Legal Memorandum: Mortgage Foreclosure Statute of Limitations

Issue: Under Minnesota law, is a bank entitled to receive interest on an unpaid principal balance of a mortgage if they have written off the note and it is now beyond the statute of limitations?

In Lundberg v. Northwestern National Bank, 216 N.W.2d 121 (Minn. 1974), the plaintiffs brought an action to enjoin the foreclosure of a real estate mortgage by the defendant lenders.  Id. at 122.  The trial court temporarily enjoined the foreclosure, but after trial ordered judgment for the lenders.  Id.  The issue on appeal was whether the lenders were entitled to recover interest on the

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principal balance of the mortgage when the promissory note secured by the mortgage was barred by the statute of limitations.  Id.  Importantly, both the promissory note and the mortgage stated that interest would accrue at the rate of 6% per annum.  Id. at 123.  The trial court determined that the lenders were entitled to interest at the rate 6% per annum.  Id. at 124.

On appeal, the plaintiffs contended that the defendants were not entitled to interest on the principal sum of the mortgage when the remedy to enforce payment of the note was barred by the statute of limitations.  In other words, they argued that the mortgage was valid only as to its principal amount because it was a separate document from the promissory note and incapable of earning interest, which was separately set forth in an unenforceable promissory note.  Id. at 123.      

The Supreme Court of Minnesota recognized that “a mortgage and a note are separate and independent contracts, different in their nature and purpose.”  The court further observed that

[t]he note is […]

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