Johnson v. First National Bank

719 F.2d 270 (1983)


Johnsons (P) are the principal officers and shareholders of Oak Farms, Inc., and Oak Farms Service Co. Oak Farms, Inc., executed a mortgage on certain parcels of real estate to secure a $300,000 promissory note in favor of D. In 1979, Ps executed a second mortgage to D on the same property to secure nineteen additional promissory notes totaling approximately $650,000. Each mortgage contained a clause allowing D to sell the mortgaged property at public auction in the event of default. P defaulted and D commenced foreclosure proceedings. At the sheriff's auction on October 31, 1980, D purchased the mortgaged property for the sum of $566,355.34. Minn. Stat. § 580.23(2) provides that a mortgagor shall have twelve months following the sale of real estate within which to redeem the property by paying the sale price plus interest from the date of the sale. The redemption period would have expired on or about October 31, 1981. Three weeks prior to the expiration date Ps filed Chapter 11 and an adversary complaint alleging, in part, that they had substantial equity in the mortgaged property and were entitled to an order staying the expiration of the redemption period. P testified that he estimated the value of the mortgaged property at $2,720,000 and that the encumbrances against the property totaled $2,043,000. The bankruptcy judge found that 'an exigency exists, and that P have substantial equity in [the] real property.' The court enjoined D from taking any further action to foreclose the property and ordered that the running of the statutory redemption period be stayed. The district court affirmed, and D appealed.