The case of the unknowing spouse and the mortgage

File this one under “nice try.”

The Minnesota Court of Appeals today rejected a Grasston man’s attempt to stop foreclosure proceedings against him because he listed himself as “single” on the mortgage application even though he was married.

Thomas Graikowski of Grasston refinanced his mortgage in 2006, two days after he married a woman who didn’t know about the mortgage, didn’t attend the closing, and didn’t sign the loan application.

He defaulted on the $170,000 loan a year later, the marriage ended a year after that, and two years after the divorce, the mortgage company foreclosed on both of them. He attempted to have the mortgage declared void because his then-wife didn’t sign it.

Under Minnesota law, the Appeals Court said, the Graikowski’s mortgage is void because it lacked his wife’s signature, but it said the law can’t be used by someone who signed a mortgage to avoid repaying it.

Not that it hasn’t been tried before. The court cited a Minnesota Supreme Court case in which a Buhl man, Stanley Bozich, declared himself “single” on a mortgage application even though he was married. His wife died and he remarried, then he attempted to cancel the mortgage on the basis that his new wife didn’t sign it.

The state Supreme Court had a word for that: “fraud.”

In today’s ruling, the Court of Appeals said Mr. Graikowski misrepresented his marital status either intentionally or unintentionally, and can’t walk away from the obligation because of it.

Here’s the full opinion.

  • Why isn’t he in jail???

  • William Forbes

    The District Court found no evidence of any fraud as fraud requires an intentional act. (Ct. File No. 58-CV-10-487) If it had been as clear cut as this article suggests, this would not have been a published decision by the Court of Appeals and the Bozich case would have clearly controlled.

    Furthermore, the author of this article is incorrect that the homeowner was trying to avoid repaying the loan. Though a “mortgage” is often used to describe both the security interest and the promissory note, they are in fact legally separate. The homeowner did not challenge the promissory note, which creates his obligation to repay the loan. He actually only challenged the security interest or mortgage on his homestead as void under longstanding Minnesota law. (Dating back to the 1870’s)

    The Court in fact agreed with the homeowner that his mortgage was void under Minnesota Statute Sec. 507.02. The Court then created and applied a modified test for equitable estoppel which prevented the homeowner, as the signing spouse, from voiding the security interest or mortgage. Under the previous 130 years of case law, the test for equitable estoppel did not distinguish between a signing and non-signing spouse, and thus, required the non-signing spouse’s knowledge and consent to the mortgage to rescue it by equitable estoppel.

    This article presents an overly simplistic view of the legal issues and incorrectly suggests that fraud is applicable to the analysis. Fraud has a specific legal definition. If the bank could present any actual evidence of fraud it would have and avoided a lot of additional time and expense litigating the issues.

  • Bob Collins

    //Furthermore, the author of this article is incorrect that the homeowner was trying to avoid repaying the loan.

    Your complaint is better taken up with Judge Schellhass.

    The writer of the article didn’t write that he was trying to avoid paying a mortgage. What I wrote was that the court said a particular statute couldn’t be used to avoid paying a loan. And that, indeed, references this:

    “In the absence of fraud or misrepresentation, a person who signs a contract may not avoid it on the ground that he did not read it or thought its terms to be different.”

    The use of the word “fraud” applied to the Stanley case, which was cited in the decision. The writer of the article did not suggest fraud, it only quoted the Appeals Court decision, which wholly responsible for its content.

    HSBC, of course, alleged fraud in this case, but the only mention here had to do with the Bozich case.

    I have updated the link to the full opinion (it was moved to another server). People can read for themselves, which is why I always post a link to the decision in the first place.