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Gustafson v. Smith Resource Library
Equity Stripping Case Study in Minnesota

This equity stripping case was tried in Minnesota resulting in a favorable outcome for the homeowner.  Below you will find a narrative of Gustafson v. Smith, and pleadings. For a more detailed summation of this case you can read the article “Advocates Secure Victory for Minnesota Homeowner in Equity Stripping Case.”

Ms.Gustafson filed a Complaint against Defendants, the “foreclosure consultants,” the “foreclosure purchasers,” and the bank, alleging violations of Minnesota’s anti-equity stripping laws.

Statutory Violations

On April 28, 2009 Ms.Gustafson filed a Notice of Motion, and Motion for Partial Summary Judgment against the foreclosure purchasers. The Memorandum in support of Plaintiff’s motion for Partial Summary Judgment against Defendant’s, requests that her motion regarding various statutory violations be granted. Defendant’s then filed their own Summary Judgment Motion against Plaintiff for Breach of Contract.

Plaintiff responded with a Reply Memorandum to Defendant’s Opposition.  Resulting in the Order granting Plaintiff’s Motion for Partial Summary Judgment against Defendant’s for various statutory violations, and denying Defendants Motion for Summary Judgment. The Court found the Defendant’s violated Minnesota Statute 325N and voided the Foreclosure Reconveyance Contract. 

Voidance of the Security Interest 

On November 11, 2009 Ms.Gustafson filed a Memorandum in Support of Partial Summary Judgment requesting that the court void the security interest between the bank and the equity strippers related to the foreclosure purchaser’s home. The foreclosure purchaser’s argued the statute did not void mortgages and the bank argued that the Plaintiff ratified the contract, and asked for a constructive lien on the property.

Ms.Gustafson filed a Reply Memorandum in Support of Partial Summary Judgment arguing the Foreclosure Reconveyance transaction between Plaintiff and Defendant is void. Therefore, the bank’s alleged Mortgage is void and improperly registered.

The court then Ordered that the Plaintiff’s Motion of Summary Judgments is granted and Anoka County may take whatever steps necessary to void and discharge the mortgage currently recorded against the property.


At the end of trial Ms.Gustafson moved for a directed verdict based upon the legal theory that if a party has an adequate remedy at law that party is barred from seeking a remedy in equity. Since the bank still had a valid note (although the mortgage had been voided), it could recover from the investors, signors on the note. Counsel for the bank stated that since the investors could file for bankruptcy on the now-unsecured note, it was not an adequate remedy.

The court ultimately ruled in favor for Ms.Gustafson, (Final Order) holding that there was an adequate remedy at law. (I.e. the note), and the bank must use that remedy to collect its debt. The bank therefore was barred from seeking a remedy in equity. The court was unequivocal in its ruling: Ms.Gustafson owned the property free and clear of a mortgage and if the bank wanted to collect on its debt, it must collect from the investors.

Ms. Gustafson also noted several other threshold defenses, which were never addressed since the trial was decided on her motion for a directed verdict. As described fully in the Plaintiffs Motion In Limine, those defenses were: (1) a party cannot invoke equity merely because it had made a bad bargain, Cady v. Bush, 283 Minn. 105 (1969); (2) a party who seeks equity must come to court with clean hands, Hamilton v. Wood, 55 Minn. 482, 57 N.W. 208 (1893; and (3) an action for unjust enrichment does not hold if the defendants fail to provide any evidence of fraudulent or illegal acts by the plaintiff, Custom Design Studio v. Chloe Inc., 584 N.W.2d 430 (Minn. Ct. App. 1998); Schumacher v. Schumacher, 627 N.W.2d 430 (Minn. 1981); Service Master of St. Cloud v. GAB Business Services, Inc., 544 N.W.2d 302, 306 (Minn. 1996).