Midcountry Bank v. Krueger

Facts

On March 21, 2000, the Kruegers (Ds) purchased the Hinshaw (D) property. Four years later, Ds obtained a loan from P to purchase two different parcels of land and to build a house on the acquired property. Ds executed and delivered a mortgage to P that encumbered not only the new properties but also the Hinshaw (D) property purchased four years earlier. On May 19, 2004, the deed to the new properties and P mortgage were delivered to the Scott County Recorder's Office to be recorded. Scott County uses the TriMin computer system to electronically store all official property records. The day after a document is delivered to the recorder's office to be recorded, a label is placed on the document showing the date, time of receipt, and the document number to fulfill the requirements of Minn. Stat. § 386.41 (2008). After the labeling procedure is complete, information about the document is entered into the TriMin system, beginning with the names of the grantor and grantee, the date of the document, and the legal description of the property contained in the document. The recorder will 'clone' the legal description from the first document entered into the system, and apply that legal description to the second document so that the information does not have to be reentered. The documents are also scanned so that an image of each document is available on the TriMin system. Information can be accessed from a website, but the county recorder's website is only for reference purposes and is not considered the official record for county property recording purposes. In addition, images of documents that may have a Social Security number are not available on the website due to privacy concerns. Images of such documents are, however, available on the county recorder's official in-house system. Minnesota Statutes §§ 386.03-.05 and 386.32 (2008) require a county to maintain a grantor-grantee index, a consecutive index, and a tract index. The TriMin system is searchable by (1) grantor-grantee name (the grantor-grantee index), (2) tract/legal description (the tract index), and (3) document number. If a search is conducted by the name of the grantor or grantee, any document under the grantor or grantee name will be listed. The search also displays the type of instrument, the document number, the date it was recorded, and a brief legal description of the property. On the county recorder's official in-house system, users of the system have several options that allow them to review specific information, such as the legal description of property and images of documents. The deed to the new properties was entered into the TriMin system prior to the P mortgage. But because the deed transferred only the two new properties, the deed only contained the legal descriptions of those two properties. Only those two descriptions were entered into the TriMin system as being related to that document. The recorder's office cloned the legal descriptions from the deed for the legal descriptions in the TriMin system for the mortgage. Because the legal descriptions in the deed referenced the two new properties and only those legal descriptions were cloned for the mortgage, the only way that the TriMin system showed the mortgage as encumbering the third property--the Hinshaw (D) property--was by the imaged copy of page three of the mortgage, which stated that it encumbered the Hinshaw (D) property in addition to the new properties. Two years later Ds conveyed the Hinshaw (D) property to Hinshaw (D), but without any recorded documentary disclosure of the mortgage to P. Hinshaw (D) executed a mortgage on the property and delivered it to PHH. The Scott County Recorder's Office recorded the deed from Ds to Hinshaw (D) and Hinshaw's (D) mortgage to PHH on May 31, 2006. D defaulted on the P mortgage. P brought an action to foreclose. P filed a notice of lis pendens on the properties with the Scott County Recorder's Office on October 18, 2006. The licensed abstracter testified that she had performed two title examinations prior to the sale of the Hinshaw (D) property. She used the tract index (i.e., searched by entering the legal description of the property), and those searches did not indicate that the P mortgage was recorded against the property. She did not check the grantor-grantee index (i.e., did not search by grantor or grantee name), because she testified that she does not routinely check that index when performing title examinations, but will if requested. After the suit was filed, none of the additional searches, including searches of the grantor-grantee index, indicated that the P mortgage appeared in the Scott County Recorder's Office records as encumbering the Hinshaw (D) property. There is no indication that the abstracter checked the imaged copy of the mortgage during those searches. P's notice of lis pendens, as it appeared in the TriMin system, did not list the P mortgage as encumbering the Hinshaw (D) property. The court held that P’s mortgage was not properly recorded. It granted summary judgment in favor of Hinshaw (D) and PHH because neither could be charged with actual, implied, or constructive notice of the P mortgage. The court of appeals reversed. It held, that although the P mortgage was not in the tract index, it bore the recording label required by Minn. Stat. § 386.41. The court considered this label presumptive proof that the document was properly recorded. Hinshaw (D) appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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