## Facts

- Dale M. Stone, a retiree, owned a rental duplex and invested over $50,000 in purported real-estate projects organized by Keith Hammond under the name Jetmar Properties, LLC.
- In November 2002, Hammond drafted and signed Jetmar’s articles of organization but did not file them with the Minnesota Secretary of State.
- Hammond obtained an unsecured three-day $200,000 loan from Selwin Ortega and failed to repay it.
- In May 2003, Hammond asked Stone to quitclaim the duplex to “Jetmar Properties, LLC” to improve Jetmar’s balance sheet, promising to deed it back “free and clear” within 60 days while Stone continued collecting rent.
- On May 14, 2003, Stone executed a quitclaim deed to “Jetmar Properties, LLC,” and Hammond accepted and recorded it, signing as Jetmar’s “president.”
- On May 15, 2003, Hammond mortgaged the duplex to Ortega in exchange for an extension of the unpaid $200,000 loan.
- Hammond defaulted; Ortega foreclosed by advertisement and acquired the duplex at the foreclosure sale.
- Only after these events did Hammond file Jetmar’s articles and obtain a certificate of organization.
- Stone sued for a declaration that he remained the owner and that the deed, mortgage, and foreclosure were ineffective; the district court declared the deed void, awarded title to Stone, and awarded damages against Hammond and/or Jetmar.

## Issues

1. Whether a Minnesota limited-liability company exists before its articles of organization are filed, including whether any de facto entity doctrine could validate earlier acts.
2. Whether a quitclaim deed purporting to convey real property to a not-yet-formed LLC is valid or void for lack of effective delivery.
3. Whether the mortgagee/foreclosure purchaser was protected as a good-faith purchaser for value or by equitable estoppel or collateral-attack doctrines.

## Decision

- The Court of Appeals affirmed the district court.
- An LLC comes into existence only upon proper filing of articles of organization; Jetmar did not exist when Stone executed the deed.
- The quitclaim deed to Jetmar was void for failure of delivery because there was no legally capable grantee at the time of purported delivery.
- Because Jetmar never acquired title, Jetmar could not grant a valid mortgage to Ortega, and the foreclosure based on that mortgage did not divest Stone of title.
- Ortega was not a good-faith purchaser for value and could not defeat Stone’s ownership claim through equitable estoppel or collateral-attack arguments.

## Legal Principles

- Under Minnesota law, an LLC is formed and comes into existence upon filing its articles of organization with the Secretary of State.
- Minnesota does not recognize the de facto-corporation doctrine to retroactively treat an unfiled entity as existing.
- Effective delivery of a deed requires a legally competent grantee; a deed to a non-existent LLC is void for failure of delivery.
- A mortgage and foreclosure convey no greater interest than the mortgagor possessed; if the mortgagor never held title, the mortgage and foreclosure are ineffective against the true owner.
- Bona fide purchaser protection may be denied where circumstances require further inquiry and the purchaser/lender fails to investigate; equitable doctrines will not be applied to validate a void conveyance under such circumstances.
- A claim that the mortgagor never held title is not barred as a collateral attack on foreclosure proceedings where the asserted defect goes to the validity of the mortgage itself.

## Conclusion

The court held that a deed to an LLC that had not yet been formed by filing articles was void for lack of delivery, leaving the grantor’s title intact; because the LLC never held title, the subsequent mortgage and foreclosure could not transfer ownership, and the lender was not protected as a good-faith purchaser or by equitable defenses.


Stone v. Jetmar Props., LLC, 733 N.W.2d 480 (Minn. Ct. App. 2007)