• November 12, 2009

In a sale of real property, a mortgage was properly recorded in the grantor-grantee index, but not properly recorded in the tract index in Scott County. 

Purchaser hired an abstractor who looked in the tract index, but not the grantor-grantee index. Sellers did not tell purchaser about the Mid-Country mortgage to which the parcel was subject. That mortgage was not paid off in the transaction.

The Court of Appeals held that the purchaser bought subject to the MidCountry mortgage — purchasor’s recourse for the “invisible mortgage” would presumably be against the abstractor or the seller. The Minnesota Supreme Court granted review in early June.

The Supreme Court (Justice Gildea?) asked whether it would be fair to Mid-Country Bank, “which did everthing right,” for it to lose priority. The Court pointed out repeatedly that two experienced abstractors checked records several times before the problem was found; is this case a “one-off” case, the Court asked? The Chief Judge asks, “Wouldn’t this be covered by title insurance?” Answer: Yes.

Sounds to me like the Court is leaning toward affirming the Court of Appeals but this is a close one. Chief Judge Magnuson, for one, appears to favor placing the burden on proper recording on the property seller (that is, the burden of vetting the county’s performance of its recording duties), rather than placing the burden of inspecting the two indexes on the property buyer.

The 11/10 Minnesota Supreme Court recorded argument is here.

MidCountry Bank, f/k/a First Federal fsb v. Frederick C. Krueger, Nancy Krueger, Cherolyn A. Hinshaw, et al.

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