Court Opinion

ID: 9741944
Source: CourtListenerOpinion
Date Created: 2023-08-26 21:04:37.781371+00
Date Added: 2024-06-11T07:24:27.438049
License: Public Domain

Kelly, Justice
(concurring in part, dissenting in part).
I join in the dissent of Mr. Justice Todd.
*207The bank asserts that usury was not alleged in the pleadings of FCM and that it should not be permitted now as a defense. FCM asserts that its answer denying the allegations of the complaint put upon the bank the burden of demonstrating that it had an insurable interest as a mortgagee. Its next contention is that if the mortgage was invalid because the loan was usurious, there was no insurable interest. It appears from the briefs and record before us that FCM did not offer any evidence and does not now claim that there is any evidence of usury other than the fact that the bank had only disbursed $22,715.06 and had retained in escrow the sum of $6,284.94 for the payment of taxes levied against the property and the additional sum of $5,000.00 to secure the mortgage lien from an attorneys lien filed against the mortgaged property in that amount. Thus, if we concede that the issue of usury was pleaded and that the bank would not have an insurable interest if the mortgage was based on a usurious loan, the only question to be resolved in determining if the bank has an insurable interest is: Under the facts presented, was the loan usurious?
There is no claim or showing here that the bank did not act in good faith in holding funds in escrow. The fact that the bank did not disburse the tax money might give rise to a cause of action against it for any interest and penalties accruing to the tax lien for nonpayment, but ¡not to a cause of action for usury. The funds held in escrow for taxes belonged to the mortgagors and were payable on demand, either directly for payment of taxes or to the mortgagors upon proof of payment of taxes. The record is not clear as to who was to pay the taxes. Either of these events, payment of taxes or discharge of the tax lien, could take place within less than 30 days. In the meantime, the bank could not plan on loaning the escrowed funds, set aside as. security for the tax lien, that were payable on demand. The money for the attorneys lien was put into a savings certificate at interest and was held in trust for the mortgagors until discharge of the at*208torneys lien or payment of the mortgage. It is obvious that it was for the mortgagors’ benefit that the $5,000 was. placed in an interest-bearing account because it might be some time before the attorneys lien would be settled. Banks are not permitted to pay interest directly or indirectly on demand deposits. Minn. St. 48.50. In general, demand deposits are those that may be withdrawn in less than 30 days. Minn. St. 48.51. The funds held in a savings certificate were thus taken out of the demand deposit classification. The bank could have insisted on holding the $5,000 in escrow to secure itself against the attorneys lien without giving the mortgagors the benefit of any interest to be earned by issuing a savings certificate. Should this favorable treatment of a customer be grounds for the loss of all money loaned and interest earned on a far-fetched theory of usury?
The legislature, in connection with funds held in escrow by savings and loan institutions for installment mortgages, has apparently determined that monthly payments may be made in advance for insurance, taxes, assessments, ground rents and other charges on an estimated basis by mortgagors, as they expressly permit it by law without requiring the reduction of any interest payments. Minn. St. 47.20, subd. 8. Legislative policy is further disclosed by § 47.20, subd. 8(1), which provides that certain mortgagees, including state banks and trust companies, mutual savings banks, and savings and loan associations, which require mortgagors to pay into an escrow, agency, or similar account for the payment of taxes or insurance premiums with respect to a mortgaged one-to-four-family, owner-occupied residence, pay interest on those accounts. Subdivision 8(3), however, does not require interest payments on such escrow accounts if the mortgagor is given the option of using it or continuing to use it and elects to do so. Interestingly enough, subd. 8(1) also provides: “The requirement to pay interest shall apply to such accounts created prior to [the effective date of this subdivision] as well as to. accounts created after [this subdivision is effective].” Thus, the legislature indicates by this law that it is aware of the *209practice of banks and other financial institutions using escrow-accounts for the payment of taxes and other charges. It apparently has given its blessing to this practice without requiring payment of interest on certain funds in escrow accounts securing mortgages on business property, such as is involved in this case.
We would do no favors for the borrowing public in the long run by finding usury, because lending institutions either would not make loans in cases such as the one involved here, or would insist on a title insurance policy or that funds be put in escrow with a third party. These alternatives, in all probability, would be more cumbersome and more expensive for the borrower.
I recognize that the majority opinion remands the issue of usury and does not decide it. However, FCM has had its day in court. We have before us all the evidence on which it would base its claim that the mortgage was invalid because of usury and we should decide it.
I concur with the majority opinion that if the bank prevails on the issue of usury, the insurer is to be subrogated to the title of the mortgagee.
I also agree that the funds held in escrow should be deducted from the bank’s recovery on the insurance policy because equity requires that be done. Fundamental fairness dictates that the subrogation clause should permit FCM, after it pays off the mortgage loan on a loss accruing before the redemption period has expired, to acquire the bank’s rights growing out of that loan including any funds held in escrow to perfect the title. Thus, those funds should be assigned by the bank to FCM or deducted from the amount to be paid.