Minnesota Court of Appeals Expressly Limits Claims That Can Be Raised by Illegal Holdovers to Delay Eviction Proceedings

04/21/2015 / Connor T. McNellis

The Court of Appeals decision in Federal Home Loan Mortgage Corporation v. Mitchell will unquestionably make it more difficult for illegal holdover tenants to improperly delay eviction proceedings to retain possession of real property. The case unambiguously holds that attorneys may be sanctioned for improper attempts to delay eviction proceedings on behalf of the illegal holdover tenants.
In Mitchell, a married couple gave a mortgage of their home to a lender who then assigned the mortgage to Wells Fargo. After several years, the homeowners defaulted on the mortgage and Wells Fargo commenced foreclosure proceedings. The property was sold at a sheriff’s sale and Wells Fargo obtained the sheriff’s certificate of sale. The redemption period expired and the former owners never exercised their redemption rights. Title ownership vested in Wells Fargo.
Wells Fargo then conveyed its interest to Federal Home Loan Mortgage Corporation (Freddie Mac), who commenced an eviction action for possession of the property. The former owners (illegal holdovers) answered, asserting that Freddie Mac lacked standing to evict them, and that the foreclosure was void. The district court granted summary judgment to Freddie Mac, reasoning that the holdovers’ defenses were not properly brought within an eviction action, the scope of which is solely limited to determining the present right to possession of real property. The district court also denied the holdovers’ motion for an unconditional stay of the eviction proceeding to allow them to litigate the issues they raised in a separate lawsuit. The holdovers appealed.
The Court of Appeals was not impressed with the holdovers’ arguments. It noted that similar arguments have been repeatedly raised by illegal holdover tenants and consistently rejected by federal and state courts in Minnesota. The court specifically stated: “Further iterations of frivolous arguments rejected as meritless by this court may compel this court to consider the full extent of its sanctioning authority.” The two salient holdings were: (1) claims unrelated to the right for present possession of the property cannot be brought in an eviction action unless there is no other forum available, and (2) a district court may (and probably should) decline to grant an unconditional stay of an eviction proceeding merely because the illegal holdover intends to pursue separate claims regarding the validity of the foreclosure in a separate lawsuit.
The illegal holdover tenants sought to argue within the eviction proceeding that Freddie Mac did not have a valid claim of title ownership to the property. The court held that any such claim was related to the foreclosure, not the eviction, and such claims could only be brought within the eviction if it was the sole forum available. Theoretically, there would always be a separate forum available – a district court lawsuit – to litigate claims that the foreclosure was invalid or that the owner does not have valid legal title ownership of the property. Such claims, after the court’s decision in Mitchell, cannot be used to delay an eviction proceeding.
The holdovers also commenced a separate lawsuit raising challenges to the validity of the foreclosure and Freddie Mac’s title, and asked the district court for an unconditional stay of the eviction while those claims were litigated in that separate lawsuit. The Court of Appeals noted that the district court in an eviction action has discretion to determine whether to grant a stay, but there must be “a case-specific justification for granting a stay.” Its analysis then pretty much forecloses the availability of a stay unless the holdover can point to the existence of a lease agreement which the tenant has not breached. The Court of Appeals boiled down the types of potential claims that would justify a stay: “where the merits of an eviction action depend entirely on whether the current possessor of the property was in breach of an agreement allowing them to possess it.”
After Mitchell, to delay an eviction proceeding, a holdover must be able to show the existence of two things: (1) the existence of a lease agreement (presumably in writing) entitling the holdover to possession, and (2) the absence of a breach of that lease agreement. The holdovers in Mitchell were unable to show the existence of any agreement entitling them to possession, and therefore the district court was correct not to delay the eviction. Mitchell gives owners a clear path to victory in lawsuits where illegal holdover tenants attempt to pursue frivolous litigation to delay the owners’ taking of possession through an eviction.