• March 2, 2015
"A Tough Knot to Crack" (photo by Jay Fanelli)

“A Tough Knot to Crack” (photo by Jay Fanelli)

The earliest known use of the legal maxim, “Hard cases make bad law,” was in 1842, 173 years ago. Since then, others have been quoted for variants of the maxim: “Bad law makes hard cases,” and even “Hard cases make good law.

This old koan-like utterance flirts with a hint of insight but does it provide any insight of any kind? The fact is that there are many legal puzzles for which there are no adequate and no satisfying resolutions. We see these situations quite often and we call them “hard cases.” They’re not hard. They’re worse. They’re basically insoluble.

I wonder if we see an instance of this unfortunate reality in Graves v. Wayman, decided by the Minnesota Supreme Court this past week.

Homeowner Amos Graves fell behind in his mortgage payments. His lender began the foreclosure process. Wayman, an unscrupulous “equity stripper,” posed as Mr. Graves’ “last chance,” and proposed a deal to keep Mr. Graves in his home.

Graves went along with Wayman’s plan at first, signed a quitclaim deed, giving Wayman title to the home, but, within the day, changed his mind and sent a cancellation to Wayman.

Wayman ignored the cancellation, acted as if he owned the property, transferred it between several entities that he owned, and then took out a mortgage from First Minnesota Bank, secured by the property.

Everyone agrees that Wayman should get nothing. But what is to be done as between Mr. Graves and First Minnesota Bank, a so-called “bona fide purchaser” (that is, a purchaser who is in good faith and has no reason to think there is anything fishy about the seller, the sale, or the purchase)?

The Minnesota Supreme Court had an atypically testy split 4-3 decision in favor of the home-owner, Mr. Graves, against First Minnesota Bank, with a spirited dissent by Justice Dietzen, joined by Justices Gildea and Wright.

In a nutshell, the dissent seeks to preserve the clarity, the predictability, and the fidelity of the Recording Act, “which has long protected the rights of a bona fide purchaser of real property against an unrecorded right in the same property” (since 1866, in fact). See Dissent, p. 5.

The majority, on the other hand, was concerned with Minnesota homeowners’ rights under recent legislation passed to prevent misconduct by the likes of Wayman.

“[T]he majority’s interpretation is far-fetched and contrary to common sense,” the dissent suggested. The majority’s posited scenario is deemed “too fanciful to be taken seriously…In sum, the majority’s proposed interpretation is unreasonable and far-fetched.” See Dissent, p. 11.

Justice Dietzen’s dissent points out that the majority opinion seems to be outcome-oriented and it gives lip service to the critical legal distinction between “void” vs. “voidable” transfers. “[W]e cannot assess the parties’ respective rights without inquiring whether Graves’s sale to Wayman was void or merely voidable.”

By enacting Minn. Stat. §§ 325N.10-.18, the Legislature provided protections for foreclosed homeowners such as Graves. But in protecting foreclosed homeowners, the Legislature did not intend to overrule more than a century of other protections in favor of bona fide purchasers…Here, the majority makes those protections meaningless….The majority’s approach creates disincentives for reputable purchasers to make loans for properties in foreclosure, thereby making it harder for homeowners in foreclosure to sell their property.

Hard cases may or may not make bad law. They often make for strident disagreement, as in the Graves case, but hopefully not hard feelings.


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