If a husband in a divorce settlement gives up his marital interest in the homestead to his wife and receives a lien on the homestead in excess of $67,000, is the husband’s only remedy if the wife does not pay to foreclose his lien on the homestead? “No,” says the Minnesota Court of Appeals; the husband can go to court and get a personal judgment against the wife for breach of her payment obligation according to the recent decision of In re the Marriage of Nelson, No. 10-2239 (Minn. App. Dec. 5, 2011).
The Nelsons divorced in 2001, entering into a marital-termination agreement (MTA) which the district court incorporated into a judgment dissolving their marriage. The judgment awarded the homestead to the wife, subject to a lien in favor of the husband in the amount of $67,725, payable with interest when one of the following three events occurred: (a) the wife sold the homestead, (b) the wife remarried, or (c) the youngest child turned 18. Of course, the event over which no one had control occurred first: the kids grew up and in 2008 the youngest child turned 18, at which time the husband demanded payment. The wife refused payment, arguing that there was no equity left in the homestead on account of the housing recession and that there remained a substantial balance on the home’s first mortgage. The wife argued that these circumstances meant that the husband was entitled to nothing, since, in her view, his lien was now worthless.
While the husband did not dispute the wife’s arguments on the homestead’s lack of equity, he still demanded payment and went to court to enforce the dissolution judgment. The district court ruled in favor of the husband and entered a money judgment against the wife in the amount of the $67,725 lien, plus interest at the rate of 6.5% as provided in the MTA, for a total judgment of $106,610.04. The wife appealed to the court of appeals, arguing that the trial judge abused her discretion in awarding a personal judgment against the wife.
The case turns on some confusion and lack of clarity in the use of the word “lien” in the context of the MTA. The court of appeals noted that Minnesota law recognizes that a marital lien is considered personal property and not an interest in real property. The court of appeals was troubled by the lack of clarity of the dissolution judgment: “In sum, the dissolution judgment awards wife the homestead, subject to paying husband $67,725 plus interest. There is no further description of the lien or its enforcement. * * * Unfortunately, the original marriage-dissolution judgment does not clearly resolve the matter.”
The court of appeals rejected the wife’s arguments that the husband’s exclusive remedy for enforcement of his rights was foreclosure of his lien on the homestead and that the husband’s security interest did not create a separate obligation of the wife to pay the husband any amount. The court said that the dissolution judgment failed to make clear whether the husband was limited to foreclosing the lien and did not even clarify (although it was apparently assumed) that the husband’s lien was subordinate to the mortgage financing on the homestead. Because of this lack of clarity, the court of appeals concluded that the trial judge had the authority and the discretion to resolve the ambiguity. The court of appeals then concluded that the trial court judge reached a reasonable resolution when she concluded that the dissolution judgment did not expressly limit the husband to payment strictly from the proceeds of the sale of the homestead. Accordingly, the entry of a personal judgment against the wife for the lien amount, plus interest, was allowed to stand. Moral of the story: say what you mean and mean what you say in a MTA; otherwise the courts will be forced to interpret the agreement, which always leaves at least one party disappointed.