July 6th, 2012
When a married individual purchases homestead property in his or her name alone (or refinances a mortgage on homestead property owned in one spouse’s name), the non-owner spouse will, nonetheless, be required to sign a number of documents at closing. This is because Minnesota Statutes Section 507.02 requires both spouses (whether an owner or not) to sign documents conveying an interest in homestead property, including mortgages. The original intent of this law was to protect a non-owner spouse from the unilateral conveyance of the homestead by owner spouse. Conveyances of the homestead that are not signed by both spouses are generally void.
In HSBC Mortgage Services, Inc. vs. Graikowski, __ N.W.2d __ (Minn. Ct. App. 2012), the Minnesota Court of Appeals decided a case in which an unmarried borrower, Graikowski, applied to refinance a mortgage on his homestead, but married two days before closing. The mortgage was not signed by the non-owner spouse. Graikowski defaulted on the mortgage and the lender initiated foreclosure proceedings. Graikowski argued that the mortgage was void because the mortgage lacked his wife’s signature. If Graikowski’s argument was successful, HSBC could not foreclose on the property, and would have no interest in the property.
The Court of Appeals dismissed Graikowski’s argument and found the mortgage to be valid. The Court of Appeals determined that Graikowski was “estopped” (i.e., legally prevented) from asserting that the mortgage was void because Graikowski had misrepresented his marital status in his loan application.
In most closings, as in Graikowski, a borrower signs a loan application to initiate the underwriting process. The borrower signs a second loan application at the time of closing (which may be several weeks or months after the initial loan application was signed). When signing a loan application, a borrower affirms that the statements contained therein are true and correct and that the borrower will correct any erroneous information contained on the loan application. Graikowski committed a misrepresentation by signing the second loan application as a “single man”. Had Graikowski correctly represented his marital status, HSBC would have required Graikowski’s spouse’s signature on the mortgage, and the requirements of § 507.02 would be satisfied. The Court of Appeals would not allow Graikowski to benefit from his own misrepresentation.
The decision in HSBC Mortgage Services, Inc. v. Graikowski confirms existing law that lenders are allowed to rely on, as true, the representations made by their borrowers. The decision also provides a cautionary tale to borrowers to inform their lenders of changes that may affect their financing.