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U.S. Bank National Association v. RBP Realty, LLC

Court of Appeals of Minnesota

December 27, 2016

U.S. Bank National Association, as trustee, successor-in-interest to Bank of America, N.A., as trustee, successor to Wells Fargo Bank, N.A., as trustee for the Registered Holders of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series, acting by and through its special servicer CW Capital Asset Management, LLC, Respondent (A16-0073), Appellant (A16-0258),
v.
RBP Realty, LLC, Appellant (A16-0073), Respondent (A16-0258).

         Ramsey County District Court File No. 62-CV-14-2199

          Thomas F. De Vincke, Kathleen M. Martin, Patrick B. Steinhoff, Malkerson Gunn Martin LLP, Minneapolis, Minnesota (for U.S. Bank National Association)

          Edward P. Sheu, Bradley F. Williams, Best & Flanagan LLP, Minneapolis, Minnesota (for RBP Realty, LLC)

          Considered and decided by Reilly, Presiding Judge; Halbrooks, Judge; and Johnson, Judge.

         SYLLABUS

         A borrower's waiver of the statutory right to redeem foreclosed property in a foreclosure by advertisement is unenforceable.

          OPINION

          JOHNSON, Judge

         A company borrowed $7, 500, 000 and executed a mortgage on commercial real property in favor of the lender. The company later defaulted on the loan. After the default, the borrower and the lender entered into a written pre-negotiation agreement, in which the borrower agreed to, among other things, waive its statutory right to redeem the mortgaged property in the event of a foreclosure sale. The lender later initiated a foreclosure by advertisement and then purchased the mortgaged property in the foreclosure sale for $4, 250, 000. The borrower sought to redeem the property, but the lender objected, relying on the borrower's waiver of its right to redeem. The district court ruled that, as a matter of law, the borrower's waiver of its right to redeem is unenforceable. We conclude that the district court was correct in that ruling. We also conclude that the district court did not err in deciding the other issues that have been raised on appeal. Therefore, we affirm.

         FACTS

         In December 2006, RBP Realty, LLC, borrowed $7, 500, 000.00 from Wachovia Bank. In connection with the loan, RBP granted Wachovia a mortgage on commercial property in St. Paul known as Riverview Business Plaza. At the time of the loan, RBP also executed an assignment agreement, which gave Wachovia the right to receive rental income from the mortgaged property in the event of a default. Wachovia later assigned all of its interests in the note, the mortgage, and the assignment to a trust. U.S. Bank now is the trustee of that trust and, thus, is acting on behalf of the lender.

          In June 2013, RBP defaulted on the loan. In September 2013, U.S. Bank and RBP entered into a five-page letter agreement, which they describe as a pre-negotiation agreement, to establish terms by which they would discuss a possible resolution of RBP's default. Paragraph 16 of the pre-negotiation agreement states, "Borrower waives its right of redemption . . . ." The parties proceeded to negotiate but did not reach a resolution. In March 2014, U.S. Bank initiated a foreclosure by advertisement. The notice of foreclosure sale states, "The time allowed by law for redemption by Mortgagor or Mortgagor's personal representatives or assigns is six (6) months after the date of sale."

         U.S. Bank also pursued other means of recovering loan principal and interest. In April 2014, U.S. Bank commenced this action in district court, seeking the appointment of a limited receiver pursuant to section 576.25, subdivision 5(a), of the Minnesota Statutes. In June 2014, the district court appointed a limited receiver, with "all powers necessary and usual in such cases for the protection, possession, control, management, maintenance, and operation of the Property during the pendency of this action, " and "all of the powers and authority usually of a limited receiver under Chapter 576 of the Minnesota Statutes and reasonably necessary to accomplish the purposes" of the receivership.

         The sheriff conducted a foreclosure sale on July 23, 2014. At the time of the foreclosure sale, RBP owed U.S. Bank approximately $8, 900, 000. U.S. Bank, on behalf of the trust, submitted the highest bid of $4, 250, 000. In November 2014, RBP asked the sheriff for information about the amount needed to redeem the property. U.S. Bank refused to provide the sheriff with the redemption amount on the ground that RBP had waived its right to redeem. RBP brought a motion in which it argued that the district court's June 2014 order appointing the receiver had authorized RBP to redeem the property after a foreclosure sale. U.S. Bank moved to amend its complaint to add a request for a declaratory judgment that RBP's waiver of its right to redeem is enforceable. On December 29, 2014, the district court heard oral arguments on RBP's motion. Two days later, the district court ruled that RBP's waiver is unenforceable and granted RBP's motion, thereby allowing RBP to redeem the foreclosed property.

         In early February 2015, RBP exercised its statutory right to redeem by paying $4, 764, 771.29 to the sheriff. The sheriff issued a certificate of redemption, which was recorded with the registrar of titles. In late February 2015, the district court denied U.S. Bank's motion to amend the complaint. On the same day, the district court issued an order terminating the receiver's possession and management of the property pending a final report and the discharge of the receiver.

         In March 2015, the receiver submitted a final report to the district court and asked to be discharged. See Minn. Stat. § 576.38, subd. 2 (2016). RBP objected to three items in the final report that reflected disbursements to U.S. Bank. In November 2015, the district court overruled RBP's objections to the first and second items and sustained RBP's objection to the third item. In December 2015, the district court issued an order discharging the receiver and ordering the entry of final judgment.

         U.S. Bank appeals from the December 2014 order, the February 2015 order, and part of the November 2015 order. RBP appeals from parts of the November 2015 order. We consolidated the appeals.

          ISSUES

          I. Is RBP's waiver of its statutory right to redeem the mortgaged property enforceable? II. Did the district court err by denying U.S. Bank's motion to amend the complaint?

         III. Did the district court err in its rulings on RBP's objections to the receiver's ...


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