Recent Minnesota Court of Appeals Case regarding Statutory Cancellation

On September 12, 2011, in Robert G. Dimke, et al. v. Naomi Farr, et al, the Minnesota Court of Appeals held that an “unfulfilled condition” of a purchase agreement (“PA”) is a threshold requirement that permits either a buyer or seller to invoke declaratory statutory cancellation of a PA for residential real property under Minn. Stat. § 559.217, subd. 4.  The Court held that absent an unfulfilled condition of the PA, a declaratory cancellation of a PA for residential real property is ineffective.

Here is brief recap on statutory cancellation under MN law:  If a buyer and seller of a residential PA cannot agree to mutual cancellation of a PA, either party may serve notice of cancellation of the PA per Minn. Stat. § 559.217, subd. 3 and 4.  In both scenarios (Cancellation with Right to Cure and Declaratory Cancellation) if the other party does not seek an injunction or if the other party does not “cure” ( in the event of a Cancellation with Right to Cure) within 15 days after service of notice, the PA is cancelled and the earnest money is refunded to the party who served the notice of cancellation.  However, if the other party also attempts a statutory cancellation (often referred to as a “cross-cancellation”) during the 15-day time period, the PA is cancelled and the return of earnest money becomes a litigation issue.

In Dimke v. Farr, the Farrs listed their property and entered into a binding PA with a party named Muir.  The Farr-Muir PA was to close on June 11, 2010, but failed to close.  Muir attempted to mutually cancel the PA, but the Farrs declined.  The Farrs re-listed the property subject to the cancellation of the Farr-Muir PA.  The Farr-Muir PA was never cancelled.  Shortly afterwards, the listing agent for the Farrs showed the property to another party, the Dimkes, and advised the Dimkes that the Farr-Muir PA would be cancelled when the Dimkes entered into a PA with the Farrs (despite having not yet initiated any efforts to cancel the Farr-Muir PA).  The Farrs and Dimkes entered into a second PA for the property which contained language requiring the Farrs “to use their best efforts to provide marketable title by the date of closing” and if the Farrs could not provide marketable title within 30 days after closing, either party has the right to cancel the Farr-Dimke PA.  After the execution of the Farr-Dimke PA, Muir came back and stated that he intended to close on the Farr-Muir PA.  The purchase price of the Farr-Muir PA was significantly higher than the Farr-Dimke PA.  The Farrs attempted to cancel the Farr-Dimke PA due to inability to provide marketable title to the Dimkes.  After the expiration of the 30-day period to provide marketable title, the Farrs served a notice of declaratory cancellation on the Dimkes per § 559.217, subd. 4.  The Dimkes did NOT seek injunctive relief as required by the statute but instead sued the Farrs for specific performance, damages, breach of contract and breach of the implied covenant of good faith and fair dealing.  Each party moved for summary judgment seeking to dismiss the respective claims against them.  The District Court granted summary judgment in favor of the Farrs on the ground that Farr-Dimke PA was void at the expiration of the 15-day period due to the Dimkes’ failure to seek injunctive relief.

The Dimkes appealed the District Court’s decision on the grounds that § 559.217, subd. 4, was inapplicable because the required “unfulfilled condition” did not exist to cancel the PA.  The Court, in analyzing the plain language of the statute, determined that an unfulfilled condition of the PA must exist before notice of cancellation may be served on the other party, and as a result, the District Court erred in granting summary judgment without first determining whether the cancellation notice was even effective.  The Court of Appeals noted that the Dimkes took “immediate action” in the case by initiating a lawsuit within 5 days after service of declaratory cancellation, even though the Dimkes did not seek injunctive relief as required by the statute.  The District Court’s decision was reversed and remanded to reinstate the Farr-Dimke PA and determine whether the declaratory cancellation was effective under § 559.217, subd. 4.

This recent decision raises important questions regarding the enforceability of declaratory cancellation per § 559.217, subd. 4.  Specifically, does this case mean that even if a party does not seek injunctive relief suspending an action for declaratory cancellation, that the PA may still be valid due to a different election of remedies?  How will this decision affect parties’ future ability to cancel residential PA’s per § 559.217, subd. 4?  Stay tuned for the District Court’s determination on remand…

This blog entry is written by Sarah Bennett, an associate attorney at Thomsen Nybeck.  Sarah practices in both the transactional and litigation area of the firm with a primary focus on real estate and business transactions, townhome and condominium law, real estate brokerage law and civil litigation.

Glimmers of Hope in the Twin Cities Real Estate Market

While the headlines of many local publications have continued to lament the downturn in the Minneapolisreal estate market including the number of foreclosures continuing to increase in June of 2011, there are some recent reports of good news.  This is not to say that the real estate market has recovered or that it will not be a long road out but, every ray of hope is welcome in these times.  On September 9, 2011, an article in the St. Paul Pioneer Press reported that the percent of mortgage loans that were delinquent was reduced from the same time last year and was under the national average.  A link to that article is here. In addition, data released recently from the National Association of REALTORS® shows that the number of listings on the market in the Twin Cities area has reduced by over 20%.  A link to the data is here.  As lawyers advising clients on all areas of real estate, we continue alongside our clients, to watch various indicators of the direction the real estate market is heading.  We welcome the two indicators detailed in this blog post.

This blog entry is written by Chris Renz, a shareholder at Thomsen Nybeck. Chris practices in the litigation area of the firm with primary focus on real estate litigation, employment litigation, townhome and condominium law, and criminal law, particularly as the prosecutor for the Metropolitan Airports Commission.

FTC’s MAP Rule

From MARS to MAP

Many real estate professionals have been alerted to and following the developments with the FTC’s somewhat recently enacted MARS Rule.  Now, there’s an even more recent real estate related regulation to become familiar with.

For real estate professionals who try to stay alert to ongoing or new laws impacting their profession, it’s time to consider the FTC’s MAP rule, if you haven’t already come across this.  The Federal Trade Commission’s MAP (Mortgage Acts and Practices – Advertising) rule seeks to prohibit misrepresentations by those who provide information about mortgage credit products to consumers.  As a result, it impacts real estate agents and brokers who may be involved in prequalifying a candidate for a mortgage, offering information about a specific mortgage product, products, or lender, etc.  Beyond the prohibition on misrepresentations, it imposes record-keeping and disclosure duties and obligations.

As usual with Federal legislation, the full text of the rule is not a quick read.  For those inclined to acquaint themselves with the specifics, the entirety of the MAP rule can be found at the FTC’s website, here:
http://www.ftc.gov/os/fedreg/2011/07/110719mortgagead-finalrule.pdf
.  You’ll note the Rule took effect August 19, 2011.  As with any federal law that may impact your business or your business practices, you should consult with your own legal counsel to determine if it applies to you, and if so, how it applies and what you must do to adhere to the law.

For an excellent analysis of the MAP Rule’s application real estate agents and real estate brokerages, this National Association of Realtors(R) (“NAR”) article is worth reading: New FTC Rule May Impact Brokerages.

Very broadly, a commercial communication about any term of a mortgage credit product must not be misrepresented.  Offering information about a specific mortgage product to a consumer (such as a rate sheet containing current interest rates offered by a lender) would trigger the Rule.  The Rule requires records to be maintained for at least two years, and that specific disclaimer language is prominently identified, to protect against misrepresentation claims.  For more information, review the NAR article, the full text of the Rule, or seek the advice of legal counsel.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck. Brad is the chair of the firm’s Transactional Group, and his practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law, and Wind Energy Law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals.

Minnesota Supreme Court Reverses Court of Appeals; Gives Advice On How to Preserve Claims and Avoid Spoliation (An Update on Miller v. Lankow)

On February 25, 2010, I first wrote about the case of Miller v. Lankow.  At the time, I explained why the Minnesota Court of Court of Appeals’ decision that upheld the district court’s dismissal of the plaintiff’s case seemed extreme and inconsistent with existing law.  (Read that post here).  The Minnesota Supreme Court apparently agreed, and on August 3, 2011 it reversed the dismissal and sent the case back to the district court for further proceedings.  (Read the Minnesota Supreme Court’s Opinion here).

Without going into too much detail, the facts of the case involve a property owner who discovered water intrusion problems, which the seller claimed to have fixed, were still causing problems and resulted in mold and other damage.  The buyer provided notice to the seller and the contractors who were involved that he had discovered these defects and that he would pursue legal action if the parties did not reach a resolution.  Several parties attended an inspection at the property where they had the opportunity to view some of the damage.   The contractors and former owners knew they might be sued, but they did not request the ability to conduct further investigation into the cause or extent of the damage.  The owner later repaired the damage without telling the defendants exactly when he planned to start.

After the owner sued the property sellers and contractors for construction defects, water intrusion, fraud and a seller’s failure to disclose defects, the defendants claimed they were not given a sufficient opportunity to inspect the cause and extent of the damage.  They asked the district court to exclude the evidence the plaintiff gathered because they claimed they did not have a similar opportunity to review the same evidence before it was removed and destroyed.  The district court agreed, ordering that the plaintiff may not use any evidence of the defects and damage that the defendants did not see, which was a sanction for “spoliation” (i.e., destroying evidence).  Without this evidence, the plaintiff had no case, and the district court concluded that the case must be dismissed.  The plaintiff appealed to the Minnesota Court of Appeals, which held that the district court had not abused its discretion by sanctioning the plaintiff and dismissing the case.

The concern the Court of Appeals’ decision raised for me was the notion that, even if the defendants have notice of the claim of damage and the potential for litigation, the plaintiff might still have to wait to make repairs to his home while the defendants seemed to be in no particular hurry to investigate the claims against them.  Sometimes, particularly where water intrusion is at issue, prompt repairs are necessary to avoid further property damage and even personal injury.

The Minnesota Supreme Court agreed that legitimate concerns about destroying evidence before others have had a chance to inspect it must be weighed against the reasonableness of asking the party in control of the evidence to maintain it.  The Supreme Court held that, as has always been the case, the party with custody of evidence has a “duty” to preserve relevant evidence to permit other parties to inspect the evidence for use in litigation.  It also remains true that  party who breaches this duty may be sanctioned for spoliation, whether or not the breach was committed intentionally or in bad faith.

But a custodial party’s duty to preserve evidence is not boundless.

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[T]he duty to preserve evidence must be tempered by allowing custodial parties to dispose of or remediate evidence when the situation reasonably requires it.

The Court identified a three-factor test for evaluating a case of spoliation:

“(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party and, where the offending party is seriously at fault, will serve to deter such conduct by others in the future.”

(citing Schmid v. Milwaukee Electric Tool Corp., 13 F.3d 76, 79 (3d Cir. 1994)).  “[S]anctions are not appropriate when the custodial party has a legitimate need to destroy evidence, and it appears from the totality of the circumstances that noncustodial parties have received sufficient notice to protect themselves by taking steps to inspect or preserve the evidence and nevertheless do nothing.”

The Court went on to offer recommendations to avoid a sanction for spoliation.  Ideally, an owner will call a meeting or send a letter “indicating the time and nature of any action likely to lead to destruction of the evidence, and offering a full and fair opportunity to inspect.”  Obviously, any notice of the meeting or of an offer to inspect should be in writing.

People might be amazed to realize that this issue is just one hurdle to sustaining a successful case for construction defects.  There also are notice requirements under certain statutory warranties (as well as other requirements to satisfy prior to commencing suit), as well as statutes of limitation which differ from claim to claim and the little-known statute of repose.  There also are agreements by which a party may have reduced the time during which it has to raise a claim for construction defects.  To help navigate the issues that exist, parties should consult with an attorney knowledgeable in the area of construction and construction defects.  At Thomsen Nybeck, we know these issues, and we can help.  Find out more at www.tn-law.com or call us at 952.835.7000.

Entry by Matt Drewes.  Matt Drewes is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-member Community Association Representation Group and co-leads the firm’s construction litigation group.  Matt practices in the areas of business and real estate litigation, construction litigation, community association law, debtor/creditor law, insurance and employment.  He has been quoted in articles appearing in the Minneapolis StarTribune, Minnesota Lawyer, and on websites such as Yahoo!Finance.com, Bankrate.com and HOALeader.com, and has been included in Minneapolis/St. Paul Magazine’s list of Rising Stars for several years.  He can be reached at mdrewes@tn-law.com.

Some reprieve from MARS Rule for real estate agents

Some “carve out” from the FTC’s MARS rule is now available for real estate agents!

In a press release issued today (July 15th) from the Federal Trade Commission (FTC), it appears that the FTC has recognized that its Mortgage Assistance Relief Services (MARS) Rule, which has been posted about on the TN Legal Update blog several times previously, should not be enforced against agents engaged in listing short sale property, so long as the requirements set forth in the modification to the MARS Rule are met.  Here’s an excerpt from the FTC’s press release, issued today:

At this time, the Commission has announced that it will not enforce most of the provisions of the MARS Rule against real estate professionals who are engaged in obtaining short sales for consumers. The stay applies only to real estate professionals who: 1) are licensed and in good standing under state licensing requirements; 2) comply with state laws governing the practices of real estate professionals; and 3) assist or attempt to assist consumers in obtaining short sales in the course of securing the sales of their homes. The stay exempts real estate professionals who meet these requirements from the obligation to make disclosures and from the ban on collecting advance fees. These professionals, however, remain subject to the Rule’s ban on misrepresentations.

The Commission stated that the stay does not apply to real estate professionals who provide other types of mortgage assistance relief, such as loan modifications. In addition, the FTC will continue to enforce the Rule and Section 5 of the FTC Act, which prohibits unfair and deceptive practices, against all other providers of mortgage assistance relief services.

http://www.ftc.gov/opa/2011/07/mars.shtm

Please note, this is not a repeal of the MARS Rule, or an exemption for real estate agents in all transactions.  Instead, its a limitation of the scope/applicability of the MARS Rule to real estate transactions where listing agents are effectively involved in mortgage relief as an incidental or secondary service, where the primary focus of the transaction is to get the seller’s home sold.  This is great news to real estate agents and brokers nationwide who have been wrestling with the various MARS disclosure requirements, the ban on up-front fees, and some of the hurdles the MARS rule presented to an already burdened and heavily regulated real estate industry.

Since the MARS Rule itself remains in place, and obligations and responsibilities remain, it is wise to discuss the application of the MARS rule to your own business practices with your own legal counsel.  Review the full FTC Press Release here: 
http://www.ftc.gov/opa/2011/07/mars.shtm
.  Review the FTC’s statement here:
http://www.ftc.gov/os/2011/07/110714marsrealestatepolicy.pdf

Keep the Thomsen Nybeck Legal Update blog bookmarked and check back for more/future updates regarding the FTC MARS rule.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck. Brad is the chair of the firm’s Transactional Group, and his practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law, and Wind Energy Law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals.

DWI – Wheelchair is not a motor vehicle

A recent Minnesota Court of Appeals case held that an electric scooter used by a physically disabled man is not a motor vehicle for DWI purposes. As a result, the Court overturned his conviction for 3^rd Degree DWI.

The definition of motor vehicles includes “every vehicle that is self-propelled”. But, pedestrians are defined as “any person afoot or in a wheelchair.” The definition of wheelchair includes “any manual or motorized wheelchair, scooter, tricycle, or similar device used by a disabled person as a substitute for walking.” In large part, these definitions provided the basis for the Court’s ruling.   

What constitutes a ‘motor vehicle’, though, is not as cut-and-dry as these definitions may make it seem, and will even cover the absurd. For instance, a Minnesotaman pleaded guilty to DWI for driving home a customized, motorized La-Z-Boy with a 0.29 blood alcohol concentration level. Similarly, a riding lawnmower has proven to be a motor vehicle for DWI purposes.

The bottom line is that if you are charged with operating a motor vehicle, whatever kind of motor vehicle it may be, while intoxicated, it is important to hire counsel to guide you through the process and present the best defenses available. 

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This blog entry is written by James Gempeler, an associate at Thomsen Nybeck. James practices in the litigation area of the firm with a focus on general civil litigation, real estate litigation, construction litigation and criminal law, particularly as the prosecutor for the Metropolitan Airports Commission.

Real Estate Licensing Renewal / Department of Commerce Alert

The following alert was sent today by the Minnesota Association of Realtors® to its members, identifying that in the event of the looming Minnesota state government shut-down, license renewals (which were due on June 15th to be timely) may come to a grinding halt.  This impacts many industries licensed and regulated by the MN Department of Commerce, not the least of which is the real estate industry.

Brokers and agents – please note this issue, beware of the potentially enormous consequences of failure to timely renew, and get your license renewal processed ahead of June 30th!!  See below.

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TIMELY LICENSE RENEWALS:  The timely renewal of all real estate licensees who were eligible for renewal this year was due on June 15th.  If a licensee did not have all his required real estate education credits and his/her real estate broker was unable to renew the license, that individual MAY NOT continue to transact business, either as a real estate broker or salesperson, after June 30, 2011.

If the licensee takes his continuing education during the period of June 15 and June 30th in an effort to re-apply for his/her license, please understand there could be a delay in receiving the renewal if there is a government shutdown.  A real estate course provider legally  has ten (10) days to upload the completion of the continuing education credits to the Department of Commerce electronic data base.  If a licensee waits until the last minute to take his or her continuing education, the completion of the education may not be upload to the Pulse Portal system before June 30th.  If a government shutdown occurs, the Pulse Portal system will not be operational beginning on July 1st and the application for a license renewal CAN NOT be processed.  The licensee will be considered unlicensed and CAN NOT CONTINUE TO TRANSACT REAL ESTATE BUSINESS.

Additionally, should a government shutdown occur, a current licensee will be unable to transfer his license from one brokerage to another.  Nor will the real estate examination for new licensees be available until the government services are re-instated.

Please Note:  This is not an official message from the MN Department of Commerce.  This is MNAR’s interpretation of statutes and is sent to our members to create an awareness of how the potential shutdown could impact the real estate industry.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck. Brad is the chair of the firm’s Transactional Group, and his practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law, and Wind Energy Law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals.

OPERATION DRY WATER – Increased crackdown on BWI this weekend

As part of a national “Operation Dry Water” campaign, state conservation officers, county sheriff’s deputies, and coast guard officers will be out in full force this weekend (June 24-26) to crack down on boating while intoxicated (“BWI”). All 50 states participated in Operation Dry Water last year, resulting in thousands of boaters being cited and hundreds being arrested for operating a boat while intoxicated. For more information on Operation Dry Water, read more here.

It is illegal for any person to operate a boat while intoxicated, defined as having a blood alcohol concentration above 0.08. Penalties for a BWI can include heavy fines, loss of boating privileges, and even jail time. Additionally, a BWI conviction will appear on your driver’s license record, and will be used to enhance any future driving, boating, or snowmobiling under the influence charges.

Remember, if you are arrested for BWI whether as a result of this weekends’ increased enforcement or otherwise, do not hesitate to contact the attorneys at Thomsen Nybeck for your defense in the matter. It is important that you have proper representation to guide you through the process and make sure you get the best resolution possible.

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This blog entry is written by James Gempeler, an associate at Thomsen Nybeck. James practices in the litigation area of the firm with a focus on general civil litigation, real estate litigation, construction litigation and criminal law, particularly as the prosecutor for the Metropolitan Airports Commission.

Increased DWI Enforcement on Minnesota Roads

According to a news release from the Office of Communications for the Minnesota Department of Public Safety, there will be increased DWI enforcement in the state’s 13 counties with the highest combined total of alcohol related deaths and serious injuries.  Those counties are: Anoka, Carver, Dakota, Hennepin, Itasca, Olmsted, Ramsey, Rice, St. Louis, Scott, Sterns, Washington, and Wright.  For more information see the news release read here.

Remember that if you are arrested for DWI whether as a result of this weekends’ increased enforcement or otherwise, do not hesitate the attorneys at Thomsen Nybeck for defense in the matter.

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This blog entry is written by Chris Renz, a shareholder at Thomsen Nybeck. Chris practices in the litigation area of the firm with primary focus on  real estate litigation, employment litigation, townhome and condominium law, and criminal law, particularly as the prosecutor for the Metropolitan Airports Commission.

Navigating MARS

An attorney’s insight on MARS

Hopefully the title makes you wonder what an attorney would know about space exploration.  Since my fourth-grade dream of becoming an astronaut didn’t quite pan out, I don’t have much insight to offer about the planet Mars.  Instead, this article will serve as an update to real estate agents, brokers, and real estate brokerage companies impacted by the FTC’s Mortgage Assistance Relief Services (“MARS”) rule.

In short, the MARS rule (the “Rule”) regulates providers of mortgage assistance relief, particularly those businesses who deal with mortgage modification, short sale, and the like (including but not limited to real estate agents and brokers, mortgage brokers, lenders and servicers, accountants and financial planners, and attorneys.  A description of the businesses the MARS rule applies to, and an overview of how/when it applies can be found at the FTC’s “Mortgage Assistance Relief Services Rule: A Compliance Guide for Business”, found here.

Among other things, the Rule requires specific disclosures for oral, written, video, radio, and telephone advertising of MARS services and for referrals to MARS providers; it prohibits the collection of upfront fees for MARS services; it allows contracts between MARS providers and consumers to be cancelled by the consumer; etc.

Resources to help understand MARS

• MARS Memo – For real estate agents and brokers, particularly those who are members of the Minnesota Association of Realtors® (“MNAR”) it is important to note that a memo offering a comprehensive overview of the MARS rule and its application to the real estate brokerage business was published in the MNAR eResource, here:
  http://www2.realtoractioncenter.com/site/MessageViewer?em_id=52481.0
  .

• MARS Videos — The MNAR’s CEO, Chris Galler, created videos explaining the rule, which help real estate brokerage companies and agents understand how the rule impacts them, and what can be done to comply with the rule.  Those June 6, 2011 video resource updates can be found here:
  http://www.mnrealtor.com/WCM_MNAR/Publications/Video_Resource/WCM_MNAR/PublicationsSection/Video_eRESOURCE.aspx?hkey=d1ae2620-380a-4e7f-ac76-bd85278c25e4
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• For those who would like to read the actual rule, the 50+ page rule can be found at the Federal Trade Commission website, here:
  http://www.ftc.gov/os/fedreg/2010/december/R911003mars.pdf
  

• Disclosure forms (for real estate agents and brokers) have also been released by the MNAR, to help ensure that MNAR members have the tools to comply with the new disclosure obligations.  If you are not already using these forms within your brokerage, or aware of them, you might want to verify what forms your brokerage company is using to address the required MARS disclosures, in the event that you offer MARS services.

Why should we care?

This recent federal rule carries penalties for violation in the amount of $16,000 per violation.  Although many in the real estate industry did not expect to be navigating the craters and rough terrain of MARS, it is of great importance that those who might be classified as “MARS providers” familiarize themselves with the rules, and learn how to comply with them.  Developing a plan for compliance, a policy to ensure agents/employees follow suit, and ensuring the appropriate disclosures are made may require involving your attorney or legal counsel.

As you begin to explore MARS and adapt to the new environment, it’s wise to understand the rules of the road and obtain appropriate guidance and counsel.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck. Brad is the chair of the firm’s Transactional Group, and his practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law, and Wind Energy Law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals.