Legal Memorandum: Mortgagor's Equity of Redemption in MN

Issue: Whether a mortgagor with no equity in a mortgaged property would be considered as having ‘no interest in the property’ under Minnesota law.

            No cases were located that say in plain language that a mortgagor has no interest in mortgaged property if he has no equity in the property, but several cases suggest as much in different contexts.

One scenario could be a contract for deed.

Under a contract for deed for the purchase of real estate, the vendee is the equitable owner of the property, but the vendor retains legal title as security for the purchase price of the property.  The vendee’s equitable interest—in this case Brownstone’s interest under the contract from Blumberg—is mortgageable. See Stannard v. Marboe, 159 Minn. 119, 120, 198 N.W. 127 (1924) (vendee has equitable title capable of being mortgaged); see also G. Nelson and D. Whitman, Real Estate Finance Law § 3.35, at 127 (2d ed. 1985). The mortgagee does not have a lien on the real property, but the mortgage extends only to the equitable interest held by the mortgagor.  See Rosendahl v. Mudbaden Sulphur Springs Co., 144 Minn. 361, 362-63, 175 N.W. 609 (1919).  The mortgage is enforceable only so long as the contract for deed is kept in force.

A mortgage lien on a vendee’s interest is extinguished with the cancellation of the contract for deed.

Gilbert Bldrs., Inc. v. Community Bank of DePere, 407 N.W.2d 706, 708-09 (Minn. Ct. App. 1987).

A judgment lien does not attach […]