MidCountry Bank v. Krueger

In March 1991, James and Nancy Krueger (defendants) purchased land referred to as the Hinshaw property. In May 2004, the Kruegers purchased two additional parcels of land and executed and recorded a mortgage in favor of MidCountry Bank (plaintiff) secured by the two parcels and the Hinshaw property. Minnesota law required that the recorder’s office maintain two separate indexes: one organized by party name and the second organized by legal description. The county recorder properly recorded MidCountry’s interest in all three parcels in the party-name index but failed to include the Hinshaw property in the legal-description index. In 2006 Carolyn Hinshaw purchased the Hinshaw property from the Kruegers. Prior to Hinshaw’s purchase, the title company searched the legal-description index and did not find any encumbrances against the Hinshaw property. However, the title company did not search the party-name index. It was undisputed that had the party-name index been searched, MidCountry’s interest would have been discovered. In May 2006, Hinshaw closed on the Hinshaw property and executed and recorded a mortgage in favor of PHH Home Loans, LLC (PHH). MidCountry’s mortgage was not satisfied at Hinshaw’s closing. In October 2006, the county recorder corrected its error and included the Hinshaw property in the legal-description index. In 2007 MidCountry foreclosed on its mortgage. During the foreclosure action, MidCountry named the Kruegers, Hinshaw, and PHH as defendants. MidCountry alleged it was entitled to summary judgment because Hinshaw was obligated to search both indexes prior to closing. Therefore, Hinshaw had constructive notice of MidCountry’s interest and was not a bona fide purchaser. Hinshaw alleged that because MidCountry’s interest was not properly indexed, she did not have constructive notice. The district court found in favor of Hinshaw, and MidCountry appealed.