Koenig "Ignores Some of the Most Basic Principles of Mortgage Priority," Appears Set to Lose Case

Post by the Hawthorne Hawkman, photo from Johnny Northside originally appeared on Paul Koenig's blog, used under First Amendment criticism and commentary.

Before we begin, let me get one thing out of the way.  I don't have all the documents or information I need in order to write what I would consider a complete blog post.  But since it's going to be a few days before I have time to get downtown again for what may be the last round of Pamiko court documents, I'm writing with what I've got.  In a way, this is oddly appropriate.  I'm somewhat of a completist, and when I first discovered a $2.5 million-dollar foreclosure, I wanted to do more research and get the whole picture before writing anything.

Instead, my friend, neighbor, and fellow blogger John Hoff told me about "All the President's Men," in which reporters who uncovered the Watergate scandal knew they had a lead on something, but didn't know how big it was going to be.  "Just write what you've got, and people will start contributing more information, and the rest of the story will happen," was essentially what John advised.  And now look where we are, with Paul Koenig and his various LLC's being perhaps the most extensively covered topic in the NoMi blogosphere.

So we press on, knowing the picture is not yet complete, telling the story with what we've got, confident that the rest of the information will indeed follow.  We start with the Affidavit of Minnwest President William Swanstrom, which states...

...some of the basic chronology of the Pamiko loan documents.  That on June 14, 2008, Pamiko took out a $2.5 million mortgage (Exhibit A) that was later corrected due to a very minor technicality (a parcel on one legal description wasn't correct, and the corrective mortgage made no change to any other item of importance regarding title).  The corrective mortgage is Swanstrom's Exhibit B.  On October 15, 2009, the bank foreclosed on both the first mortgage and corrective mortgage, and the sheriff's sale documents are Exhibit C.  It's important to note here that Swanstrom states, "The Hennepin County Land records show that no redemption was made within the time period provided by law."

A junior mortgage (the St. Paul commercial building) was recorded on January 17, 2008.  If you're paying close attention you're asking yourself, "Why is the junior mortgage technically OLDER than the senior mortgage?  How is that even possible?" Well, under Minnesota law, you can pull something like this off if, at the closing table, everyone sings (in harmony of course) the song "I'm My Own Grandpa."

More likely though, is that the St. Paul mortgage was originated before the $2.5 million Bryant Avenue foreclosure.  Then, after the Bryant mortgage was set in place, the St. Paul mortgage was modified to create cross-collateralized loans.  The odd timing of it all is why the amended Junior Mortgage is Exhibit D, while the earlier document is Exhibit E.

In what was perhaps Minnwest's contribution to Global Handwashing Day on October 15, the bank foreclosed on a second Pamiko loan on 10/15/09 and tried once and for all to wash their hands of the financial disease known as Paul Koenig.  The sheriff's sale for the Junior mortgage is Exhibit F.  As we know, the whole point of this lawsuit is that Koenig tried to subvert the most basic principles of Minnesota property law and redeemed several houses for a dollar apiece, and then transferred the redeemed properties to Komo Group LLC.  The "redemption" documents are Swanstrom's Exhibit G, and the quitclaims to Komo are Exhibit H.

For the sake of easier writing, I may at times refer to the "Junior ($1.1 million foreclosure) Mortgage" as the "St. Paul mortgage" and the "Senior ($2.5 million) Mortgage" as the "Bryant mortgage."

And now we come to the point where both sides are ready to ask the judge to make a decision.  Minnwest offered their memorandum in support of a summary judgment.  As I had predicted earlier, the bank considers itself the owner of the properties in question because no redemption was made on the first mortgage.  The memorandum refers to Minnesota case law:  "The Supreme Court has stated that, in order to preserve any junior rights in the property, the junior creditor or mortgagor must redeem from the senior creditor."  The failure to satisfy a senior lien results in forfeiture, and "junior interests are extinguished upon the completion of a foreclosure of a senior mortgage."

(Here's where I'm missing a document or two.  This Memorandum refers to a Defendants' memorandum of law in opposition to Minnwest's motion for injunctive relief.  I will attempt to track down this and fill in the gaps as I'm able.)

In response to the Defendants' claims that they now own the properties in question due to their hefty investment of six bucks, Minnwest states, "This argument ignores some of the most basic principles of mortgage priority and mortgage foreclosure law."  Paul Koenig did in fact redeem the foreclosure of the junior lien.  Since the first mortgage was sold at a foreclosure sale which was not redeemed, the junior mortgage was wiped out.  "The effect of Pamiko's efforts to redeem was that it gained nothing."  (underlined emphasis in original document, hyperlink to "you so stupid" added by this blog)

When Koenig transferred his supposed ownership rights to Komo Group, essentially he transferred $6.42 in ownership interest that was quickly reduced to no value whatsoever by the foreclosure of the senior mortgage.  And yet he claims this process made Komo Group (an LLC of which Koenig is the sole owner and operator) the owner of these six properties.  On a related note, Koenig also sold himself an interest in the Brooklyn Bridge, and used the proceeds to travel to the moon in the space shuttle he'll never own either.

In what is probably the longest run-on sentence from a coherent person, Minnwest speculates, "It seems apparent that Pamiko's redemption under the Junior Mortgage Amendment was nothing more than a $6.42 gamble that, even if it wouldn't realistically accomplish Pamiko's goal of retaining ownership of the Property, it was certain to accomplish what was likely the Defendant's primary goal; creating headache for the bank, ratcheting up the Bank's already hefty legal fees associated with Pamiko and Koenig's various defaulted loans, and creating confusion and delay that would inhibit the Bank's ability to effectively manage and collect rents from the Property." (emphasis in original)

Koenig also tried the trick of switching lawyers only days before a hearing.  It didn't work when Larry Maxwell tried it, and it seems the Plaintiffs and judge were having none of the delaying tactics either.  At eight bucks a pop, those minor documents weren't worth it for me to grab, but they're in the record for anyone who does want to go through the trouble of tracking them down.

If all this weren't enough, Minnwest filed a second memorandum in support of a summary judgment.  "...Defendants ask this Court to completely re-write real estate law and ignore age-old principals [sic] of mortgage priority."  The Defendants kept the stalling tactics going, and filed documents late enough to give Plaintiffs one day instead of the required nine to respond.  Minnwest asked that their arguments be denied due to untimely filings.

To get an idea of what Koenig tried to argue (and remember, I'm filling in the blanks from at least one missing document), remember the whole junior/senior lien items from earlier in this article.  Koenig claims that the St. Paul mortgage was the true senior mortgage because it was filed before the date of the Bryant mortgage.  However, the St. Paul mortgage, as recorded on January 17, 2008 could not possibly contain the properties encumbered in the Bryant mortgage, originated on June 24 of that year.  The St. Paul mortgage only contained the Bryant properties when it was amended on August 26, 2009.

Unfortunately for the Defendants, time travel won't be considered a part of mortgage title law until the landmark case of Marty McFly/Emmet "Doc" Brown v. OmniBank is decided in the year 2513.  Until then, the Koenigs and Durkops are out of luck.

If such a course of action could truly alter title and mortgage priority, what bank would lend money in the state of Minnesota?  A lender's interest could be swept aside with no prior notice.  Obviously OmniBank occasionally comes back to 2011 to deposit a dollar and then let centuries of compound interest offset property losses, but our financial system hasn't arrived at that level of complexity yet.

Finally, there is the Order for Summary Judgment by the honorable Susan N. Burke.  This Order is unsigned, and there's still another full document file to review, and a court date of March 21, 2011.  So clearly there's more to the story than what's been uncovered so far.  Burke's Order reads:

"Based on all pleadings, exhibits, affidavits, files, records and proceedings herein, as well as the arguments of counsel:

1. Ordering that Plaintiff's Motion for Summary Judgment is hereby granted in its entirety.
2. Finding that Minnwest is the owner of [the] following six (6) parcels of real estate situated in Hennepin County (the 'Property')
1. 2420 Bryant Ave N
2. 2435 Portland Ave
3. 1318 18th Ave N
4. 3119 Queen Ave N
5. 1414 16th Ave N
6. 1016 Newton Ave N
3. Finding that neither Komo Group LLC, Paul M. Koenig, Aaron Durkop, Mary Durkop, nor any unnamed third parties possess any right, title, or interest in and to the Property.
4. Authorizing Hennepin County, the Department of Housing and Urban Development, and any other applicable governmental authorities, upon receipt of a copy of this Order, to update their property ownership records to reflect Minnwest Bank Metro as the owner of the Property."

If this is the result of a summary judgment, then what is slated to happen at the trial?  Informed parties can let readers know via the comment section, or we'll find out soon enough.