Daily Development for Thursday, August 24, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

MORTGAGES; FORM: Statement of the maturity date of a debt contained in a promissory note secured by a mortgage against real property does not satisfy the statutory requirement that the maturity date be clearly stated "in" the mortgage in order to run the statute of limitations from that maturity date, rather than from the date of the mortgage itself. This is true even where the terms of the promissory note are incorporated into the mortgage by reference and even where the mortgagor had actual notice of the maturity date.

Vossen v. Parker, 609 N.W.2d 290 (Minn. Ct. App. 2000).

The secured promissory note provided for a maturity date one year after the date of the note. Although the mortgage incorporated by reference terms of the note, the note was not recorded with the mortgage. Like the laws of many other states, Minnesota's mortgage foreclosure statute of limitations provides that no action or proceeding to foreclose a real estate mortgage shall be maintained unless commenced within 15 years from the maturity date of the debt secured by the mortgage. If no date is set forth ion the mortgage the statute of limitations commences from the date of the mortgage

The statute contains no language allowing the maturity date to be incorporated into the mortgage through another document.

The mortgagee attempted to foreclose more than fifteen years after the date of the mortgage, but less than fifteen years after the date of the note. The trial court held that the mortgagor had actual knowledge of the date of the note, as the mortgagor was the maker of the note, and that it would be unjust for the statute to provide protection to the mortgagor under such circumstances.

The Minnesota Court of Appeals reversed. The court of appeals opinion concluded that actual notice of the maturity date is irrelevant because of the public policy purpose behind the statute to eliminate stale claims. Every mortgagee is required to put the world on constructive notice by including within the mortgage itself the information necessary to evaluate its longevity.

Comment: Many provisions of law emphasize maintenance of a clear record, and penalize parties who do not record. But in most cases the penalty of forfeiture of the interest is paid only when there is a bona fide party who relies upon the record in investing in the property. Otherwise, failure to record is not punished by state law (note the special exception to this under federal bankruptcy law where the "strong arm power" held by a bankruptcy trustee can be used against unrecorded or improperly perfected liens regardless of whether the trustee is truly a BFP).

In this instance, however, there is the additional feature of the running of a substantial period of time. Perhaps this can be viewed as a substitute for reliance by a third party. But why? Surely the addition of the mortgagor as a party entitled to raise the statute of limitations gives no greater incentive to the mortgagee to record the maturity date. At the time that the mortgagee should be recording, there is the danger that any number of parties will rely on the record and be able to raise the statute years later. The mortgagee has an adequate "threat" already.

The editor believes that the mortgagor gets a windfall here. The court emphasizes the fact that the literal language of the statute applies to confer that benefit, but since when are these ancient recording and title clearing statutes read literally? Many don't mention bona fide purchasers at all, but the courts have inserted the requirement as a judicial gloss. The editor like the trial court approach.

Comment 2: Note that the court's opinion, again reading literally, might also subject a mortgage to the statute of limitations running from its date when the note containing the terms is set forth as an exhibit to the mortgage, and incorporated by reference. But this clearly is not the result that one would expect from reading the court's analysis of the statute, which analysis focuses upon the public notice purpose of the statute, which purposes would be satisfied by recording the note as an exhibit.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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