Harter v. Lenmark

Citations: 443 N.W.2d 537; 1989 Minn. LEXIS 191; 1989 WL 86080Docket: C3-88-401

Court: Supreme Court of Minnesota; August 4, 1989; Minnesota; State Supreme Court

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In the case of Harter v. Lenmark, the Minnesota Supreme Court reviewed a court of appeals decision that affirmed a summary judgment favoring Elsie Harter, trustee, in a foreclosure action and deficiency judgment against Voight Lenmark, both individually and as representative of the estate of Catherine Lenmark. The trial court found that demand letters sent to Voight Lenmark were adequate to notify him of payment demands from Catherine's estate. It also ruled against Lenmark's claim that repayment deadlines were extended by oral agreement, allowing Harter to foreclose the mortgages and obtain a deficiency judgment if foreclosure sale proceeds were insufficient.

Voight and Catherine Lenmark owned commercial real property in St. Louis Park, Minnesota, secured by a first mortgage with First Minnesota Savings Bank. To finance other projects, Voight borrowed $150,000 from Kenneth Harter, secured by a mortgage on the property, with subsequent loans totaling $300,000. These loans required monthly interest payments of approximately $4,250 and were originally due in 1985 but were 'rolled over' into new notes with extended due dates.

The April 1985 note, executed by both Lenmarks, replaced the June 1984 note, while Voight executed the second note alone after Catherine's death in August 1985. Catherine's will was probated in September 1985, with a claims period for creditors expiring on January 17, 1986. Kenneth Harter passed away in November 1985, after which his estate's attorney informed Voight that the outstanding notes were due by December 15, 1985, and March 1, 1986, respectively.

A letter dated December 17, 1985, demanded full payment of an unpaid promissory note. Voight had made timely interest payments until November 1985, but these payments ceased after Harter's death. Following the non-payment, Elsie Harter, as trustee, initiated foreclosure proceedings against Voight, both individually and as the personal representative of Catherine's estate. Voight claimed that the notes were orally modified to extend repayment until the associated projects became profitable and later sought to amend his answer to include a statute of limitations defense, arguing that Harter failed to file a timely claim against Catherine's estate.

The trial court granted summary judgment in favor of Harter against Voight and Catherine's estate for $427,686.63, covering the principal amount, interest, and attorney fees. The court ordered a sheriff's sale of the property, with provisions for a deficiency judgment against both Voight and Catherine's estate if proceeds were insufficient.

The court examined Catherine's estate's liability, noting that the record does not confirm Voight's assertion that the St. Louis Park property was held in joint tenancy. If proven, this would negate questions about the estate's liability, as the property would pass to Voight upon Catherine's death. Voight argued that any payment demand should have been made as a claim against the estate under Minnesota law, while Harter contended that two letters sent during the claims period were adequate for notification.

The court disagreed with Harter, clarifying that the letters did not constitute a demand for payment from the estate, only from Voight personally. Unlike a prior case, Peterson v. Marston, where a claim was deemed sufficient, the current letters lacked a direct request for payment and were not in response to a published notice to creditors. Thus, they did not establish a claim against the estate. The court concluded that no valid claim for payment from Catherine's estate was presented in the correspondence.

Harter's trustee argues that no claim was necessary due to section 524.3-803's exception for mortgage enforcement, allowing a mortgagee to act on encumbered estate property without filing a claim. However, the court finds no authorization for entering a deficiency judgment on a debt without a claim. The note-holder seeks such a judgment based on a promissory note, which is not covered by section 524.3-803(c)(1), leading to the reversal of the decision against Catherine Lenmark’s estate. 

The second issue involves Voight's assertion that oral modifications with Ken Harter extended the repayment period of the notes, thereby indicating the debt was not due for three to five years. The trustee counters that the debt is overdue, and Voight claims the alleged modification prevents default on the promissory notes, making foreclosure premature. However, the mortgage terms allow for acceleration and foreclosure if any covenants are violated, including failure to make monthly interest payments. Voight does not assert he made these payments post-Harter's death or that any modification extended interest payment timelines, confirming his default. 

Additionally, Voight was required to maintain payments on the first mortgage held by First Minnesota, with no claim of a verbal modification. First Minnesota has since foreclosed due to Voight’s default. Even if Harter had agreed to postpone principal repayment, Voight’s defaults would still permit the trustee to accelerate the notes and proceed with foreclosure, rendering any proposed modifications irrelevant. The court thus upholds the summary judgment, reversing in part and affirming in part. 

The mortgages in question were executed between June 18, 1984, and April 17, 1985, in favor of Harter's company, SWE Investments, Inc. Following Harter's death, the mortgagee interests were assigned to James Affolter, who later transferred these rights to Elsie Harter for the lawsuit's continuation.