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HomeMy WebLinkAbout5.c. Review of Rosemount Plaza Condominium StatusCITY OF ROSEMOUNT EXECUTIVE SUMMARY FOR ACTION PORT AUTHORITY COMMISSION MEETING DATE: AUGUST 4, 1992 AGENDA ITEM: REVIEW OF ROSEMOUNT PLAZA AGENDA SECTION: CONDOMINIUM STATUS OLD BUSINESS PREPARED BY: JOHN MILLER, AGENDA NO. ECONOMIC DEVELOPMENT COORDINATOR ITIRM ATTACHMENTS: NONE APP VED Y: At the Port Authority's July 21, 1992 meeting, Commissioner Sinnwell asked for an update of the Rosemount Plaza Condominium Project. The attorney for the Port Authority will have a verbal presentation for the Commissioners. ACTION: Informational item only. PORT AUTHORITY ACTION: 999 Westview Drive Hastings, MN 55033-2495 (612) 437-3148 FAX (612) 437-2732 *Samuel H. Hertogs *Donald J. Fluegel **Michael R. Sieben **Michael S. Polk *Harvey N. Jones *,Richard A. LaVerdiere Steven D. Hawn Thomas R. Longfellow Bernie M. Dusich **J. Michael Miles Leo F. Schumacher Shawn M. Moynihan Mark J. Fellman Michael R. Strom John P. Sieben Scott J. Hertogs Eric A. Short Craig M. Roen Sara M. Hulse Of Counsel: James M. Goetteman *Also admitted in Wisconsin **Also admitted in Iowa *Certified as civil trial specialists by the National Board of Trial Advocacy and the Minnesota State Bar Association ST. PAUL OFFICE: Galtier Plaza Suite 550, Box 45 175 Fifth Street East St. Paul, MN 55101-2901 (612) 222-4146 FAX (612) 223-8279 Hertogs Fluegei Sieben Polk Jones & LaVerdiere PROFESSIONAL ASSOCIATION M E M O R A N D U M TO: Rosemount Port Authority FROM: Eric A. Short DATE: August 4, 1992 RE: Rosemount Plaza Condominium This Memorandum is in response to your request for a status report. I hope you find it to be helpful. For background, the Rosemount Plaza Condominium Project was financed primarily by Midway National Bank and secondarily by the Rosemount HRA. Both loans were secured by mortgages. Sales did not meet projections, and the developer defaulted on both loans. Several subcontracts were also unpaid, and Carlson-Grefe Construction, Inc., commenced foreclosure of its mechanic's lien. Midway Bank and Rosemount HRA answered, alleging priority of their mortgages. Midway Bank and Rosemount HRA prevailed in District Court and in the Court of Appeals (see attached). Throughout the litigation, efforts at refinancing and other workout possibilities were explored, but no agreement was reached. Midway Bank has since foreclosed its mortgage and, as redemption has expired, owns the unsold condominium units. Rosemount HRA (now the Port Authority) has obtained a judgment against the developer in the amount of $351,716.06. EAS:dso --.T 7 ' li.-� _ _,.il? 1,,;;�j,J 2_ `3 Ty`1�L�..('....r lS'.nl`"1 ifira.11li': is STATE. _OF SMI =S.OTA Dakota County District Court File C9-90-7555 Carlson-Grefe Construction, Inc., Appellant, VS. Rosemount Condominium Group Partnership, et al., Respondents, August W. Ratzlaff, et al., Defendants, Midway National Bank of St. Paul, Respondent, The City of Rosemount Housing and Redevelopment Authority, Respondent, Dakota County Housing and Redevelopment Authority, Respondent, State Mechanical, Inc., Respondent. Klaphake, Judge Kurt M. Anderson Bergeson, Lander, and Megarry, P.A. 7900 Xerxes Avenue South Suite 940 Bloomington, Minnesota 55431 E. Martin Stapleton Stapleton, Nolan & McCall P.A. 2300 American National Bank Building St. Paul, Minnesota 55101 Leander G. Lippert Lippert Law Offices, P.A. 7301 Ohms Lane, Suite 150 Edina, Minnesota 55435 Eric A. Short Michael R. Strom Donald J. Fluegel Hertogs, Fluegel, Sieben, Polk, Jones and LaVerdiere, P.A. 999 Westview Drive Hastings, Minnesota 55033 Larry M. Wertheim Bonnie Wilkins Holmes and Graven, Chartered 470 Pillsbury Center Minneapolis, Minnesota 55402 Peter I. Orlins Orlins Law Office 6635 Lyndale Avenue South Richfield, Minnesota 55423-2390 Filed August 27, 1991 Office of Appellate Courts S Y L L A B U 8 1. The court of appeals will not review issues to which finality has not attached. 2. A construction trailer containing plumbing materials is not a visible improvement on the ground sufficient to establish priority of a mechanics' lien over a mortgage. Minn. Stat. § 514.05, subd. 1 (1990). 3. A ceremonial groundbreaking is not a visible improvement on the ground sufficient to establish priority of a mechanics' lien over a mortgage. Minn. Stat. S 514.05, subd. 1 (1990). Affirmed. Considered and decided by Klaphake, Presiding Judge, Lansing, Judge, and Davies, Judge. O P I N I O N KLAPHAKE, Judge Appellant challenges summary judgment granted to the respondent mortgagees in a priority dispute involving mechanics' liens and mortgage interests. The trial court held, and we agree, that neither the presence of a construction trailer containing plumbing fixtures nor a ceremonial groundbreaking constitutes the actual and visible beginning of an improvement on the ground under Minn. Stat. § 514.05, subd. 1 (1990). We affirm. -2- FACTS Because this is an appeal from summary judgment, we state the facts in the light most favorable to the appellant, Carlson-Grefe Construction, Inc. (Carlson-Grefe). Respondent Rosemount Condominium Group Partnership (Rosemount Condominium) owned real estate in Rosemount, Minnesota, on which it planned to build a condominium complex.' On March 19, 1988,. respondent State Mechanical, Inc., a plumbing contractor, moved its construction trailer onto the Rosemount Condominium property. On March 28, 1988, State Mechanical began storing in the trailer plumbing fixtures it planned to install in the condominiums. State Mechanical prefabricated the fixtures in its shop before delivering them to the trailer. After State Mechanical began storing the plumbing fixtures in the trailer, respondent Fridlund Group Partnership contracted with Carlson-Grefe to construct the condominium building and with State Mechanical to provide the plumbing for the condominium development. On May 10, 1988, Rosemount Condominium executed several mortgages in favor of respondent Midway National Bank of St. Paul (Midway), respondent the City of Rosemount Housing and Redevelopment Authority (Rosemount HRA), and respondent Dakota County Housing and Redevelopment Authority (Dakota HRA). The Midway and Rosemount HRA ' Although Rosemount Condominium Group Partnership is the owner of the property, the relevant construction contracts were executed on behalf of Fridlund Group Partnership by Milton Bruflodt. Bruflodt is a general partner in both Rosemount Condominium and Fridlund Group Partnership. -3- mortgages were recorded on May 13, 1988, and re-recorded on October 26, 1988.2 The Dakota HRA mortgage has been satisfied. On May 11, 1988, a ceremonial groundbreaking took place on the property. Midway had no notice of this ceremony, and did not attend. On August 8, 1988, Carlson-Grefe began construction. Midway foreclosed its mortgage and purchased the property at the foreclosure sale on November 15, 1990. The redemption period is currently running. In July 1990, Carlson-Grefe also began foreclosure proceedings, joining interested parties to determine priority. The trial court held that neither the presence of State Mechanical's trailer nor the ceremonial groundbreaking constituted the "actual and visible beginning of the improvement on the ground" as a matter of law. Thus, the trial court granted summary judgment to Midway and Rosemount HRA, declaring their mortgages superior to the Carlson-Grefe and State Mechanical liens. The trial court allowed Carlson-Grefe to add Eileen Greenwood, general partner in both Rosemount Condominium and Fridlund Group Partnership, as a defendant, but refused to allow the addition of Marguerite Fridlund, the widow of a general partner in Fridlund Group Partnership, as a defendant. The trial court denied Carlson- Grefe's motion to amend the complaint to add an additional cause of action based on a letter outlining the approximate amount owed under the contract. 2 The parties do not dispute that the effective date of the mortgage, for priority purposes, is May 13, 1988. -4- ISSUES 1. Did the trial court abuse its discretion in refusing to allow Carlson-Grefe to amend its complaint? 2. Consistent with Minn. Stat. $ 514.05, subd. 1 (1990), does the presence of a construction trailer containing plumbing materials and/or a ceremonial groundbreaking constitute the "actual and visible beginning of the improvement on the ground?" ANALYSIS Standard of Review on appeal from summary judgment, this court reviews the entire record to determine whether any genuine issues of material fact exist and whether the trial court erred in applying the law. Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn. 1989). For purposes of our review here, we resolve disputed facts in favor of Carlson-Grefe and examine only the trial court's application of the law. I. Carlson-Grefe claims the trial court abused its discretion in refusing to allow an amendment to its complaint. Although included in the summary judgment decision, the denial of Carlson-Grefe's motion to amend was not a final judgment, nor did it determine the action and prevent an appealable judgment. Minn. R. Civ. App. P. 103.03 (a) , (e) ; see also Spaeth v. City of Plymouth, 344 N.W.2d 815, 824-25 (1984) (nonappealable order does not become appealable by joining it to appealable order). Thus, we will not review the amendment issue. M. -fl P II. Carlson-Grefe challenges the trial court's determination that the Midway and Rosemount HRA mortgages took priority over the mechanics' liens. Minn. Stat. S 514.05, subd. 1 (1990) addresses priority disputes among lienholders, owners, and mortgagees. The statute provides: All liens, as against the owner of the land, shall attach and take effect from the time the first item of material or labor is furnished upon the premises for the beginning of the improvement, and shall be preferred to any mortgage or other encumbrance not then of record, unless the lienholder had actual notice thereof. As against a bona fide nurchaser mortgagee or encumbrancer without Id. (emphasis added). Carlson-Grefe contends the presence of the construction trailer containing plumbing fittings constitutes the actual and visible beginning of the improvement on the ground. We disagree. Midway and Rosemount HRA 's status as bona fide mortgagees without notice', depends on whether there was an actual and visible beginning of an improvement on the ground before the mortgages were recorded. See M E Kraft Excavating a Grading Co. v. Barac Constr. Co., 279 Minn. 278, 284, 156 N.W.2d 748, 752 (1968). Once a visible improvement on the ground has begun, the mortgagees are deemed to have notice of mechanics' liens and stand in the same position, for priority purposes, as an owner. Reuben E. Johnson Co. v. Phelps, 279 Minn. 107, 113, 156 N.W.2d 247, 251 (1968). -6- The underlying policy of the statute enables property owners and developers to procure financing by granting mortgagees priority against lien claimants filing claims after the mortgage is recorded, so long as the mortgagee's inspection of the property does not reveal the actual and visible beginning of the improvement on the ground. fid_. at 112-13, 156 N.W.2d at 252. This policy prevents the injustice that would occur if the land could be afterwards swallowed up by mechanics' liens for work which had not been commenced on the ground, and of which consequently one who might buy the property or take a mortgage upon it had no notice or means of knowledge when he took his deed or mortgage. Wentworth v. Tubbs, 53 Minn. 388, 395, 55 N.W. 543, 544 (1893) quoted in Phelps, 279 Minn. at 114, 156 N.W.2d at 252. The statute balances this 'policy against the equally important purpose of protecting the rights of the workers and suppliers who furnish the labor and material necessary to the improvement project by charging the mortgagee with notice of the liens as of the beginning date of the actual and visible improvement. See e.g., Anderson v. Breezy Point Estates, 283 Minn. 490, 493, 168 N.W.2d 693, 696 (1969). This dual purpose is best served when the rights of both mortgagees and lien claimants are fixed with definiteness and certainty. Phelps, 279 Minn. at 116, 156 N.W.2d at 253. Our review of the case law indicates a lien claimant must meet several requirements to assert priority over a mortgagee under the statute. There must be an improvement defined as any contribution of labor, skill, material, or machinery used to make a permanent -7- addition that enhances the capital value of real estate, involving the expenditure of labor or money, and designed to increase the usefulness or value of the property. Kloster -Madsen. Inc. v. Tafi's. Inc., 303 Minn. 59, 63-64, 226 N.W.2d 603, 607 (1975). While the furnishing of some goods and services creates a lien under Minn. Stat. $ 514.01 (1990), the lien itself does not attach for priority purposes against a mortgagee at the time of the delivery of the goods or at the commencement of these services. Kraft, 279 Minn. at 285, 156 N.W.2d at 753 (neither a survey nor architectural services constituted the actual and visible improvement on the ground) .(citing Erickson v. Ireland, 134 Minn. 156, 158, 158 N.W. 918, 919 (1916)). Rather, the lien attaches at the actual and visible beginning of the improvement on the ground. Kraft, 279 Minn. at 285, 156 N.W.2d at 753. The presence of a construction trailer containing plumbing materials does not constitute a visible improvement on the ground. By definition, an improvement must have an aspect of permanence which is not met here. Kloster -Madsen, 303 Minn. at 64, 226 N.W.2d at 607 (an improvement is a permanent addition designed to increase value or usefulness of the property). The statutory language adds to this definition the requirement that the improvement be visible on the ground. Minn. Stat. 5 514.05, subd. 1. These requirements are necessary to further the statute's underlying policy of providing notice to mortgagees of existing mechanics' liens. The mobile character of the trailer precludes the necessary permanence implicit in the phrase "visible improvement on the -8- ground." A mortgagee inspecting the property for visible signs of t an improvement on the ground must be able to rely on the appearance of the property without being concerned that a materialman has moved a trailer filled with supplies on and off the property and thereby established priority. At best, the trailer's presence indicated that an improvement was planned. Knowledge of planned improvements, however, is not sufficient to charge a mortgagee with notice of existing mechanics' lien claims. Phelps, 279 Minn. at 116, 156 N.W.2d at 253. For priority purposes, the mechanics' lien attaches at the first sign of the actual and visible beginning of the improvement on the ground. While the presence of this equipment may establish a mechanics' lien against an owner, the facts of this case do not meet the higher standard necessary to establish priority over a mortgagee. We also disagree that a ceremonial groundbreaking provides an appropriate bright line rule for establishing the priority of a mechanics' lien. First, a ceremonial groundbreaking contradicts the express language of the statute requiring that there be an actual and visible beginning of the improvement on the ground. Second, a shovelful of dirt marking a ceremonial groundbreaking does not enable a person exercising reasonable diligence to see it. See Kloster -Madsen, 303 Minn. at 64, 226 N.W.2d at 607. Such a ceremonial groundbreaking may often occur, as it did here, well before the actual improvement on the ground begins. Additionally, the elements may erase any visible proof of the groundbreaking. We believe using the ceremonial groundbreaking as a bright line rule -9- would inject uncertainty into the law and inhibit the ability of._, developers to obtain financing. We conclude the trial court correctly determined, as a matter of law, that neither the presence of the trailer containing plumbing materials nor the ceremonial groundbreaking constitute the actual and visible beginning of the improvement on the ground. Affirmed. -10-