STATE OF MINNESOTA
IN COURT OF APPEALS
C2-00-1803

Shaw Acquisition Company, d/b/a Stewart Lumber Company,
Respondent,

vs.

The Bank of Elk River,
Appellant.

Filed May 29, 2001
Affirmed
Randall, Judge

Mille Lacs County District Court
File No. C7-00-369

Mark J. Johnson, Lang, Pauly, Gregerson & Rosow, Ltd., U.S. Bank Place, 1600 Park Building, 650 Third Avenue South, Minneapolis, MN 55402-4337 (for respondent)

James M. Neilson, Matthew A. Anderson, Babcock, Neilson, Mannella, LaFleur & Klint, P.L.L.P., 118 East Main Street, Anoka, MN 55303 (for appellant)

Gerald G. Workinger, Jr., 5705 Susan Avenue, Edina, MN 55439 (for amici curiae Minnesota Bankers Association, Mortgage Bankers Association of Minnesota and Independent Community Bankers of Minnesota)

Considered and decided by Shumaker, Presiding Judge, Randall, Judge, and Peterson, Judge.

S Y L L A B U S

Intervening liens of record that can occur when there are split priorities on a mortgage are entitled to excess proceeds from a foreclosure sale after satisfaction of the more senior part of the mortgage. A junior lien has the option to move up by redeeming, but is not obligated to do so to retain its position. The junior part of a split-priority mortgage gets paid, but only after more senior intervening liens.

O P I N I O N

R. A. RANDALL, Judge

Appellant challenges the district court's order granting respondent's motion for summary judgment. Appellant argues that the district court erred in concluding that appellant's foreclosure sale produced a surplus after appellant's first-priority mortgage was satisfied. Appellant claims that its split-priority junior mortgage must be satisfied also before respondent's second-position mechanic's lien gets paid. We affirm.

FACTS

On March 5, 1998, appellant Bank of Elk River acquired two mortgages, $105,000 each, and two notes from Allied Mortgage on two properties (North and South) Allied sought to develop. Both mortgages were recorded the same day. Allied and appellant did not enter into a construction-loan agreement. Appellant advanced $61,731.41 on the North note and $36,731.41 on the South note between March 5, 1998, and March 23, 1998. On the March 23, the first improvements on the North and South properties were visible.

The district court found respondent Shaw Acquisition Company provided lumber and other building materials to the North property in the amount of $26,432.75 and plans and specifications for the improvement of the South property. No lien waivers were requested or given. On December 24, 1998, respondent filed and recorded a mechanic's lien against both the North and South properties.

On January 26, 1999, respondent filed a summons and complaint to foreclose its mechanic's lien. After negotiations, the bank and Stewart Lumber entered into a stipulation, which split the priority of appellant's mortgages. Appellant had advanced approximately $98,000 before respondent's mechanic's lien