|
by Andy Jacobson
The Minnesota Supreme Court recently decided In re Collier, a controversial Torrens property case covered in a previous edition of this newsletter. In Collier, Collier purchased a Torrens registered property from its owner, at a fraction of the property's value, following a foreclosure by M&I Bank on a mortgage on the property. Collier was aware of M&I's mortgage and foreclosure, and had previously approached M&I about buying the property following the foreclosure. In performing some title research, Collier discovered that M&I had never properly registered its mortgage on the property with the Registrar of Titles, as required for Torrens registered properties. M&I's mortgage was inadvertently recorded in the abstract property records, rather than registered in the Torrens records.
After purchasing the property from the original owner, Collier quickly registered his interest in the property with the Registrar of Titles and then commenced an action to clear title to the property of the M&I mortgage and related sheriff's certificate. Collier took the position that the M&I mortgage did not constitute an encumbrance on the property under Minnesota's Torrens statutes, because the mortgage had not been properly registered and thus did not appear on the certificate of title for the property.
The Court of Appeals agreed with Collier, holding that an interest that was not properly registered in the Torrens records could not technically constitute an “encumbrance” or an adverse interest in the property. The Court of Appeals reasoned that until such proper registration occurred, M&I's interest in the property was merely a private contract right between the prior owner and M&I, and M&I's interests did not impact Collier's title to the property. The Court of Appeals went on to hold that even Collier's actual knowledge of the M&I's mortgage was insufficient to prevent Collier from being a “good faith” purchaser under the applicable Torrens statute (Minnesota Statute Section 508.25). The Court of Appeals justified its decision on one of the fundamental principles of Torrens law -- that a purchaser need look no further than the certificate of title to determine the existence of any adverse interests in a property.
In its recent decision, the Supreme Court reversed the Court of Appeals decision in Collier, holding that a purchaser of Torrens property who has actual knowledge of a prior, unregistered interest in the property is not a "good faith" purchaser under Section 508.25 and is therefore subject to known, prior, unregistered interests. The Supreme Court noted that the lower court's interpretation of the pertinent Torrens statute had the practical effect of eliminating the significance of the "good faith" requirement from Section 508.25. After reviewing the history of the Torrens statutes and past case law on the topic, the Court observed that Minnesota legislature did not eliminate the application of the doctrine of actual notice when it enacted the Torrens system.
The Collier decision will be welcomed by many real estate practitioners as a triumph of common sense and fair play. It is important to note, however, that the doctrine of actual notice is narrow in scope. As a result, the recent Collier decision does not diminish the importance of paying close attention to the distinctions in the treatment of abstract versus Torrens registered property and acting accordingly. In this instance, M&I would likely have lost had it not been able to meet its burden of proof by showing that Collier had actual knowledge of the prior M&I mortgage.
|
|
|
|
