Minnesota Appeals Court: 'Nice Try, But No Dice!' To Hubby's Slick Maneuver To Subsequently Void 'Wife-Unsigned' Refinanced Home Mortgage

Minnesota Public Radio reports:

• File this one under "nice try." The Minnesota Court of Appeals [] rejected a Grasston man's attempt to stop foreclosure proceedings against him because he listed himself as "single" on the mortgage application even though he was married.



• Thomas Graikowski of Grasston refinanced his mortgage in 2006, two days after he married a woman who didn't know about the mortgage, didn't attend the closing, and didn't sign the loan application.



• He defaulted on the $170,000 loan a year later, the marriage ended a year after that, and two years after the divorce, the mortgage company foreclosed on both of them. He attempted to have the mortgage declared void because his then-wife didn't sign it.



• Under Minnesota law, the Appeals Court said, the Graikowski's mortgage is void because it lacked his wife's signature, but it said the law can't be used by someone who signed a mortgage to avoid repaying it.



• Not that it hasn't been tried before. The court cited a Minnesota Supreme Court case in which a Buhl man, Stanley Bozich, declared himself "single" on a mortgage application even though he was married. His wife died and he remarried, then he attempted to cancel the mortgage on the basis that his new wife didn't sign it. The state Supreme Court had a word for that: "fraud."



• In [the current] ruling, the Court of Appeals said Mr. Graikowski misrepresented his marital status either intentionally or unintentionally, and can't walk away from the obligation because of it.(1)

Source: The case of the unknowing spouse and the mortgage.

For the ruling, see HSBC Mortgage Services, Inc. v. Graikowski, A11-1456 (Minn. App. March 26, 2012).

(1) The Minnesota Appeals Court explained why it refused to void the mortgage in this case, despite the fact that the wife neither signed the mortgage, nor even knew of its existence:

• Despite the plain language of section 507.02, "even though great importance is attached to the homestead right, under certain circumstances a [nonsigning spouse] may be estopped from denying a sale of the homestead even if the statutory requirements are not met." Dvorak, 285 N.W.2d at 677-78 (requiring the presence of three factors for successful application of equitable estoppel: "[1] the nonsigning spouse's consent and full knowledge of the transaction, [2] retention of benefits, and [3] delivery of possession to the grantee, who typically took possession and made valuable improvements"); see St. Denis v. Mullen, 157 Minn. 266, 270-71, 196 N.W. 258, 259-60 (1923) (estopping nonsigning wife from challenging conveyance when wife and husband were separated for 32 years, wife knew husband lived with another woman and knew husband died, wife failed to timely contest husband's conveyance to another woman, and an innocent purchaser was involved).
  
  In Dvorak, the supreme court stated that "detrimental reliance by the party seeking relief is critical to a finding of estoppel" and declined to estop the nonsigning spouse from challenging the validity of the conveyance under section 507.02 because the party seeking relief could not show detrimental reliance. Dvorak, 285 N.W.2d at 678; cf. Karnitz v. Wells Fargo Bank, N.A., 572 F.3d 572, 574-75 (8th Cir. 2009) (noting Dvorak factors and estopping both signing and nonsigning spouses from challenging the validity of their mortgage because nonsigning spouse knew about and intended to mortgage her homestead, retained the benefit of the mortgage, and lender significantly changed its position by lending couple over $130,000).
  
  In this case, the parties do not dispute that the property was Graikowski's homestead and that he was married to Coleman when he alone signed the mortgage conveying a property interest to HSBC. Under the plain language of section 507.02, Graikowski's mortgage is void because it lacked Coleman's signature. But this does not end our analysis, because no Minnesota state court case supports the application of section 507.02 to void a conveyance solely to protect a signing spouse. To the contrary, the Minnesota Supreme Court has estopped a signing spouse from challenging the validity of a conveyance under section 507.02 in Bozich v. First State Bank of Buhl, 150 Minn. 241, 184 N.W. 1021 (1921).
  
  Bozich, who was married to Helda, "represented to the bank in his application for the loan, and in response to a direct question, that he was a single man, and it was so recited in the mortgage and in the acknowledgment." Bozich, 150 Minn. at 242, 184 N.W. at 1021. The bank "believed and relied upon such representation and by it was induced to make the loan and take the mortgage [on Bozich's homestead]." Id. The supreme court stated that Bozich knew that his wife should sign. Whether he knew the full legal effect of a failure to sign when the mortgage was upon the homestead is not apparent. He knew that the bank supposed it was getting a good lien and his representation was necessarily fraudulent. Id. After Helda died, Bozich and his new wife brought an action to cancel the mortgage on the basis that Helda did not join it. The district court said:
  
  Stanley Bozich unquestionably perpetrated a fraud on the defendant. The purpose of estoppel is to prevent fraud resulting in injustice. If any state of facts justifies the application of the doctrine of estoppel it ought to be applied here. Stanley obtained $3,000 from the defendant by falsely representing that he was a single man. He now asks the court to release the mortgaged property from the lien of the mortgage without requiring him to pay the loan. His wife is dead. No one will be benefited by such decree but the party who perpetrated the fraud. The courts cannot be used for such a purpose. Id. at 242-43, 184 N.W. at 1021 (quotation omitted).
  
  The supreme court agreed with the district court's result and said:
  
  Many cases, speaking directly to the facts presented and with emphasis upon the importance of preserving unimpaired the homestead right, have used language from which on casual view an inference might be drawn that an estoppel cannot be invoked at all when a spouse fails to sign. Usually in these cases the estoppel was predicated upon covenants in the conveyance. . . . There are cases holding or implying that an estoppel may be invoked from facts apart from the covenants. . . . The defendant does not predicate the estoppel which it invokes upon the covenants in the mortgage. Upon inquiry made Bozich fraudulently represented that he was unmarried and by his misrepresentation induced the defendant to part with $3,000 upon the faith of the proffered security. The fraudulent misrepresentation is the basis of the estoppel claimed. Id. at 243, 184 N.W. at 1021-22 (citations omitted).
  
  The supreme court held that:
  
  [W]here as here the mortgagor, a married man, procures a loan on his homestead by fraudulently representing that he is unmarried, and afterwards his wife dies, ownership remaining in the meantime unchanged, the situation then being that a mortgage executed by himself alone is valid, he will not be heard to say in a court of equity that the mortgage which he made when his wife was living was void and will be held estopped to assert its invalidity. Id. at 243-44, 184 N.W. at 1022.
  
  Graikowski argues that nothing in the record suggests that he knew that his wife needed to sign the mortgage, that he knew that the documents he signed at closing indicated that he was single, or that he intended to perpetrate a fraud. He argues that at all times he acted in good faith. His arguments are unavailing. "In the absence of fraud or misrepresentation, a person who signs a contract may not avoid it on the ground that he did not read it or thought its terms to be different." Gartner v. Eikill, 319 N.W.2d 397, 398 (Minn. 1982); see Bus. Bank v. Hanson, 769 N.W.2d 285, 288 (Minn. 2009) (indicating that a mortgage is a contract).
  
  Like the supreme court in Bozich, we are unpersuaded by Graikowski's claim that the mortgage, which he executed two days after his marriage to Coleman, is void because she did not sign it. Although on January 25, 2006, Graikowski's response to the loan officer's direct inquiry about his marital status was true, Graikowski signed the loan application on June 26, after his marriage to Coleman. In the loan application, Graikowski represented that the information provided was true and correct "as of the date set forth opposite [his] signature[, January 26, 2006,] and that any intentional or negligent misrepresentation of [the] information contained in [the] application may result in civil liability."
  
  Moreover, Graikowski represented in the application that "the Lender . . . may continuously rely on the information contained in the application, and I am obligated to amend and/or supplement the information provided in this application if any of the material facts that I have represented herein should change prior to closing of the Loan." (Emphasis added.)
  
  When Graikowski signed the loan application on June 26, 2006, the information contained in it—that he was a "[s]ingle man"—was false. Graikowski was obligated to correct that information and did not do so. Based on Graikowski's false representation about his marital status, HSBC loaned him $170,100, believing that its loan would be secured by a first mortgage against his homestead. Graikowski's assertion that he did not read the application at the closing on June 26 has no legal significance, and the district court properly concluded that it does not create a genuine issue of material fact.
  
  The equitable estoppel factors articulated in Dvorak are not applicable here because, unlike Dvorak, HSBC seeks to estop only a signing spouse from challenging the validity of a conveyance. In Dvorak, a purchaser sought to estop a nonsigning wife from challenging the validity of a contract for the sale of her homestead. Dvorak, 285 N.W.2d at 677. In this case, albeit through marriage dissolution, Coleman, the nonsigning spouse, claims no interest in the homestead.
  
  We conclude that Graikowski, as the signing spouse, is estopped from challenging the validity of his mortgage because (1) he procured the conveyance through an intentional or negligent misrepresentation of fact, (2) the lender relied on the misrepresentation to its detriment, and (3) he retained the benefits.