The Eighth Circuit refused to apply a Minnesota statute that invalidates a mortgage unless both spouses sign the loan documents

On July 17 the U.S. Court of Appeals for the Eighth Circuit refused to apply a Minnesota statute that invalidates a mortgage unless both spouses sign the loan documents, saying the case qualifies for an exception under Minnesota case law. In Karnitz v. Wells Fargo Bank NA, No. 08-21 (8th Cir., July 17, 2009) the Eighth Circuit reversed the district court which found the mortgage was invalid and granted summary judgment in favor of the borrowers. According to the Eighth Circuit, despite the clear language of the statute, the Minnesota Supreme Court applied the doctrine of equitable estoppel to block challenges to certain transactions under § 507.02, even in the absence of a signature by a spouse, as long as: the non-signing spouse consents to the transaction; the non-signing spouse benefits from it; and the other party changed its position to a significant degree. Because the borrowers did not dispute any of these facts, and never questioned the validity of the mortgage until four years after it was executed and they were facing foreclosure because they could not keep up with the obligations of the accompanying note, the court determined they should be estopped from now claiming that the mortgage is void in order to keep their home. The Eighth Circuit said that strict compliance with the statute in these circumstances does not further the policy behind the statute; rather, it flaunts it by converting what the Legislature intended as a shield into a sword. One judge dissented, saying the problem is the lender’s fault. It did not rely on conduct by the spouse who did not sign, but simply failed to require both signatures as the law demands.