• December 7, 2011

It is hardly news at this point that housing prices have fallen dramatically from their peak of a few years ago or that many homeowners have negative equity.  The faltering economy and its effect on home values continue to have repercussions for families, often reopening disagreements that divorcing couples thought had been resolved years before and creating additional financial burdens.

Jody and Douglas Nelson were divorced in 2001.  The judgment, based on the parties’ marital-termination agreement, awarded Jody the family’s homestead, subject to a lien in favor of Douglas in the amount of $67,725, payable with interest when Jody sold the homestead or remarried or when the youngest child turned 18, whichever occurred first.

The lien obligation was triggered in April 2008 when the couple’s youngest child turned 18.  Douglas then demanded payment, but Jody refused, arguing that due to the declining housing market and outstanding mortgage balance, there was no equity in the home and the lien was worthless.  Douglas didn’t dispute the equity analysis but demanded payment nonetheless and sued to enforce the dissolution judgment by entry of a monetary judgment against Jody. 

The district court determined that Jody had an obligation to pay the lien amount plus interest and entered a monetary judgment against her in the amount of $106,610.04.

Jody appealed, contending that the district court abused its discretion by entering a personal judgment against her and that Douglas’ exclusive remedy for enforcement was to foreclose on the property, citing to decisions involving mechanic’s liens and attorney’s liens.  The Minnesota Court of Appeals began by noting that unlike marital liens, both mechanic’s liens and attorney’s liens are governed by statute.  Moreover, although enforcement of mechanic’s liens are limited by statute to foreclosure, no authority could be found so limiting attorney’s liens.

Jody argued that the dissolution judgment only awarded Douglas a security interest in the homestead and did not create a separate obligation of Jody to pay him any amount.  Douglas argued that the award of a personal judgment did not affect the division of property in the original decree because the rights of both parties were unchanged.  The Minnesota Court of Appeals found the term “lien,” as used in the parties’ dissolution judgment, was ambiguous.  Nonetheless, the dissolution judgment stated that the lien was “payable,” for a certain dollar amount, and that it “shall accrue interest,” thus using the term lien as if it was an obligation.  Because the district court had the discretion to resolve an ambiguous provision, it did not abuse that discretion by imposing on Jody a responsibility to pay Douglas the amount of the lien (plus interest) upon the occurrence of one of the specified events and entering a personal judgment against her after she failed to make the required payment.

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