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Exemption waiver is needed to attach homestead.

Byline: Barbara L. Jones

An attorney must obtain a homestead exemption waiver in order to attach a client's homestead property, even when that property is partially non-exempt and was the subject of the legal services, the Court of Appeals has ruled in Christensen Law Office v. Olean, et al.<br />The opinion affirms a ruling of a Pine County District Court judge that the lien did not attach and also affirms a ruling granting summary judgment to the law firm for breach of contract and fraud.<br />"[I]f an attorney does not obtain a valid waiver of the client's homestead exemption, an attorney lien does not attach to that client's homestead property," said the court in an opinion written by Judge Jill Halbrooks.<br />Carl Christensen, the respondent/appellant, is adamant that he does not want a homestead waiver from Olean and never asked for one. He wants simply the same protection as a judgment debtor would have, which would include a lien on homestead equity over and above the statutory $390,000 exemption for non-farm property.<br />"We would never ask a client to waive a homestead exemption," Christensen said. The firm is going to have to petition for review, he said. "We're looking for clarity in the law. We're not trying to beat up on Daniel Olean."<br />But Oleans' attorney, Fritz Knaack, said the court made the right decision and the Court of Appeals strongly reestablished that an attorney cannot file a lien on homestead property without consent. "There are strong policy reasons for treating attorneys differently than carpenters," he said.<br />Attorneys lien v. judgment lien<br />This is the second go-around for the parties at the Court of Appeals.<br />Christensen Law Office, a three-lawyer firm in Minneapolis, began representing respondent/cross-appellant Daniel Olean in January 2013 in two appeals arising out of promissory notes. The firm worked with at least 11 parcels of respondent's property, one parcel of which included his homestead.<br />The attorney-client relationship collapsed and the firm withdrew. At that time, Olean owed it $25,352.57 in attorney fees and expenses. At that time the firm was granted a lien for the full amount enforceable against any real property interest held by Olean. It was also granted a judgment for $12,520.61 for collection costs.<br />Olean appealed, arguing successfully that the court erred by enforcing the lien against any real-property interests and the case was remanded to determine the proper subject of the lien. The Court of Appeals also said that the District Court erred in including collection costs in an attorney lien when the law firm brought a motion under Minn. Stat. 481.13 (the attorney lien statute) and not an action for breach of the retainer agreement, which entitled the law firm to recover collection costs.<br />On remand Christensen sought reconsideration of the District Court's order, which was granted, and he was awarded summary judgment. The court awarded Christensen Law a $20,449 judgment, not enforceable against property protected by a homestead exemption. It also said that the District Court erred in including collection costs in an attorney lien when the law firm brought a motion under Minn. Stat. 481.13 and not an action for breach of the retainer agreement, which entitled the law firm to recover collection costs.<br />Christensen brought a Rule 60.02 motion under the Minnesota Rules of Civil Procedure seeking relief from the ruling that the entire homestead property was protected from a lien. There is no authority for treating an attorney leave differently from a judgment lien, Christensen told Minnesota Lawyer. The attorneys' lien May attach to the part of the homestead equity in excess of the exemption amount, Christensen said. And, it would attach to all of the property if it was no longer used as a homestead.<br />Interplay of statutes<br />The case illustrates the policy conflicts at work.<br />One policy is that attorneys should be paid for their work. Under Minn. Stat. sec. 481.13, subd. 1(a), an attorney has a property-interest lien upon the client's interest in money or property involved in or affected by the legal proceedings from the commencement of the case. Such a lien is an inchoate interest that attaches to the property from the beginning and the proper amount is determined by the court. When the court determines an amount, the lien is choate and the court then enters judgment for the amount due. The lien then may be enforced according to law.<br />The other policy at work is the protection of a debtor's homestead, with an exemption embodied in the Minnesota Constitution at art. I, sec. 12.<br />In 1981 in Nw. Nat'l Bank of S. St. Paul v Kroll the Supreme Court said that an attorneys' lien could not attach to homestead property even though the attorney's services had been employed successfully to defend the clients' home against foreclosure. (See sidebar)<br />Currently, Minn. Stat. sec. 510.02 limits the homestead exemption to $390,000 in equity. In 2008, section 510.05 was amended to require a valid waiver of the homestead exemption for an attorneys lien. (A judgment lien, in contrast, may attach to non-exempt equity without a waiver of the exemption.)<br />"Therefore, if an attorney has obtained a valid waiver of a client's homestead exemption under Minn. Stat. sec. 510.05, an attorney lien attaches to a client's homestead property at the commencement of the legal representation if the client's homestead property was the subject of that representation," the court said. Without a waiver, no lien attaches, the court said.<br />The court also acknowledged that the judiciary has had a long struggle with the language of the statute and that the law firm represented the respondent/cross-appellant in connection with that very property, and went unpaid.<br />[divider]<br />Attorneys' liens and homesteads<br />As the court said in Christensen v. Olean, et al., the law has struggled with the homestead-exemption statute since its passage.<br />"The problems associated with attorney liens on homesteads came to a head in 1981 with Northwestern National Bank v. Kroll, 306 N.W.2d 104 (Minn. 1981). In Kroll, the Minnesota Supreme Court addressed the interplay between lawyer lien rights under the attorney lien statute (Minn. Stat. 481.13) and the client's statutory homestead exemption (Minn. Stat. 510.01). Kroll held attorney liens, unlike mechanic liens, did not attach to homestead property even where the lawyer's services had been successfully employed to defend the home against bank foreclosure of a second mortgage," wrote then-director of the Office of Lawyers Professional Responsibility Ken Jorgensen in Bench & Bar of Minnesota in May/June 2003.<br />In 1990, the Lawyers Professional Responsibility Board issued Opinion No. 14, "Attorney liens on client homesteads." It said that it is professional misconduct to file a lien against a homestead or interest in a homestead unless there is a valid waiver that is separate from the fee agreement.<br />In 1993, the exemption statute was amended to limit its value to $200,000. It is now $390,000. "To the extent a client's homestead equity exceeded $200,000, waiver of the exemption was not necessary, nor was filing an attorney lien improper," wrote Jorgensen<br />In 2002, the Legislative Committee of the Minnesota State Bar Association Real Property Section brought to the Legislature an amendment to the statute to make attorney liens like mechanic liens, said attorney Kevin Dunlevy, a member of the committee.<br />The amendment was intended to give property owners greater protections against attorney liens and limited their enforcement to one year, with notice to the property owner, in contrast to previous attorney liens which were unlimited by the statute in duration.But, Dunlevy said, "My recollection is that the Legislative Committee of the Real Property Section did not believe the homestead was exempt from attorney liens."<br />In 2003, Opinion 14 was withdrawn. "The statutory amendments, as much as any of the other changes, caused the Lawyers Board to repeal the homestead lien opinion in April 2003," Jorgensen wrote.

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Publication:Minnesota Lawyer
Geographic Code:1U4MN
Date:Jul 17, 2018
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