me, then for me to obtain a mortgage on the home, and then for me to deed a 2/3[rds] interest in the home back to" appellants. Karin's affidavit also states that she did not know that her mortgage would not encumber the entire property and that she would not have entered into the transaction had she known she would have been ultimately responsible for the entire mortgage without the security of the home. There is little evidence from before the transactions indicating the intent of the documents. However, the record contains a purchase agreement dated May 10, 2007, which states in type that "[s]eller to gift 20% down payment for Buyer," and, in unknown handwriting, "[a]lso 3% seller contributions." The purchase agreement lists a purchase price of $530,000; when 20% is subtracted from that amount, the remaining $424,000 is the amount of debt incurred by Karin in this transaction.

After the closing, the documents were sent to a title company in Baltimore, Maryland. An employee of the title company sent the documents to the Hennepin County Registrar of Titles to be registered. The employee indicated that it was his intent for the deed from appellants to Karin to be registered first, the mortgage signed by Karin to be registered second, and the deed from Karin to appellants and herself to be registered last. In communicating this intent, the employee wrote "2 of 3" on the mortgage document, near the return address for the title company, but did not write anything on the other documents. According to the stamps on the documents themselves, all three were registered at precisely the same minute, but the registration numbers given to the documents indicate that the deed from appellants to Karin was registered first, the deed from Karin to appellants and herself was registered second, and Karin's mortgage was registered third. Upon return of the documents, the employee saw that the mortgage was registered third, after the two deeds, and called the registrar of titles to address the issue, but was not able to resolve the situation. As a result, the property's certificate of title indicates that the mortgage only encumbers Karin's one-third interest in a joint tenancy on the property. This has the effect of limiting the interest on which the respondent mortgagee can now foreclose to only an undivided one-third of the property, while appellants hold two-thirds of the property free and clear of the mortgage.

On December 15, 2008, appellants' application to assume the mortgage was denied. By February 5, 2010, the mortgage was in default and Karin retained an attorney to try to transfer the mortgage and loan to appellants. On June 22, 2010, Karin executed a power of attorney so that Kurt could undertake negotiations on her behalf in an attempt to reduce the monthly mortgage amount to an affordable level. Because no refinancing was obtained, Karin revoked the power of attorney because she "concluded that [appellants] ha[d] no intention of any meaningful cooperation in connection with their loan." Notably, Karin stated in an affidavit that "since the commencement of the current action, I believe the goal of [appellants] has changed from one of attempting to renegotiate the terms of the existing mortgage, to the goal of escaping liability for the new mortgage undertaken by me at the request of" appellants.

On March 18, 2011, respondent Mortgage Electronic Registration Systems, Inc., (MERS), as the nominee of the mortgagee Aegis Wholesale Corporation, filed a petition to reverse the order of the documents on the certificate of title and declare that the mortgage covered the entire property, rather than just Karin's one-third interest. The Examiner of ...

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