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Minnesota Legislature

Instruments to secure debt clarified (new law)

Published (4/8/2010)
By Mike Cook
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A new law retains the requirement that an instrument explicitly state its intent to be used as security for a debt, but caps the amount of the debt to the initial amount stated in the instrument.

The law, signed April 1 by Gov. Tim Pawlenty, comes about because of a 2009 Minnesota Supreme Court decision where the debt secured was greater than the amount of the mortgage, and the mortgage registry tax was not fully paid. This is a common situation in commercial loans where a company, for example, gets a $1 million corporate loan secured by a guarantee on the principal’s homestead. However, because there is only a limited amount of equity in the homestead, the mortgage is limited to $200,000.

Rep. Gail Kulick Jackson (DFL-Milaca), who sponsors the law with Sen. Linda Scheid (DFL-Brooklyn Park), gave another example of loaning someone $4 million, securing $1 million of it on the person’s residence and the other $3 million on a coin collection. “We will pay mortgage registry tax on $1 million, and therefore, even if your land doubles, I can’t come back and collect $2 million off of foreclosing. I am limited to the amount of the debt expressed in the mortgage and expressed by the mortgage registry tax.”

The law takes effect July 1, 2010.

HF2828*/ SF2231/CH211

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