STATE OF MINNESOTA
IN COURT OF APPEALS
Darrell L. Runge,
Donald L. Runge, et al.,
Filed November 2, 1999
Rock County District Court
File No. C2-92-14
William J. Wetering, Hedeen, Hughes, Wetering & Kness, 1206 Oxford Street, PO Box 9, Worthington, MN 56187 (for appellant)
Considered and decided by Halbrooks, Presiding Judge, Klaphake, Judge, and Anderson, Judge.
Appellant Roger Erickson appeals from the district court's summary judgment order granting respondent Darrell Runge interest on a mortgage lien from the date of the delivery of the deed in lieu of foreclosure through the date of the entry of judgment. Appellant contends interest should not accrue after delivery of the deed in lieu of foreclosure. Because we conclude respondent's interests in the mortgage lien and fee title were not merged when respondent received the deed in lieu of foreclosure, we affirm the district court's order granting summary judgment.
Donald and Jeanne Runge's property is subject to a first mortgage lien by Minnwest Bank Luverne. Appellant Roger Erickson holds an April 3, 1991 judgment against Donald Runge in the amount of $25,095. That judgment is a third lien on the property.
Donald Runge defaulted on the second mortgage in 1991, and on January 7, 1992, respondent commenced an action to foreclose the mortgage. On January 22, 1992, Donald Runge and Jeanne Runge executed and delivered to respondent a warranty deed in lieu of foreclosure. The deed contained specific anti-merger language, providing that the lien on the second mortgage was not to be merged into the deed in lieu of foreclosure.
Appellant later appeared in the action and challenged the priority and amount of respondent's mortgage lien. After an extended delay as a result of proceedings in federal bankruptcy court in South Dakota, the parties stipulated to all issues other than the value of respondent's lien.
On August 24, 1998, the parties submitted this issue to the district court in the form of a motion for summary judgment. The district court heard the issue and issued an order on January 21, 1999, finding respondent entitled to the principal amount of the mortgage and accrued interest until entry of judgment, as well as attorney fees and costs of collection. This amount was reduced by the net income respondent received from the property during the time he was a mortgagee in possession under the deed in lieu of foreclosure.
The district court also directed the sheriff to sell the real estate in order to satisfy the various liens on the property. Appellant disputed inclusion of accrued interest on respondent's mortgage lien from January 22, 1992, the date the deed in lieu of foreclosure was delivered to respondent, and filed the instant appeal.
The dispute in this case involves the value of respondent's mortgage lien. Respondent contends he is entitled to the unpaid principal plus the accrued interest until the date of the foreclosure sale. Appellant argues respondent is not entitled to the interest accrued after respondent received the deed in lieu of foreclosure on January 22, 1992. According to appellant, receipt of the deed in lieu of foreclosure satisfied any obligations Donald Runge owed to respondent, and allowing interest to accumulate beyond January 22, 1992, erodes any equity appellant may be able to redeem from the foreclosure sale.
Appellant, however, has cited no caselaw to support his proposition that release of a mortgagor from personal liability on the underlying indebtedness at the time of the delivery of the deed in lieu of foreclosure satisfies the value of the mortgage lien. Likewise, we have found none. The issues raised by appellant are governed by the law regarding merger of the legal and equitable interests in real property.
The theory [of merger] is that when a mortgagee's interest and the fee title coincide and meet in the same person, the lesser estate, the mortgage, merges into the greater, the fee, and is extinguished.
Resolution Trust Corp. v. Independent Mortgage Servs., Inc., 519 N.W.2d 478, 482 (Minn. App. 1994) (quotation omitted), review denied (Minn. Sept. 28, 1994). But, whether merger occurs depends on the intent of the person in whom the interests are united. Where a merger would frustrate the interests of the party holding both estates and that party's intent regarding merger has not been expressed, merger will not be presumed to occur. Resolution Trust Corp., 519 N.W.2d at 482.
The evidence in the record indicates respondent did not intend to merge his interests. In this case, maintaining separate legal status as both a mortgagor and a mortgagee was advantageous to respondent, and therefore the law presumes he did not intend a merger. See Losleben v. Losleben, 199 Minn. 227, 231, 271 N.W. 463, 464-65 (1937) (stating "[a] merger will not be held to result wherever a denial of a merger is necessary to protect the interests of the mortgagee.") (quotation omitted). Moreover, the deed contains an unambiguous anti-merger clause evidencing respondent's intent not to merge his interests. See GBJ, Inc., II v. First Ave. Inv. Corp., 520 N.W.2d 508, 511 (Minn. App. 1994) (holding when deed in lieu of foreclosure contained an unambiguous anti-merger provision the mortgagee's interests did not merge), review denied (Minn. Oct. 27, 1994). Finally, appellant's argument (that respondent believed the deed in lieu of foreclosure satisfied any obligation owed to him by Donald Runge) does not, standing alone, demonstrate respondent intended to merge his interests.
Accordingly, we conclude respondent did not forfeit his rights as mortgagee when he took the deed in lieu of foreclosure. The district court's order granting summary judgment is, therefore, affirmed.