## Facts

- Albert and Dianna Hansen owned North Dakota land consisting of separate surface and mineral estates.
- The Hansens granted the Bank of North Dakota (BND) a first mortgage covering both the surface estate and the mineral estate.
- The Hansens later granted the State Bank of Towner (SBT) a second mortgage that covered only the surface estate and excluded the minerals.
- The Hansens defaulted on the mortgages, and Albert died; Dianna Hansen acted individually and as personal representative of Albert’s estate.
- BND commenced foreclosure on its senior mortgage.
- SBT asked the district court to marshal assets so that the mineral estate would be sold first, preserving the surface estate as security for SBT’s junior, surface-only mortgage.
- BND objected, requesting a single sale of surface and minerals together.
- Dianna Hansen also objected, requesting that the surface estate be sold first and that the surface and mineral estates each be divided into seven parcels and sold in a specific sequence chosen by her.
- The district court granted SBT’s request and ordered the mineral estate sold first, divided into seven parcels.
- The mineral-estate sale generated enough proceeds to satisfy BND’s foreclosure judgment, so the surface estate was not sold in BND’s foreclosure.
- Because BND’s judgment was satisfied from the mineral sale, BND did not appeal.
- Dianna Hansen appealed, arguing the court should have followed her requested order of sale and that the court improperly marshaled the property to favor SBT.

## Issues

1. Whether the district court abused its discretion in ordering the mineral estate sold first under the doctrine of marshalling to protect the junior surface-only mortgagee.
2. Whether the mortgagor/owner had a right to require that the surface estate be sold before the mineral estate and in the precise parcel sequence she proposed.

## Decision

- The North Dakota Supreme Court affirmed.
- The court held the district court acted within its equitable discretion by marshalling assets and requiring the senior mortgagee’s debt to be satisfied from the mineral estate first, because the senior mortgage covered both estates while the junior mortgage covered only the surface.
- The court rejected Hansen’s argument that she could dictate the order of sale, holding that any owner preference must yield to an equitable sale structure that fairly accounts for the rights of lienholders and other affected parties.
- The court found no abuse of discretion in dividing the mineral estate into parcels and selling those parcels first, particularly where the method of sale fully satisfied the senior judgment and avoided any sale of the surface estate.

## Legal Principles

- Foreclosure is an equitable proceeding in which the trial court has broad discretion to determine the manner and order of sale to reach a fair result among interested parties.
- Under marshalling, when a senior creditor can satisfy its claim from multiple funds and a junior creditor can reach only one, a court may require the senior creditor to proceed first against the fund unavailable to the junior creditor, so long as the senior creditor is not unfairly prejudiced.
- A mortgagor does not have an absolute right to control whether the surface or mineral estate must be sold first, or to mandate a particular parcel-by-parcel sequence, when the court reasonably orders a different sequence to protect lien priorities and achieve equity.
- On appeal, the sale order is reviewed for abuse of discretion; the appellate court will not reverse absent a showing the trial court acted unreasonably, arbitrarily, or contrary to equitable principles.

## Conclusion

The North Dakota Supreme Court upheld the foreclosure sale order requiring the mineral estate—divided into seven parcels—to be sold first under equitable marshalling, holding that the trial court properly balanced the senior lender’s rights and the junior surface-only mortgagee’s protection and that the mortgagor could not compel a surface-first sale or her preferred sale sequence.


In re Hansen, 458 N.W.2d 264 (1990)