Contract for deed purchaser not “owner” for condemnation purposes

by Kaitlin Heinen

City of Cloquet v. Julie Crandall, et al.
(Minnesota Court of Appeals, December 10, 2012)

Kerry and Julie Crandall operated an auction business out of a downtown building when the City of Cloquet took the building’s parcel by condemnation for the construction of a new human services building. The district court granted title to the City in July 2010. Three court-appointed commissioners determined that $198,000 was fair compensation under a fair-market-value analysis and under a minimum-compensation analysis under Minnesota Statutes section 117.187. When the parcel was condemned, the Crandalls had been in the process of purchasing it under contract for deed. In August 2010, the contract for deed sellers executed a satisfaction, stipulating with the Crandalls that the contract was fully paid. In September 2010, the district court recognized the satisfaction and entered a stipulation order observing that the sellers disclaimed any continuing interest in the property.

Before the district court trial, the City unsuccessfully moved to exclude any evidence bearing on a minimum-compensation analysis, arguing that the Crandalls were contract for deed vendees rather than owners. Appraiser John Vigen testified as an expert witness for the City, stating that the “Carlton property” was comparable to the Crandalls’. The Carlton property’s building was older, smaller, poorly constructed, and had limited access by comparison, but Vigen testified that it was comparable because the Crandalls’ auction business did not use all of the space available on the parcel and because the Carlton property zoning classification allowed it to be used as an auction business. To the contrary, the Crandalls’ real estate expert David Reach testified that the small size, poor condition, and limited access made the Carlton property unsuitable for the Crandalls’ business. Instead, he identified the Kolar property (formerly a car dealership) as comparable, though it was much larger and more expensive. Reach testified that it was comparable because the Kolar property included a building with floor space equal to the Crandall property’s building. The district court found that the Carlton property was a comparable property, thus upholding that the Crandalls were entitled to $198,000 in compensation. Both the Crandalls and the City appealed to the Minnesota Court of Appeals.

The Minnesota Court of Appeals first addressed the September 2010 order recognizing the August 2010 satisfaction of the contract for deed. The Crandalls claim that the order’s stipulated satisfaction functioned as an assignment to them of vendors’ rights, vesting in them a fee title interest in the property. However, neither the satisfaction nor the order is an assignment. An assignment requires the grantor’s manifest intention to assign a specific right. The satisfaction of the contract for deed only releases the Crandalls from contract obligations. Further, the district court had already transferred title to the City in its July 2010 order. When the satisfaction was executed in August, the vendors had no title to transfer to the Crandalls. So the Minnesota Court of Appeals held that the September order did not grant vendors’ rights to or vest fee title to the property in the Crandalls.

Both the Crandalls and the City argue that the district court misinterpreted section 117.187, which states: “For the purposes of this section, ‘owner’ is defined as the person or entity that holds fee title to the property.” The Crandalls argued that they are entitled to minimum compensation as contract for deed vendees. Though section 117.187 is restricted to “owners,” the Crandalls claim that contract for deed vendees are still considered owners. Section 117.036, enacted at the same time as section 117.187, defines “owner” as “fee owner, contract purchaser, or business lessee who is entitled to condemnation compensation under a lease.” This section indicates that the legislature classifies fee owners and contract purchasers separately, but “contract purchaser” is not expressly defined nor is the term used elsewhere in regards to real estate. The Minnesota Court of Appeals concluded that “contract purchaser” must include contract for deed purchasers. To interpret “fee title” owner in section 117.187 to include contract for deed vendees would mean that “contract purchaser” in section 117.036 is superfluous. So it must be inferred that the legislature intended to exclude contract for deed purchasers from the scope of section 117.187. If the legislature wanted to include contract purchasers in section 117.187,  it would have included them explicitly. In fact, “fee owners” traditionally includes only those holding legal title.

Furthermore, section 507.092 states that “[n]o contract for deed or deed conveying fee title to real estate shall be recorded…” The separate specification of “contract for deed” and “deed conveying fee title” shows that the legislature does not intend for a contract for deed to include fee title. Additionally, section 117.187’s history suggests that the legislature intended to exclude contract for deed vendees. When the Eminent Domain Conference Committee added the definition of “owner” to section 117.187, committee members specifically discussed the meaning of the language at issue here.  Legislative counsel Bonnie Berezovsky asserted that “fee owner would not include a purchaser under a contract for deed.” Although the opinion of legislative counsel is not proof of legislative intent, the court found her comment persuasive as a legal explanation of what is  and is not included as an “owner” in section 117.187.

Because the Crandalls were not fee title owners entitled to minimum compensation under section 117.187, the district court erred by denying the City’s motion to exclude the Crandalls’ minimum-compensation evidence at trial. The Minnesota Court of Appeals reversed and remanded the district court’s ruling.

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