Regular Minnesota Litigator readers are familiar with several cases over the past couple of years in which, during the current mortgage foreclosure tsunami, some home-owners have challenged foreclosures against them for lack of a signature of a spouse on the mortgage without which the security interest may be invalid. (Their challenges have had mixed success.)
What happens when one is confronted by a “putative spouse,” that is, someone who, under Minnesota law, thinks she’s married, but she’s not? Can she invoke the non-signing spouse rule to void the mortgage and halt the foreclosure?
U.S. District Court Judge Donovan Frank (D. Minn.) has taken Minnesota’s “non-signing spouse rule” one step further in Nur-Afi v. Guidance Residential, Inc., ruling in response to a motion in limine (a motion on the threshhold of trial) that a “putative spouse” under Minnesota law is entitled to the protections of Minnesota’s “non-signing spouse” rule.
In making their lending decisions, lenders, of course, are pretty much foreclosed (so to speak) from divining the existence of the putative spouse (whose status is, by definition, unofficial and not “of record”) unless that information is volunteered so that, under this ruling, when foreclosures are challenged by non-signing putative spouses, lenders will be left with unsecured loans. This additional risk (and, thus, cost) to lenders will presumably be passed on and spread among all borrowers, one more factor in the ratcheting up of the cost of mortgage loans (in addition to enhanced disclosure rules, the far narrower range of loan products, and other measures that have been imposed by regulators and the market alike in recent years).
To the extent such a rule increases the cost of mortgage loans or makes them harder to qualify for, maybe that is not a bad thing as a matter of social policy. Leading up to 2008, the argument goes, the up-front costs of such loans were way too low and the long-term “hidden” costs of easy money have been borne not just by the impecunious but by our society more broadly (i.e., the mortgage meltdown has damaged whole communities and our entire economy, not just the unfortunately over-extended homeowners). In other words, maybe we are headed into a policy of caveat lender and maybe we should be.