Opinion
No. C6-00-1545.
Filed February 20, 2001.
Appeal from the District Court, Dakota County, File No. C5-99-7919.
Thomas C. Atmore, Leonard, O'Brien, (for appellant)
John H. Martin, (for respondent Bradley Mrzlak)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
Respondent and a third party purchased property on contract for deed. Without respondent's knowledge, the third party obtained a mortgage on the property from appellant mortgage company and acquired a warranty deed to the property. Respondent was not mentioned in the warranty deed. Appellant later foreclosed its mortgage, and respondent brought this action for partition, after which the property was damaged by fire. Appellant was its only insurer. The district court found that respondent has a 50% interest in the property and ordered that a receiver be appointed, that appellant use the insurance proceeds to repair the property, that the property be sold, and that the proceeds be divided between the parties. We affirm the appointment of the receiver and the order for sale, but reverse the determination that appellant has a 50% interest, and remand for proceedings not inconsistent with this opinion.
FACTS
Respondent Brad Mrzlak and Kathy Morimoto, f/k/a/ Kathy Grinde, signed a contract for deed (CD) to purchase as tenants in common an undivided parcel of property owned by the Department of Veterans Affairs (VA). Mrzlak paid $8,000 of the $9,300 down payment. He moved out of the property shortly afterwards and made no installment payments on the CD.
Without Mrzlak's knowledge, Kathy Morimoto and her husband, Vince Morimoto, obtained a loan on the property from appellant WMC Mortgage Corporation (WMC). At the loan closing, someone produced a quitclaim deed purportedly signed by Mrzlak, who later repudiated his signature. The VA conveyed fee title to the property to the Morimotos by warranty deed.
WMC purchased the property at a foreclosure sale after the Morimotos defaulted on the loan. When Mrzlak learned of the mortgage, the quitclaim deed, the foreclosure, and the sale, he brought this action for partition, seeking a declaration that he has a 50% interest in the property. The property was damaged by fire after Mrzlak brought his action. WMC had procured fire insurance.
Following trial, the district court found that Mrzlak's signature on the quitclaim deed presented at the closing of the loan was a forgery, and that Mrzlak, by virtue of his original purchase, and WMC, by virtue of the foreclosure sale, were tenants in common, each having a 50% interest. The district court imposed a constructive trust on the insurance proceeds WMC would receive as a result of the fire and ordered that (1) the proceeds be used for repair of the property, (2) a receiver be appointed, (3) the property be sold, and (4) the proceeds be divided between Mrzlak and WMC. WMC's motion for amended findings or a new trial was denied.
On appeal, WMC argues that Mrzlak, having paid only $8,000 on the property, is not entitled to 50% of it, and that, having procured no insurance, he is not entitled to the insurance proceeds.
DECISION
The facts relevant to our decision are stipulated. The application of law to stipulated facts is a question of law, which this court reviews de novo. Morton Bldgs., Inc. v. Commissioner of Revenue, 488 N.W.2d 254, 257 (Minn. 1992).
At the outset, we affirm the district court's finding that the signature on the quitclaim deed was a forgery and its procedural steps in resolving this partition action, i.e., the appointment of a receiver and the order that the property be sold. But we disagree with its conclusion that Mrzlak's interest is 50% because there is an inherent inequity in awarding Mrzlak a 50% interest in the property in exchange for $8,000 and a windfall of 50% of the value of insurance proceeds in exchange for nothing.
1. Mrzlak's Property Interest
Tenancy in common is defined as "A tenancy by two or more persons, in equal or unequal undivided shares * * *." Black's Law Dictionary, 1478 (7th ed. 1999) (emphasis added). The district court apparently assumed that the shares must be equal. Caselaw, however, reflects that co-tenants' shares may be unequal and that both burden and benefit of the property are in proportion to each tenant's share. See, e.g., Bradley v. Bradley, 554 N.W.2d 761, 764 (Minn.App. 1996) (if one co-tenant has redeemed property, another co-tenant may redeem its interest by paying "the portion of the redemption money attributable to the later-redeeming co-tenant's interest in the property") (citing Buettel v. Harmount, 46 Minn. 481, 482-83, 49 N.W. 250, 251 (1891)), review denied (Minn. Dec. 23, 1996); Andersen v. Andersen, 376 N.W.2d 711, 715 (Minn.App. 1985) (holding that co-tenant who held two-thirds share "receives the greater benefit and should carry a greater burden" than owner who held a one-sixth share); Hoverson v. Hoverson, 216 Minn. 237, 12 N.W.2d 497 (1943) (tenant in common should not receive more than his just share of the rents and profits of the common property); see also Minn. Stat. § 558.16 (4) (2000) (providing that proceeds from a partition sale should be distributed "among the owners of the property sold, according to their respective shares"). Clearly, the law does not envision tenancy in common as requiring equal shares in property.
When the VA conveyed title to the Morimotos, it conveyed fee title subject to Mrzlak's rights as contract for deed vendee, which were not extinguished by the forged quitclaim deed. Later, when the Morimotos executed a mortgage to WMC, the interest WMC acquired did not defeat Mrzlak's interest. And when WMC foreclosed on its mortgage, it took title subject to Mrzlak's interest. That was the parties' position when Mrzlak brought the partition action.
The district court concluded that Mrzlak's and WMC's shares were equal. That conclusion is not supported by the record, which limits Mrzlak's share to the $8,000 he contributed to the purchase price. WMC's share begins with the $96,000 loan to the Morimotos. From that amount, any payments of principal must be subtracted, and any allowable expenses must be added. We invite the district court to conduct an accounting, award the respective parties credits and debits as the evidence warrants, and then determine the amount of Mrzlak's undivided interest in the present value of the property or the proceeds of the partition sale.
We therefore remand to the district court to determine the parties' respective contributions to the property and their resulting comparative interests therein. The district court may then either permit the sale of Mrzlak's share to WMC as an alternative to partition or order a partition sale in accordance with law. See Andersen, 376 N.W.2d at 716 (district court did not err in permitting alternative solution of money damages to partition).
2. Mrzlak's Interest in Insurance Proceeds
Mrzlak relies on the doctrine of tenancy in common to argue that he is entitled to 50% of the insurance proceeds. It is true that "[c]o-tenancy gives rise to a duty of the co-tenants `to sustain, or at any rate not to assail, the common interest.'" Bradley, 554 N.W.2d at 765 (quoting Oliver v. Hedderly, 32 Minn. 455, 456, 21 N.W. 478, 478 (1884)). But Mrzlak ignores his own duty as a co-tenant. He failed to insure his interest in the property and now seeks to enrich himself unjustly at the expense of WMC. "Under the Minnesota precedents, unjust enrichment occurs when one party enriches himself at the expense of another illegally or inequitably." In re DP Partnership, 91 F.3d 1072, 1075 (8th Cir. 1996) (citing Christle v. Marberg, 421 N.W.2d 748, 751 (Minn.App. 1988)). Mrzlak's reliance on his status as a co-tenant with WMC's predecessor in interest to claim 50% of the proceeds from WMC's insurance is inequitable and would result in his unjust enrichment. Moreover, there is no showing in the record that Mrzlak was an insured under the policy. The insurance covered only WMC for WMC's losses.
In view of our determinations on Mrzlak's interest in the property and in the insurance proceeds, we do not address WMC's equitable subrogation argument.
We therefore hold that Mrzlak is not entitled to share the proceeds of WMC's insurance policy but is entitled to either fair compensation for his interest in the property (a proportionate share of the current value) or his proportionate share of the net proceeds of a partition sale of the property.
We remand to the district court for further proceedings as indicated to determine the parties' interests, in a manner not inconsistent with this opinion. On remand, the district court in its discretion may reopen the record to receive additional evidence.
Affirmed in part, reversed in part, and remanded.