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UNITEDSTATESDISTRICTCOURT DISTRICTOFMINNESOTA MAVISHARTMAN;ROGER HARTMAN;andMAULLEE HARTMAN, Plaintiffs, v. MEMORANDUMOFLAW&ORDER CivilFileNo.091618(MJD/LIB) BRIANJ.SMITH;JENNIFER SMITH;MIDWESTEQUITY CONSULTANTS,INC.,a Minnesotacorporation;MIDWEST EQUITYCONSULTANTSINC., anIllinoisCorporation;and PRIMESECURITYBANK, Defendants. JeramieRichardSteinert,SteinertP.A.,CounselforPlaintiffs. CampbellKnutson,CounselforDefendantPrimeSecurityBank. DefendantBryanJ.Smith,prose,DefendantJenniferSmith,prose. DefendantMidwestEquityConsultants,Inc.,norepresentation,default. I. INTRODUCTION

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ThismatterisbeforetheCourtonPlaintiffsMotiontoReconsider[Docket

No.63]andDefendantPrimeSecurityBanks(Prime)MotiontoReconsider [DocketNo.65]thisCourtsSeptember17,2010Order[DocketNo.50].Forthe foregoingreasons,bothmotionsareDENIED. II. FACTUALBACKGROUND TheCourthaspreviouslyarticulatedthefactualbackgroundofthiscasein itsSeptember17,2010Order.Accordingly,theCourtwillnotdescribethefacts indetail.Insummary,thepartiesinthiscaseengagedinanumberofrealestate transactionsconcerningthepropertylocatedat103174thStreet,Victoria, Minnesota(hereinaftertheSubjectProperty).Withregardtothese transactions,PlaintiffsfiledathirteencountComplaint,seekingnumerousforms ofrelief,underanumberofdifferenttheories.OnApril22,2010,Defendant PrimeSecurityBank(Prime)filedaMotionforSummaryJudgment[Docket No.21]onallclaimsfiledagainstit.Plaintiffsresponded,statingthattheonly claimsasserteddirectlyagainstPrimearecounts2and10.OnMay14,2010, PlaintiffsfiledaMotionforPartialSummaryJudgmentagainstallDefendants [DocketNo.30]onCounts1,2,4,10,and11,aswellasonthecounterclaimof DefendantBrianandJenniferSmith.

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OnSeptember17,2010,theCourtissuedanOrderonPlaintiffsand Primesmotions.IntheCourtsSeptember17Order,itgrantedinpartand deniedinpartPrimesMotionforSummaryJudgment[DocketNo.21]and grantedinpartanddeniedinpartPlaintiffsMotionforPartialSummary Judgment[DocketNo.30].TheCourtheldthatPlaintiffsRogerHartmanand MavisHartmancouldnotrescindthesubjectmortgagesbecause,attherelevant time,theyheldnoownershipinterestintheSubjectProperty.Specifically,the Courtexplained: [N]eitherRogerHartmannorMavisHartmanheldanownership interestintheSubjectPropertyatthetimeofthetransactionsat issuehere.TheyplacedfeetitletotheSubjectPropertyinMavis HartmansnameonJune23,2006,andMavisHartmantransferred thatownershipinteresttoMaulLeeHartmanbyaquitclaimdeedon August3,2006.Moreover,bytreatingtheFebruary2007transaction asanequitablemortgage,MaulLeeremainedthesoleownerofthe SubjectPropertyafterNovember13,2007,subjecttotheSmith equitablemortgageandthePrimemortgage.Therefore,atall materialtimesinthiscase,MaulLeeHartmanwasthesoleownerof theSubjectProperty.Asaresult,PlaintiffsRogerHartmanand MavisHartmancouldneverrescindbecausetheydidnothavethe requisiteownership.Further,becausetheSubjectPropertywasnot MaulLeeHartmansprincipaldwellingatthetimeofthese transactions,shealsodidnothavearightofrescissionunderthe TILA.Accordingly,Defendantsareentitledtosummaryjudgment onPlaintiffsTILArescissionclaimandPlaintiffsmotionis correspondinglydenied. (Sept.17Orderat2223.)
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OnOctober4,2010,Plaintiffssentaletter[DocketNo.52]tothisCourt requestingpermissiontofileaMotionforReconsiderationofthisCourts MemorandumofLaw&Order[DocketNo.50]enteredonSeptember17,2010. OnOctober7,2010,Defendantsimilarlysentaletter[DocketNo.54]tothis CourtrequestingpermissiontofileaMotionforReconsiderationofthisCourts MemorandumofLawandOrder[DocketNo.50].OnDecember16,2010,this CourtgrantedPlaintiffsLetterRequesttoFileaMotionforReconsiderationand DefendantsLetterRequesttoFileaMotionforReconsideration[DocketNo.62]. InitsDecember16OrdertheCourtstated: PlaintiffsassertthattheCourterredbecause,underMinnesotalaw, MavisHartmancouldnotcoveyfeetitletoMaulLeeHartman withoutRogerHartmanssignature.DefendantPrimearguesthat theCourterredbyfailingtoaddresstheargumentthattheAugust 2007andNovember2007transactionswereresidentialmortgage transactionsexemptfromTILArescissionprovisions. (December16Orderat3.)TheCourtwentontostate: TheCourthasthoroughlyreviewedPlaintiffsandDefendants letterrequestsandconcludesthatbothpartieshaveshown compellingcircumstanceswhichjustifygrantingtheparties permissiontofilemotionstoreconsiderrelatingtothearguments above. (Id.)

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SubsequenttotheCourtsDecember16,2011Order,Plaintiffsfileda MotiontoReconsider[DocketNo.63],andDefendantfiledaMotionto Reconsider[DocketNo.65]. III. DISSCUSSION A. MotionforReconsiderationStandard Thedistrictcourtsdecisiononamotionforreconsiderationrestswithinits discretion.Hagermanv.YukonEnergyCorp.,839F.2d407,414(8thCir.1988). Motionsforreconsiderationservealimitedfunction:tocorrect manifesterrorsoflaworfactortopresentnewlydiscovered evidence.Suchmotionscannotinanycasebeemployedasavehicle tointroducenewevidencethatcouldhavebeenadducedduring pendencyofthesummaryjudgmentmotion....Norshoulda motionforreconsiderationserveastheoccasiontotendernewlegal theoriesforthefirsttime. Id.Ultimately,however,adistrictcourtmaintainsbroaddiscretionin determiningwhethertograntamotiontoalteroramendjudgment,andsucha determinationwillnotbereversedonappealabsentaclearabuseofdiscretion onthepartofthedistrictcourt.Id.at41314. 1. PlaintiffsMotionforReconsideration PlaintiffsarguethatthisCourtshouldreconsideritsdecisionthat,because PlaintiffMavisHartmantransferredtheSubjectPropertybyquitclaimdeedto

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herdaughterandheldnoownershipinterestintheSubjectPropertyatthetime ofthetransactions,thePlaintiffscannotrescindundertheTILA.Plaintiffsargue thatthisCourtshouldalteroramenditsOrdergrantingDefendantsMotionfor SummaryJudgmenttoreflectthatthePlaintiffsdofullysatisfythedefinitionofa consumerunder15U.S.C.1635andthusholdTILArescissionrightsinthis matter. Accordingto15U.S.C.1602(h)[t]headjectiveconsumer,usedwith referencetoacredittransaction,characterizesthetransactionasoneinwhichthe partytowhomcreditisofferedorextendedisanaturalperson,andthemoney, property,orserviceswhicharethesubjectofthetransactionareprimarilyfor personal,family,orhouseholdpurposes.Therelevantfederalregulations describeaconsumersrighttocancelasfollows: Inacredittransactioninwhichasecurityinterestisorwillbe retainedoracquiredinaconsumersprincipaldwelling,each consumerwhoseownershipinterestisorwillbesubjecttothe securityinterestshallhavetherighttorescindthetransaction, exceptfortransactionsdescribedinparagraph(f)ofthissection. 12CFR226.23(a)(1).Theregulationsgoontoprovideabroaderdefinitionof thewordconsumerforrescissioncases. Consumermeansacardholderornaturalpersontowhomconsumer creditisofferedorextended.However,forpurposesofrescission
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under226.15and226.23,thetermalsoincludesanaturalpersonin whoseprincipaldwellingasecurityinterestisorwillberetainedor acquired,ifthatpersonsownershipinterestinthedwellingisorwill besubjecttothesecurityinterest. 12C.F.R.226.2(a)(11).TheOfficialStaffCommentaryexplains: Forpurposesofrescissionunder226.15and226.23,aconsumer includesanynaturalpersonwhoseownershipinterestinhisorher principaldwellingissubjecttotheriskofloss.Thus,ifasecurity interestistakeninAsownershipinterestinahouseandthathouse isAsprincipaldwelling,Aisaconsumerforpurposesofrescission, evenifAisnotliable,eitherprimarilyorsecondarily,onthe underlyingconsumercredittransaction. OfficialStaffCommentaryto12C.F.R.226.2(a)(11)2. Basedonthesedefinitions,aplaintiffqualifiesasaconsumerinaTILA

rescissioncaseifsheholdsanownershipinterestinherprincipaldwellingthatis subjecttothesecurityinterest.SeeScottv.LongIslandSav.Bank,937F.2d738, 741(2dCir.1991)(affirmingdismissalofaTILArescissionclaimbecausethe propertywasnottheplaintiffsprincipaldwelling).Thus,aslongasMavisand RogerHartmanheldanownershipinterestintheSubjectPropertyatthetimeof thetransactionsatissuehere,theycouldqualifyasconsumersunderTILA.The PlaintiffsarguethattheydidholdtherequisiteownershipinterestintheSubject Propertyatthetimeofthetransactionsandthushavearighttorescind.They basetheirargumentontwogrounds:(1)thatthequitclaimdeed,signedand

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deliveredbyMavisHartmantoMaulLeeHartman,isvoidasamatteroflaw underMinn.Stat.507.02,and(2)thatundertheTorrensAct,Defendantmust properlypetitionacourttochallengeacertificateoftitlebeforethemattercanbe consideredbythisCourt. a.ValidityoftheAugust3,2006QuitclaimDeed UnderMinn.Stat.507.02,[i]ftheownerismarried,noconveyanceof thehomestead...shallbevalidwithoutthesignaturesofbothspouses. Conveyanceincludeseveryinstrumentinwritingwherebyanyinterestinreal estateiscreated,aliened,mortgaged,orassignedorbywhichthetitlethereto maybeaffectedinlaworinequity....Minn.Stat.507.01.Apersons homesteadisthehouseownedandoccupiedbyadebtorasthedebtors dwellingplace.Minn.Stat.510.01.TheMinnesotaSupremeCourthasheld thesestatutestomeanthatwithoutthesignaturesofbothspouses,aconveyance ofhomesteadpropertyisnotmerelyvoidablebutisvoid,andthebuyeracquires norightswhatsoeverintheproperty.Dvorakv.Maring,285N.W.2d675,677 (Minn.1979). Thepublicpolicyreasoningbehindthestatuteatissuehereistoensurea securehomesteadforfamiliesbyprotectingthealienationofthehomestead

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withoutthewillingsignatureofbothspouses.Id.at677678.Thestatuteis meanttoprotectthenonsigningspousefromanunknowingconveyanceofhis orherinterestinthehomestead.NationalCityBankv.Engler,777N.W.2d762, 766(Minn.Ct.App.2010). PlaintiffsarguethatbecausethequitclaimdeedthatMavisHartman signedanddeliveredonAugust3,2006toMaulHartmanpurportedtotransfer titletotheHartmanshomesteadanddidnotcontainRogerHartmanssignature thequitclaimdeedisvoidasamatteroflawunderMinn.Stat.507.02.While DefendantdoesnotdisputethatRogerHartmandidnotsignthequitclaimdeed asrequiredbyMinnesotalaw,itinitiallyarguesthattheSubjectPropertywas notthePlaintiffshomesteadatthetimeofthetransfer. Asmentionedabove,apersonshomesteadisthepropertythatheorshe ownsandoccupiesashisorherdwellingplace.Minn.Stat.510.01.Mavis HartmanownedtheSubjectPropertyupuntilAugust3,2006,whenshe transferredittoherdaughterbyquitclaimdeed.NotwithstandingMavis ownershipinterestintheproperty,DefendantdeniesthatMavissufficiently occupiedtheSubjectPropertyasherdwellingplacepriortoconveyingittoher daughter.TheCourtdisagrees.UpuntilJune2006,Maviswaslivinginthe

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houselocatedatthe104174thStreetproperty,nextdoortotheSubjectProperty. Atthattime,thePlaintiffsenteredintoapurchaseagreementforthesaleofthat propertyandallowedthebuyerstooccupythepropertyatthattime.Asaresult ofthebuyersoccupationofthe104174thStreetproperty,Mavismovedtothe SubjectProperty,whereherhusbandhadalreadybeenlivingforquitesometime, eventhoughthesaledidnotultimatelycloseuntilJanuary2007.Thereafter,on August3,2006,MavisgaveherdaughteraquitclaimdeedfortheSubject Property.Thus,theSubjectPropertywasMavishomestead,becauseMavisnot onlyownedtheSubjectPropertybutalsooccupiedithasherprimarydwelling place,fullysatisfyingthestatutoryrequirements.Accordingly,Minn.Stat. 507.02isapplicabletothecaseathand. b.DefendantsDefensesofEstoppel&Waiver DefendantarguesthatregardlessoftheapplicationofMinn.Stat.507.02 PlaintiffsRogerandMavisHartmanshouldbeestoppedfromdenyingthe conveyanceorbeconsideredtohavewaivedRogershomesteadrightsinthe property.Plaintiffscorrectlyassertthatestoppelandwaiverareaffirmative defensesthatarewaivedifnotpled.JacobMfg.Co.v.SamBrownCo.,19F.3d 1259,1266(8thCir.1994).Primedidnotpleadtheseaffirmativedefensesinits

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Answer.However,[w]henanaffirmativedefenseisraisedinthetrialcourtina mannerthatdoesnotresultinunfairsurprise,...technicalfailuretocomply withRule8(c)isnotfatal.FirstUnionNatlBankv.PictetOverseasTrustCorp., Ltd.,477F.3d616,62223(8thCir.2007)(citationomitted).DefendantPrime raiseditsestoppelandwaiverargumentsinrelationtoMinn.Stat.507.02 immediatelyafterPlaintiffsfirstraisedtheapplicationofthestatuteintheirletter requesttofileamotionforreconsideration.Plaintiffsweregivenanopportunity tobrieftheissueinaresponsebrief,andPlaintiffstookadvantageofthis opportunityandaddressedtheissue.Accordingly,theCourtconcludesthat Primeraiseditsestoppelandwaiverargumentsatareasonabletime,andthe Courtwillconsiderthemeritsofthesearguments. TheMinnesotaSupremeCourthasrecognizedthateventhoughgreat importanceisattachedtothehomesteadright,apartymaybeestoppedfrom denyingasaleofthehomesteadundercertaincircumstancesevenifthe requirementsofMinn.Stat.507.02arenotmet.Dvorakv.Maring,285N.W.2d 675,677(Minn.1979).ThiswasreaffirmedinNationalCityBankv.Engler, whichstatedthattheprotectionofMinn.Stat.507.02couldbewaived.777 N.W.2d762,766(Minn.Ct.App.2010).ThecourtinNationalCityBankheld:

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Althoughamortgageconveyanceofahomesteadisgenerallyvoid underMinn.Stat.507.02ifbothspousesdonotsignthe conveyance,whenthenonsigningspouseactivelyandknowingly participatesinthetransactionandwaiveshisorherhomestead rights,thepurposeofthestatuteisfulfilledandthemortgagemay beenforced. Id.Inordertoestablishanestoppeldefense,thepartyseekingreliefmustshow that(1)thenonsigningspouseconsentedandhadpriorknowledgeofthe transaction,(2)thenonsigningspouseretainedthebenefitsofthetransaction, and(3)thepartyseekingtoinvokeestoppelsufficientlychangeditspositionto invoketheequitiesofestoppel.Karnitzv.WellsFargoBank,N.A.,572F.3d572, 574575(8thCir.2009)(citingDvorak,285N.W.2dat678).Primehasestablished theseelements,andaccordinglyhasestablishedavalidestoppeldefense.Thus, thequitclaimdeedisnotvoidpursuanttoMinn.Stat.507.02. BasedonthePlaintiffsdepositionsitisclearthatMavisandRoger

HartmanintendedtoconveytheSubjectPropertytotheirdaughter,withthe specificintentthattheywouldnotretainanyownershipinterest.Roger Hartmantestifiedinhisdepositionthatheintendedtonolongerhavean ownershipinterestintheSubjectProperty.(RogerHartmanDep.at6162.) AlthoughRogerdidnotsignthedeed,hesoughttohavetitleplacedinhiswifes

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name,andthereaftertransferredintohisdaughtersname.Accordingly,Roger hadpriorknowledgeandconsentedtothetransaction. Withrespecttothesecondelement,thenonsigningspousemustretain

somebenefitfromthetransaction.Throughtheissuanceofthequitclaimdeed RogerHartmanbenefitedintwoways.First,asmorefullyexplainedbelow, RogerbenefitedfromthefactthatPrime,throughmanydifferenttransactions, loanedalargeamountofmoneytoPlaintiffs,pursuanttoamortgagesignedby Roger,Mavis,andMaulLeeHartman.Second,asPlaintiffsargueinsupportof theirmotion,thequitclaimdeedservedtheestateplanningpurposesofRoger Hartman,becausethedeedallowedRogerandMavistotakecareoftheir daughter.(MavisHartmanDep.2527.)Thus,Rogerretainedthebenefitofthe quitclaimdeed. Finally,thepartyseekingtoinvokeestoppelmustshowthatithas

sufficientlychangeditspositiontoitsdetriment.Therecordindicatesthat,in relationtothetransactionsbetweenPrimeandPlaintiffs,Primedrafteda mortgagelistingthePlaintiffs,includingMaulLee,asgrantorsandrequired allthreePlaintiffstosign(HartmanAff.Ex.12at6).Thus,Primeunderstood MaulLeetohaveaninterestintheSubjectProperty,andPrimereliedonthefact

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thatthequitclaimdeedprovidedMaulLeeHartmanwithaninterestinthe SubjectProperty.Pursuanttothismortgage,Primeloaned$495,000tothe DefendantsBrianandJenniferSmith.Pursuanttoanumberofothercontracts, theHartmansobtainedalargecashsumfromthis$495,000.Primethus significantlychangeditspositioninrelianceonthequitclaimdeedbylending $495,000pursuanttoamortgageontheSubjectPropertywhichwassignedby MaulLeeHartman.Karnitz,572F.3dat575. InthiscasemorethanfouryearshavepassedsincetheSubjectProperty wasconveyedtoMaulLeeHartman.OverthistimeperiodRogerHartmanhas notdemandedthathisdaughterdeedthepropertybacktohim,norhashe startedadeclaratoryjudgmenttoaskacourttodeterminethatthedeedwas invalid.Giventhesefacts,Plaintiffsareestoppedfromclaimingthatthe quitclaimdeedisvoid.Strictcompliancewiththestatuteinthese circumstancesdoesnotfurtherthepolicybehindthestatute;rather,itflauntsit byconvertingwhattheLegislatureintendedasashieldintoasword.Karnitz, 572F.3dat575.Accordingly,theCourtdeniesPlaintiffsmotionfor reconsideration.SincetheCourtfindsthatPrimehasestablishedavalid estoppeldefense,theCourtwillnotaddresstheissueofwaiver.

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c. TheTorrensSystem InadditiontoitsargumentthatthequitclaimdeedexecutedbyMavisis void,thePlaintiffsarguethatbecausepartoftheSubjectPropertyisTorrens property,theCourtshouldreconsidertheissueoftitleandfindthatthePlaintiffs holdconclusivetitleintheSubjectProperty.Thisissueisbeyondthescopeof theCourtsOrdergrantingPlaintiffsrequesttofileamotiontoreconsider.The CourtsDecember16OrderstatedthatPlaintiffscouldfileamotiontoreconsider concerningwhetherornotthequitclaimwasvaliddespitethelackofRoger Hartmanssignature.Sincethisissueisbeyondthatscope,theCourtwillnot addressPlaintiffsargumentsconcerningwhethertheSubjectPropertyisTorrens property. d. MistakeArguments Plaintiffsalsoarguethatevenifaconveyancetookplace,theCourtshould stillreconsideritsdecisionbecausetheconveyanceresultedfrommutualmistake infactorunilateralmistakeaccompaniedbyfraud.Theseargumentsarenot properlybeforethisCourtonthePlaintiffsmotionandwillnotbeaddressed. 2. DefendantsMotionforReconsideration

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InitsMotiontoReconsider,PrimearguesthattheAugustandNovember 2007transactionsareresidentialmortgagetransactionsexemptfromTILA rescissionprovisions,andthattheCourterredbynotaddressingthisargument. SincetheCourthasdeniedPlaintiffsmotion,theCourtneednotconsider Primesargument.IndenyingPlaintiffsmotion,theCourtaffirmsitsSeptember 17,2010findingthatnoneofthePlaintiffshadanownershipinterestinthe SubjectPropertysuchthattheywouldhavearightofrescissionunderTILA. Thus,DefendantsareentitledtosummaryjudgmentonPlaintiffsTILA rescissionclaims,andaccordingly,theCourtneednotdiscussPrimesargument concerningwhetherthetransactionsinquestionwereinfactresidential mortgagetransactionsexemptfromTILArescissionprovisions. IV. CONCLUSION Accordingly,baseduponthefiles,records,andproceedingsherein,ITIS HEREBYORDEREDthat: 1. PlaintiffsMotiontoReconsider[DocketNo.63]isDENIED. 2. DefendantPrimesMotiontoReconsider[DocketNo.65]isDENIED. Date:June16,2011
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s/MichaelJ.Davis MichaelJ.Davis ChiefJudge UnitedStatesDistrictCourt