Rostamkhani v. Option One Mortgage Corporation
Filing
55
MEMORANDUM OPINION AND ORDER (1) Granting in part and denying in part Option One's 34 Motion for Summary Judgment. Motion is denied as to Count I of the complaint. Motion is granted as to Count II of the complaint. (2) Granting in part and denying in part Rostamkhani's 38 Motion for Summary Judgment. Motion is granted as to Count I of the complaint. Motion is denied as to Count II of the complaint. (3) The Court declares that the foreclosure by advertisement prosecuted on behalf of Option One is void, and Rostamkhani must be given immediate possession of the property (Written Opinion). Signed by Judge John R. Tunheim on August 9, 2011. (DML)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
MANOUCHER ROSTAMKHANI,
Civil No. 09-739 (JRT/AJB)
Plaintiff,
v.
MEMORANDUM OPINION
AND ORDER
OPTION ONE MORTGAGE
CORPORATION,
Defendant.
Andrew P. Elsbecker, LAW OFFICE OF ANDREW P. ELSBECKER,
1361 Hampshire Avenue South, No. 218, St. Louis Park, MN 55426, for
plaintiff.
Ernest F. Peake and Patrick J. Lindmark, LEONARD, O’BRIEN,
SPENCER, GALE & SAYRE, LTD., 100 South Fifth Street, Suite 2500,
Minneapolis, MN 55402, for defendant.
Plaintiff Manoucher Rostamkhani obtained a loan from, and assigned a mortgage
to, defendant Option One Mortgage Corporation (“Option One”).
Option One
subsequently assigned its interest in the mortgage to LaSalle Bank, National Association
(“LaSalle”) and then obtained a limited power of attorney appointing Option One as
LaSalle’s attorney-in-fact. When Rostamkhani was repeatedly delinquent in paying on
his mortgage, Option One commenced three separate foreclosure proceedings. However,
in its foreclosure notice resulting in a sheriff’s sale, Option One failed to properly list its
assignment of the mortgage to LaSalle in violation of Minn. Stat. § 580.04. Accordingly,
although Rostamkhani has not made a payment on the loan since May 2007, and although
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he subsequently signed a settlement agreement with Option One under which he
voluntarily vacated the property, he has sued Option One for a declaratory judgment that
the foreclosure is void and should be set aside (“Claim I”). Rostamkhani has also
asserted a second claim against Option One for wrongful eviction (“Claim II”).
The parties have cross-filed for summary judgment. Minnesota precedent and
statute compels the conclusion that the sale is void because of the foreclosure notice’s
deficiency, and the Court therefore grants summary judgment to Rostamkhani on Count I.
Because Rostamkhani agreed to vacate the property voluntarily pursuant to the parties’
agreement, however, Option One is entitled to summary judgment on Count II despite the
Court’s determination that the foreclosure sale is void.
BACKGROUND
Manoucher Rostamkhani purchased a property in Minneapolis (“the property”) on
May 5, 1995. (Aff. of Manoucher Rostamkhani, Feb. 4, 2011, ¶ 2, Docket No. 40.) On
or about January 9, 2004, Rostamkhani obtained a loan from Option One for $327,250
and executed and delivered to Option One a first-priority mortgage on the property. (Aff.
of Andy P. Elsbecker, Feb. 4, 2011, Ex. A, Docket No. 41.) Within a year, Rostamkhani
defaulted on his loan and Option One commenced foreclosure proceedings.
On
January 31, 2005, Option One signed a Notice of Pendency of Proceeding and Power of
Attorney to Foreclose Mortgage (“foreclosure notice”). (Compl. ¶ 5, Ex. B, Docket
No. 1.)
The foreclosure by advertisement was stopped when Option One and
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Rostamkhani entered into a forbearance agreement on or around April 14, 2005. (Aff. of
Dale Sugimoto, Feb. 4, 2011, ¶ 2, Docket No. 36.)
On July 7, 2006, LaSalle recorded a limited power of attorney (“POA”) appointing
Option One as its lawful agent and attorney-in-fact for purposes including foreclosures.
(Sugimoto Aff., Ex. A.) On October 13, 2006, Option One assigned the mortgage to
LaSalle as Trustee for Securitized Asset Investment Loan Trust Mortgage Pass-Through
Certificates 2004-4. (Elsbecker Aff., Ex. C.) Rostamkhani again fell behind on his
payments.
On October 24, 2006, Option One recorded another foreclosure notice.
(Sugimoto Aff. ¶ 4.) Option One ended this second foreclosure proceeding as the parties
were negotiating a second forbearance agreement. (Id. ¶ 5.)
Ultimately, the parties failed to reach an agreement, Rostamkhani remained in
default on his loan, and Option One again commenced foreclosure proceedings. (Id. ¶ 6.)
Rostamkhani’s last payment on the loan was in May 2007. On September 21, 2007,
counsel for Option One recorded a foreclosure notice. (Compl., Ex. D.) The notice,
which was published six times between September 25 and October 30, 2007, listed
Option One as the mortgagee and indicated that no assignments of the mortgage
had been made. (Id.; Elsbecker Aff., Ex. F, at 4.) On November 21, 2007, the Hennepin
County Sheriff conducted a sheriff’s sale and the property was sold to Option One, the
highest bidder, for $263,500. (Elsbecker Aff., Ex. F.) Rostamkhani did not exercise his
redemption rights during the six month redemption period, which expired on May 21,
2008. (Sugimoto Aff. ¶ 7.) On June 20, 2008, Option One commenced an eviction
action against Rostamkhani. (Id. ¶ 8.) Rostamkhani was never evicted from the property,
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however. The parties settled the dispute prior to any hearing or judgment by entering into
a settlement agreement (“the settlement agreement”) pursuant to which Rostamkhani
agreed to vacate the property on or before July 7, 2008. (Id. ¶ 9, Ex. B.)
Rostamkhani filed this action in state court in December 2008, and served Option
One in March 2009. Both parties have moved for summary judgment. Rostamkhani
asserts that the foreclosure is void based on the misrepresentations contained in the
foreclosure notice, and that Option One therefore wrongfully evicted him. Option One,
which removed the case to federal court, argues that any technical inaccuracy in the
foreclosure notice should not void the foreclosure, and that in any event Rostamkhani
cannot prevail on a claim of wrongful eviction since he voluntarily surrendered
possession pursuant to the settlement agreement.
ANALYSIS
I.
STANDARD OF REVIEW
Summary judgment is appropriate where there are no genuine issues of material
fact and the moving party can demonstrate that it is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(c). A fact is material if it might affect the outcome of the suit,
and a dispute is genuine if the evidence is such that it could lead a reasonable jury to
return a verdict for either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). A court considering a motion for summary judgment must view the facts in the
light most favorable to the non-moving party and give that party the benefit of all
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reasonable inferences that can be drawn from those facts. Matsushita Elec. Indus. Co.,
Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
II.
COUNT I: DECLARATORY JUDGMENT
The parties’ first dispute regards Count I, Rostamkhani’s claim for a declaratory
judgment that the foreclosure sale is void because the foreclosure notice was facially
defective. Option One argues that Rostamkhani has not made a payment on the mortgage
since May 2007, Option One had the absolute right and power to foreclose the mortgage
pursuant to the POA, Rostamkhani does not allege he suffered any prejudice as a result of
the defect in the foreclosure notice, and Rostamkhani waited a year and a half after the
notice was served to object to any alleged defect. Rostamkhani does not deny these
assertions. He argues, however, that under Minnesota law, Option One’s failure to
correctly list the assignment to LaSalle on the foreclosure notice renders the foreclosure
sale void as a matter of law despite Rostamkhani’s payment delinquencies and despite the
POA granting Option One the power to foreclose on LaSalle’s behalf. While the Court
does not condone Rostamkhani’s actions, it is compelled to agree with Rostamkhani that
the facially defective notice voids the foreclosure proceeding.
Minnesota Statute § 580.04 (“the foreclosure statute”) states that the foreclosure
notice “shall” include “the name of the mortgagor, the mortgagee, each assignee of the
mortgage, if any, and the original or maximum principal amount secured by the
mortgage.” (Emphasis added.) As the Minnesota Supreme Court recently affirmed,
“[b]ecause foreclosure by advertisement is a purely statutory creation, the statutes are
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strictly construed. [The Court] require[s] a foreclosing party to show exact compliance
with the terms of the statutes. If the foreclosing party fails to strictly comply with the
statutory requirements, the foreclosure proceeding is void.” Jackson v. Mortgage
Elec. Registration Sys., Inc., 770 N.W.2d 487, 494 (Minn. 2009) (emphasis added)
(citations and internal quotation marks omitted). While Option One clearly had the
power to foreclose the mortgage under the POA, it is just as clear that it did not strictly
comply with Minn. Stat. § 580.04, which requires the foreclosure notice to list all
assignees of the mortgage. The foreclosure notice at issue here incorrectly stated that no
assignment had been made. Option One’s argument that it had the power to foreclose
and that Rostamkhani was delinquent in his payments misses the point: Minnesota law
requires strict compliance with the foreclosure statute and Option One’s foreclosure
notice was fatally defective.
Option One’s mistake may well have been de minimus, as it argues, but there is no
exception in Minnesota statutes or caselaw for de minimus violations of the foreclosure
statute. To the contrary, in Jackson, the Minnesota Supreme Court cited with approval
Moore v. Carlson, 128 N.W. 578 (Minn. 1910), an analogous case in which the
foreclosing party held the mortgage and then assigned it to a third party, who reassigned
it to the foreclosing party. Jackson, 770 N.W.2d at 492, 494; see also Moore, 128 N.W.
at 578.
The two assignments were recorded properly but neither was listed in the
published notices of foreclosure. Moore, 128 N.W. at 578. The Court, construing Minn.
Stat. § 580.04’s predecessor strictly, voided the sale. Id. While Jackson concerned a
different issue – whether the defendant had satisfied the foreclosure statute’s recording
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requirements – its affirmation of the principle that failure to strictly comply with the
foreclosure statute voids a foreclosure precludes Option One’s arguments.
In support of its assertion that a de minimus deficiency that did not prejudice
Rostamkhani renders the sale valid despite the error in the notice, Option One cites
Bowers v. Hechtman, 47 N.W. 792 (Minn. 1891) and John W. Swenson & Sons, Inc. v.
Aetna Life Ins. Co., 571 F. Supp. 895 (D. Minn. 1983). In Bowers, the Minnesota
Supreme Court held that a foreclosure by advertisement is not void despite the fact that
the notice overstates the amount due on the mortgage “unless it appears that [the
overstatement] was done with a fraudulent purpose, or that it has resulted in actual injury
to the mortgagor[.]” Id. at 793. As in Bowers, there is no evidence in this case of
fraudulent purpose nor any allegation of harm to Rostamkhani resulting from the
deficiency on the foreclosure notice. Bowers, however, precedes Moore, the facts of
which are much more analogous to those at issue here and in Jackson. The Minnesota
Supreme Court’s clear pronouncement of the rule of strict construction in Jackson and
the factual similarities of this case to Moore tempers the precedential value of Bowers, a
nineteenth-century pronouncement.
Likewise, John W. Swenson & Sons, Inc. is of limited precedential value and does
not undermine the Minnesota Supreme Court’s clear and consistent pronouncement that
the foreclosure statute must be construed strictly. In John W. Swenson & Sons, Inc., the
court concluded that a foreclosure by advertisement was not void when the foreclosing
party advertised the property as thirty-six separate parcels but offered the property at the
sheriff’s sale as twenty-three tracts.
Id. at 898-99.
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The particular provision the
mortgagor claimed was violated, however, provided that the notice include “[a]
description of the mortgaged premises, conforming substantially to that contained in the
mortgage.” Id. at 900. The foreclosing party complied with this provision, and the
mortgagor offered “no authority for the proposition that property must be offered for sale
exactly as described in the notice of sale.” Id. Here, by contrast, the foreclosure statute
explicitly requires that the foreclosing party list all assignments of the mortgage. Option
One failed to do so, and under Jackson and Moore such failure renders the sale void.
Option One also argues that Rostamkhani failed to object to the sale with
reasonable diligence. Minnesota Statute § 580.20 provides that an action to set aside a
foreclosure based on a defect in the notice must be commenced “with reasonable
diligence, and not later than five years after the date of such sale . . . .” “It is not enough
that plaintiff commenced this action within the 5-year limitation period unless the
requirement of reasonable diligence has also been complied with.” Bjornstad v. Penn
Mut. Life Ins. Co., 277 N.W. 521, 522 (Minn. 1938). In Bjornstad, however, the plaintiff
brought her claim more than four years after the recording of the certificate of sale.
Rostamkhani, by contrast, commenced his action approximately one and a half years after
the sale date. It is clear from the record that (a) Rostamkhani always worked with Option
One, not LaSalle, to resolve his delinquencies in the past, (b) he repeatedly sought and
received modifications from Option One, (c) he received an eviction notice in May 2008,
and (d) this suit was filed shortly after he obtained legal counsel.
In an affidavit,
Rostamkhani asserts that he “contacted Option One Mortgage Corporation dozens of
times, before, and after, the foreclosure sale to seek a modification of [the] mortgage[,]”
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and that “[a]fter moving out of my house, [he] immediately sought the help of an
attorney.” (Aff. of Manoucher Rostamkhani, Feb. 25, 2011, ¶¶ 3-4, Docket No. 50.)
Option One has not proffered evidence to undermine Rostamkhani’s assertions regarding
his efforts. In these circumstances, the Court concludes that Rostamkhani acted with
reasonable diligence to set aside the sale.1
The Court recognizes that Rostamkhani has not made a payment on his loan since
May 2007, and that Option One was empowered by the POA to issue the foreclosure
notice. Nonetheless, given Minnesota precedent mandating strict construction of its
foreclosure statute, the Court is compelled to deny Option One’s motion for summary
judgment and grant Rostamkhani’s motion for summary judgment on Count I of his
complaint. Under Minnesota law, Rostamkhani may possess the property until a lawful
foreclosure sale occurs and the applicable redemption period expires.
Minn. Stat.
§ 580.041.
III.
COUNT II: WRONGFUL EVICTION
Option One has also moved for summary judgment on Count II of the complaint,
Rostamkhani’s claim for wrongful eviction; Rostamkhani has asked the to Court to
1
At oral argument, the Court questioned whether the eviction action would have
provided Rostamkhani an opportunity to challenge the validity of the sale based on the
deficiency in the foreclosure notice. See Rucker v. Schmidt, 794 N.W.2d 114, 117 (Minn. 2011)
(describing elements of res judicata). Option One, however, agreed that res judicata did not
apply in this case. “An unlawful detainer action merely determines the right to present
possession and does not adjudicate the legal or equitable ownership rights of the parties.” Fed.
Land Bank of St. Paul v. Obermoller, 429 N.W.2d 251, 257 (Minn. Ct. App. 1988) (citation
omitted). Accordingly, “courts should not interfere with the summary nature of [Minnesota]
eviction proceedings when an alternate process is available to resolve equitable claims.” Brown
v. Grant Holding, LLC, 394 F. Supp. 2d 1090, 1100 (D. Minn. 2005).
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conclude that Option One wrongfully evicted him from the property but reserve the issue
of damages for further proceedings. According to Option One, Rostamkhani was never
evicted from the property because the parties entered into a settlement agreement
pursuant to which he voluntarily vacated the premises. The Court agrees.
A settlement agreement is valid and binding on the parties who signed it. Jallen v.
Agre, 119 N.W.2d 739, 742-43 (Minn. 1963). In the settlement agreement, Rostamkhani
agreed to vacate the property on or before July 7, 2008. He further agreed that if he did
not vacate the property by that date, then a writ of recovery would issue and he could be
evicted. Only if Rostamkhani had remained at the property after July 7, 2008 and if
Option One had obtained a writ of recovery would Rostamkhani have been evicted.
Having vacated the property voluntarily pursuant to a binding settlement agreement,
Rostamkhani does not have a claim for wrongful eviction. Tellingly, he has failed to
respond to Option One’s challenge to his wrongful eviction claim in his motion papers.
The Court therefore grants summary judgment to Option One on Rostamkhani’s
wrongful eviction claim.2 While the foreclosure sale is void and Rostamkhani may now
possess the property until a lawful sale is complete and the redemption period expires, he
2
In his own motion for summary judgment, Rostamkhani characterizes Count II as a
claim that Option One is trespassing on his property. Option One argues that Rostamkhani did
not plead trespass in his complaint and has not moved to amend, while Rostamkhani urges that
wrongful eviction is a form of trespass. The Court need not parse the distinction or relationship
between wrongful eviction and trespass, since Count II fails no matter how it is characterized. A
person only commits trespass when he enters another’s land without consent. Copeland v.
Hubbard Broad., Inc., 526 N.W.2d 402, 403 (Minn. Ct. App. 1995). Rostamkhani voluntarily
surrendered possession of the property to Option One; therefore, Option One did not enter the
land without his consent.
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is not entitled to any damages arising out of the period following his voluntary surrender
of the property.
ORDER
Based on the foregoing, and the records, files, and proceedings herein, IT IS
HEREBY ORDERED that:
1.
Option One’s Motion for Summary Judgment [Docket No. 34] is
GRANTED in part and DENIED in part as follows:
a.
b.
2.
The motion is DENIED as to Count I of the complaint.
The motion is GRANTED as to Count II of the complaint.
Rostamkhani’s Motion for Summary Judgment [Docket No. 38] is
GRANTED in part and DENIED in part as follows:
a.
b.
3.
The motion is GRANTED as to Count I of the complaint.
The motion is DENIED as to Count II of the complaint.
The Court hereby DECLARES that the foreclosure by advertisement
prosecuted on behalf of Option One is void, and Rostamkhani must be given immediate
possession of the property.
LET JUDGMENT BE ENTERED ACCORDINGLY.
DATED: August 9, 2011
at Minneapolis, Minnesota.
____s/
____
JOHN R. TUNHEIM
United States District Judge
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