In Iowa, foreclosure and Forfeiture of Real Estate Contracts, are covered under Iowa Code Chapters 654 and 656. Iowa forfeiture statutes must be construed strictly against forfeiture, as equity abhors a forfeiture. ISG Corp. v. Cedar Ridge Investment Partnership, 8-650/88-632 (Iowa App. 1989). Therefore, forfeiture and foreclosure must strictly follow the Iowa Code or face being set aside, and this favors the consumers in Iowa. Forfeiture and foreclosure proceedings are slow in Iowa since the procedures must strictly follow the code. Besides failure to make payments or comply with the contract or debt instruments, foreclosure can also be utilized to cleanse title to a property, for example, if an individual dies and there is no estate and unknown parties. A Guardian ad litem should be appointed for any heirs.
Foreclosure:
In Iowa mortgages are foreclosed by filing a foreclosure lawsuit (Iowa Code Chapter 654) or by non-judicial action (Iowa Code section 654.18 or 655A). In either action, notice is required. Usually prior to forfeiture or foreclosure, the attorney will attempt to resolve the issue. In this type of action, the attorney is acting as a debt collector and is covered by Fair Debt Collection Practices Act.
The process involved in foreclosure usually includes the following:
1. Default by borrower. All actions must be begin with default by the borrower. When foreclosure action is anticipated, attention must be paid to the promissory note that creates the debt and to the mortgage which secures the debt. Both documents detail the rights and responsibilities of the debtor and the lender. Monast v. Manley, 293 N.W. 12, 14 (Iowa 1940). The note and mortgage are to be construed as one instrument and considered together. Mowbray v. Simons, 168 N.W. 217, 218 (Iowa 1918). Frenzel v. Frenzel, 152 N.W.2d 157, 160 (Iowa 1967). If there are differences, then the note is controlling as the note is the primary obligation, and the mortgage is incident to the obligation. Mowbray at 218. The note and mortgage state what is considered default. If the action is not specified in the debt instruments, there cannot be a default. Beason v. Johnston, 191 N.W. 311, 312 (Iowa 1922). Additionally, the borrower's obligations must be clear in the documents with no chance for unknowingly going into default. McKee v. Stewart, 235 N.W. 286, 287 (Iowa 1931). Due on sale clauses can trigger maturity of debt, but can only be enforced in forfeiture when there are reasonable grounds based solely on criteria not more restrictive than that used to evaluate a new mortgage loan application to believe that the security interest or likelihood of repayment is impaired. Iowa Code section 535.8(2)(c).
2. Right to Accelerate. Once the borrower is in default, most debt instruments grant the lender the right to accelerate the debt, declaring all payments and interest immediately due. Collins v. Nagel, 203 N.W. 702, 703 (Iowa 1925). However acceleration provisions are not self-executing, and the holder of the debt instrument must take actions to exercise the option to accelerate. Dunn v. Gen. Equities of Iowa Ltd., 319 N.W.2d 515, 516 (Iowa 1982). A mere threat to commence a lawsuit followed by "all are now due" is not sufficient to accelerate the debt unless followed by affirmative action to enforce the intention. Wentland v. Stewart, 19 N.W.2d 661, 666 (Iowa 1945). Proper acceleration can be where a letter is sent to the borrowers demanding payment by a certain date, and the day after that named date a petition of foreclosure was filed. Corn Belt Savings Bank v. Kriz, 219 N.W. 503 (Iowa 1928). A letter alone, without filing of a petition, would likely not be sufficient.
3. Notice. If the lender believes in good faith that the borrower is in default, the creditor must give the notice described in Iowa Code section 654.2B (2009). The notice must contain:
a. contact information of the lender
b. obligation secured by the mortgage and the right to cure the default
c. Nature of the alleged default
d. payment owed or other performance necessary to cure default
e. date by which default must be cured
f. statement that lender is entitled to foreclose on the mortgage in the absence of a cure. Iowa Code section 654.2B (2009).
The borrower has 30 days from the notice date to cure, and the lender may not accelerate the debt or file a foreclosure petition during this 30 day period. Iowa Code section 654.2D(3) (2009). Failure to provide adequate notice though will only be a defense in a foreclosure action if the borrower shows substantial prejudice. Iowa Code section 654.2B (2009). Inaccuracies in the notice, especially in amounts owed, may satisfy this requirement. Garland v. Branstad, 648 N.W.2d 65, 72 (Iowa 2002). This could lead to dismissal of the foreclosure action, but could be cured by a later refiling after proper notice. Iowa has a unique procedure that allows a borrower suffering a foreclosure where the only method of service was by publication, to demand and retry the foreclosure where the owner had no knowledge of the foreclosure.
The notice requirement does not apply if the creditor is an individual or a proper notice on a prior default was given in the previous year. Iowa Code section 654.2B (7),(8).
If the mortgage secures a consumer loan, then a notice is also required under the Iowa Consumer Credit Code. Iowa Code section 537.5110(2) (2009). After this notice, the borrower is allowed 20 days to cure the default. Iowa Code section 537.5110(4)(a) (2009). Notice is required to file suit and failure to comply is a cause for dismissal of a subsequent foreclosure action. Farmers Trust & Savings Bank v. Manning, 311 N.W.2d 285, 290 (Iowa 1981).
To recover attorney fees in a foreclosure, the lender is required to notify the borrower of the default and provide the opportunity to cure. Iowa Code section 625.25. Notice is an element of the claim that must be shown by the lender. Thus even if notice is not required for certain borrowers, it is required to recover attorney fees. Home Savings & Loan Assoc. v. Iowa City Inn, Inc., 152 N.W.2d 588, 592 (Iowa 1967).
3. Cure and Waiver. A borrower in default may cure with an absolute and unconditional tender by payment due or other performance required. Iowa Code section 654.2D(4)(b). An offer to pay is insufficient. Successfully curing restores all borrower's rights under the mortgage. Iowa Code section 654.2D(5). A full cure prior to filing foreclosure action, bars foreclosure unless the default resulted in prejudice to the lender. Smalley v. Ranken, 52 N.W. 507, 509 (Iowa 1892).
Payment after filing a foreclosure action does not bar foreclosure absent a waiver of acceleration. Swearingen v. Lahner, 61 N.W. 431 (Iowa 1894). Before the debt has been accelerated, the borrower need only make payment on portions of the debt to cure. However, if accelerated, the borrower may only cure by tendering the full amount. Acceleration is an option and a waiverable right. Failure to exercise the option or acceptance of late payment of the amount due constitutes a waiver. Dunn v. Gen. Equities of Iowa, Ltd., 319 N.W.2d 515, 516 (Iowa 1982). Payment of an amount less than the full amount due does not constitute a waiver per se. Jewell v. Logsdon, 206 N.W. 136 (Iowa 1925). Acceptance of a partial payment then, merely reduces the balance due.Home Fed Savings & Loan Assoc. of Algona v. Campney, 357 N.W.2d 613, 621 (1984). Waiver may be established by the course of dealing between the parties. Dunn at 516. A lender regularly accepting late payments waives the right to accelerate for a subsequent late payment. Dunn at 516. If a waiver is established, the lender must notify the borrower if it intends to withdraw the waiver and strictly enforce the terms of the mortgage. Id.
4. Preforeclosure Actions for resolution. Parties can contract for other remedies than foreclosure. Nash Finch Co. v. Corey Development Ltd., 669 N.W.2d 546, 549-550 (Iowa 2003). Parties can contract for cash payments, assignment of future income, renegotiation of the mortgage, third party assumption, third party guarantee of the debt, sale of the property by the borrower, or deed in lieu of foreclosure, among other options.
A deed in lieu of foreclosure occurs when the borrower deeds the property to the lender to satisfy all or part of the debt. This leads to a presumption the right of redemption continues. Tom Riley Law Firm, P.C. v. Padzensky, 430 N.W.2d 416, 417 (Iowa 1988). The redemption right is barred only when it clearly appears both parties intended an absolute sale. If in doubt, the court will resolve that the sale is a continuation of the mortgage.Steckelberg v. Randolph, 404 N.W.2d 144, 149 (Iowa 1987). An option to repurchase, inadequate consideration, retention of possession by borrower, can construe the deed as a mortage. Koch v. Wasson, 161 N.W.2d 173, 177 (Iowa 1968).
5. Nonjudicial Foreclosure or Judicial Foreclosure.
Alternative Nonjudical Foreclosure:
An alternative Nonjudicial foreclosure is covered under Iowa Code section 654.18. This is a voluntary action by both parties to avoid court action, and must be done pursuant to written agreement. Iowa Code Section 654.18(1). The lender waives rights to a deficiency judgment or other claims arising out of the mortgage in exchange for the property.
The borrower conveys all interest to the lender and the lender gains immediate access to maintain and protect the property. A joint document is filed with the recorder's office stating that this is an alternative voluntary foreclosure procedure. Iowa Code section 654.18(1). The lender may only report to the credit bureau that this foreclosure was used and is barred from reporting the delinquency. Iowa Code section 654.18(4).
The lender must give notice by certified mail or publication of the election to all junior lienholders by the date of conveyance. Junior lien holders have 30 days from the date of mailing or last date of publication to exercise rights of redemption. If the lien holder fails to redeem within the 30 days, the lien is removed. Until foreclosure is completed, the lender holds the property subject to the liens. The mortgage can still be foreclosed as provided in Iowa Code chapter 654.
The lender must also provide Disclosure and Notice of Cancellation to the written agreement and provide a copy to the borrower. The disclosure informs the borrower that he is giving up the right to reclaim or occupy the property, right to any potential overplus, and allows the borrower 5 days to cancel without penalty or obligation by signing and delivering the notice of cancellation to the lender. After 5 days, the voluntary nonjudicial foreclosure agreement becomes final if not cancelled.
Nonjudicial Foreclosure under Chapter 655A:
Nonjudicial foreclosure is covered under Iowa Code chapter 655A for a property that is neither a one or two family residence of an equitable titleholder nor agricultural land. This nonjudicial foreclosure does not need prior agreement by the borrower to initiate because the lender initiates foreclosure by formally serving written notice on the borrower, all junior lienholders, and persons in possession.
Notice must include (mandatory language is included in Iowa Code section 655A.3(1):
a. identify the mortgage by document reference number,
b. Accurately describing the property
c. specify the nature of the breach
d. Inform borrower that if no cure or file a rejection within 30 days from service, the mortgage will be foreclosed.
The lender may file the written notice with proof of service in the recorders office as if filing a lis pendens.
This form of nonjudicial foreclosure may be defeated by:
a. the borrower or junior lienholder curing the default within 30 days of service. The lender can only require cure, not full payment under acceleration since acceleration is not allowed under this section.
b. the borrower filing a rejection within 30 days, together with proof of service.
If not cured nor filing a rejection within 30 days, the foreclosure is completed when the lender files copies of the notice with proof of service. The debt and junior liens are extinguished and the lender acquires the borrower's full interest.
Judicial Foreclosure:
Venue is proper in the county where the property is located or part of the property is located.
The lender must decide to sue on the note or the mortgage securing the note. This does not prevent a lender from obtaining a personal judgment on the note and later foreclosing on the mortgage. Farm Credit Bank of Omaha v. Faught, 492 N.W.2d 422, 424 (Iowa 1992). However the judgment on the note must be enforced within 2 years when the land is agricultural or residential, and this method prevents a deficiency judgment. Fed. Land Bank of Omaha v. Faught Bros. Inc., 468 N.W.2d 793, 794-95 (Iowa 1991). The lender is barred from seeking a personal judgment on the note after foreclosing on the mortgage, and if the debt is extinguished or recovery barred, then the mortgage is no longer of value and foreclosure is prevented. Monast v. Manley, 293 N.W. 12, 14 (Iowa 1940).
Two time limitations are involved in foreclosures- a 10 year limit on written contracts under Iowa Code section 614.1(5) and a restriction on ancient mortgages under Iowa Code section 614.21. In Iowa actions on written contracts must be brought within 10 years after the cause accrues. The latest cause usually occurs when the lender accelerates the debt and the lender calls the note due. Frenzel and Frenzel, 152 N.W,2d 157, 159-160 (Iowa 1967). Foreclosure is also barred on mortgages over 20 years old unless the record shows that less than 10 years have passed since the debt fully matured, right of action accrued, or any extension granted.
Notice must be given to all parties with interest since failure to join interested parties does not bind unnamed parties. Francksen v. Miller, 297 N.W.2d 375, 378 (Iowa 1980). The lender will take the foreclosed property subject to the rights of the unnamed parties. Equitable Life Ins. Co. of Iowa v. Condon, 10 N.W.2d 78, 84 (Iowa 1943). Persons of interest may include purchasers of the property, occupants, administrators of a deceased mortgagor's estate, adjoining landowners claiming title, and lienholders. John P. Sullivan, IOWA REAL ESTATE MORTGAGE FORECLOSURE (3rd ed.) section 6-4 (2002). A second notice is required to be provided ten days prior to any default.
An Answer the foreclosure petition should be filed within 20 days after service. The answer should contain any defenses to the forclosure. A general denial is usually filed, if there is any defense at all. One defense in Iowa is a one year moratorium on foreclosure actions (or 2 years for businesses) if the foreclosure is prompted by drought, flood, heat, hail, storm or other climatic conditions or by reason of infestation of pests which affect the land in controversy. Iowa Code section 654.15.
Possible defenses which have been utilized in other jurisdictions (and possibly in Iowa, so contact an attorney to determine if applicable) include:
a. Due Process
b. Rescission under the Real Estate Settlement and Procedures Act if lender failed to provide timely disclosures
c. Lost Notes (see below)
d. Mortgage Electronic Registration Systems, Inc.- lawsuit is brought in the name of MERS, and the borrower has nver had contact with MERS. MERS generally holds the mortgage as a nominee for the true lender. This relationship may affect your rights.
e. Force-place Insurance where the lender purchases insurance under the belief that the homeowner let their policy lapse when the homeowner has insurance.
f. Lost payments not applied to the account
g. Failure to Accelerate the Note- proper notice and acceleration if required
h. FHA-Insured Loans require special service such as a counseling notice mailed within 45 days of default, face-to-face meeting with borrower within 90 days of default, and notice of available counseling. Failure to comply is an affirmative defense.
i. Accepting Payments After Foreclosure- defense if the lender accepts payments after filing foreclosure, mortgagor is not in bankruptcy and the note is accelerated.
j. Truth-In-Lending and HOEPA violations- may void mortgage within 3 years of execution of mortage (if non-purchase mortgage and required disclosures not delivered to borrower).
k. Fraud, Abuse, Collusion
l. Fair Debt Collection Practices Act- attorney filing the foreclosure are considered debt collectors and must comply with the FDCPA. This is not actually a defense, but allows damages.
m. Failure to Attach Note and Mortgage to Complaint- can lead to motion to dismiss
n. Incorrect Notice or Service- must follow the code requirements and the notice must contain correct information
o. Failure to comply with Iowa Code
p. Bankruptcy- A bankruptcy stay may prevent action.
r. Statute of Limitations- Iowa Code has two time limitations for action (see above)
One possible defense, although unlikely to succeed, is the "Lost note" defense. In this case, the lender must prove its entitlement to foreclose by producing the original note. Sometimes, the creditor claims the note was "lost" as a shortcut to locating the note when the note has been bundled and sold and resold. Where this defense is applicable is when the note has been sold and resold (often bundled), and the new creditor foreclosing is not the original lender. This defense is unlikely to succeed, as a copy (even an electronic copy) is usually found, but this defense could gain time if the lender cannot immediately locate the note.
If there are no defenses, and the borrower is not disputing the foreclosure, then there is no need for an Answer. If the owner does not provide an Answer, then a default judgment is issued. Most forfeitures are default. If the owner answers, then often Summary Judgment is often utilized by the lender.
Most owners are usually not represented by attorneys during forfeiture proceedings, but the lender always is represented. This can place the owner at a disadvantage.
If there is no dispute, but the borrower wants more time, he can file a Demand for Delay of Sale. This demand must be filed before the judgment, but not necessarily within the 20 day period for filing an answer. The Demand can also be filed if an Answer is filed. This demand gives the borrower 6 or 12 months longer in the house, depending if the lender is waiving deficiency (shortfall after the Sheriff's Sale) or not (6 months if the lender waives deficiency). The time starts from the judgment. The borrower will not have to pay rent or make payments while still living in the house during the period of delay. However, by filing a Demand for Delay of Sale, the borrower could relinquish the rights not to be chased for a deficiency judgment.
The foreclosure action then goes before the court. The majority of the time this action is unopposed and a default judgment is issued by the court. In either case, if the foreclosure action is successfully, the court issues a judgment for the entire amount due, along with interest and costs, and issues a special execution order authorizing the sale of the property to satisfy the judgment. Iowa Code section 654.5. The court only orders the sale of as much property as sufficient to satisfy the debt. If the sale has an overplus with the sale producing more than the judgment, the overplus first pays other lienholders, then the remainder goes to the borrower. If there is a shortage, the court may issue a deficiency judgment unless the lender waived the right. Iowa Code section 654.6.
The lender can demand execution of the judgment once it is issued, by demanding the clerk of the court to issue an execution. Iowa Code section 626.7. A junior lienholder may, upon payment of judgment with interests and costs, plus amount of any superior liens held by the lender, may choose not to proceed with foreclosure sale.
The sheriff then must provide notice of the sale. The notice must be posted in the courthouse and 2 other public buildings. Notice must also be published in a local newspaper twice during the 4 week notice period. The sheriff must also serve the borrower actually occupying the property with written notice 20 days prior to the sale. If notice to the occupying borrower is not served, the borrower has 90 days to file a motion to set aside. Iowa Code sections 626.74-79.
The sheriff's sale is normally held at the courthouse and the property sold to the highest bidder. The sheriff may delay the sale 3 days if no bids are received or the winning bid is grossly inadequate. Iowa Code section 626.81. Generally a sheriff's sale is not set aside as long as the sheriff has substantially complied with procedures for the sale. First Natl Bank of Fairfield v. Diers, 430 N.W.2d 412, 415 (Iowa 1988). A mistake of law or fact will permit the sale to be set aside only when the party suffering the mistake faces oppressive burden and the other party will not suffer substantial hardship. Farmers Sav. Bank v. Gerhart, 372 N.W.2d 238, 244 (Iowa 1985).
After the sale, the purchaser is initially entitled only to a sheriff's certifcate. Once the redemption period expires without a party redeeming the property, then a sheriff's deed is issued. The sheriff's deed conveys title only as it existed when the mortgage was executed. Thus later liens or encumbrances arising after the mortgage are extinguished against the purchaser, but prior liens or encumbrances still exist against the purchaser. Kellogg v. Illinois Cent. R.R, Co., 215 N.W. 258 (Iowa 1927). Norwest Credit Inc. v. City of Davenport, 626 N.W.2d 153, 156 (Iowa 2001).
Foreclosure without redemption. Iowa Code section 654.20.
This is the option utilized by most lenders in Iowa currently.
Iowa code grants the lender an option to foreclose without redemption on any land not used for agricultural purpose. In this case, the first page of the foreclosure petition must contain the notice required under Iowa Code section 654.20, informing the borrower that the lender has elected foreclosure without redemption and describing the effect on the borrower's rights. Although omission of the notice may still allow foreclosure without redemption, but prevent a deficiency judgment. Morris Plan Co. of Iowa v. Bruner, 458 N.W.2d 853,858 (Iowa App. 1990).
Foreclosure without redemption cuts off all rights to borrowers and junior lienholders to redeem the property after the sheriff's sale, and the purchaser is entitled to an immediate deed and immediate possession. Iowa Code chapter 628 has no application concerning the statutory redemption. To protect the borrower and junior lienholders, they are entitled to purchase the property at the sale, and the property is automatically sold to the borrower if he bids the amount of the judgment even if higher bids are received. If the borrower wins the bid, however, he takes the property subject to junior liens, unlike other buyers.
Foreclosure without redemption is an option when the lender waives a deficiency judgment in its petition and varies whether a buyer has demanded a delay of sale. A borrower has the right to file a delay of sale which delays the sheriff's sale. If the lender waived the right to a deficiency judgment, the sale is held 6 months after judgment. Iowa Code section 654.21. If the lender retains the right, the delay is for 12 months from judgment. If the borrower does not file a demand for delay of sale, the lender is not entitled to a deficiency judgment even absent a waiver. So, by filing a demand for delay of sale, the borrower could be pursued for a deficiency judgment when he might not be otherwise.
During the delay period, the borrower can avoid the sheriff's sale by payment of the judgment amount. A stipulation that the lender waives the right to a deficiency judgment filed during the delay, may allow an immediate sale.
Foreclosure with redemption. Iowa Code section 654.5.
If the lender did not elect foreclosure without redemption, the the sheriff's sale is subject to redemption by the borrower and other creditors. The right of redemption is statutory and can be exercised only by those to whom the statute gives the right.First Natl Bank of Glidden v. Matt Bauer Farms Corp., 408 N.W.2d 51, 53 (Iowa 1987).
The general period of redemption is one year. Iowa Code section 628.3. The borrower has the exclusive right to redeem during the first 6 months and the final 3 months of the redemption period. Iowa Code sections 628.3, 638.26. If the borrower fails to redeem after 6 months, junior lienholders may redeem the property. Unless the borrower redeems in the final 3 months, the lienholder who last redeemed prior to the 9 month mark holds title to the property and is assigned the sheriff's certificate. This party's lien is then extinguished unless steps are followed under Iowa Code sections 628.18-20.
The redemption period can be shortened. Any party who stayed execution of the foreclosure judgment loses the right to redemption. If the property is not residential nor agricultural, or is residential but not a one or two family dwelling that is the residence of the borrower, the redemption period is 180 days if the lender has not waived the right to a deficiency judgment. The borrower has an exclusive right to redeem for the first 90 days and junior lienholders may redeem after 135 days. Iowa Code section 628.28. If the lender has waived the right to a deficiency judgment in this type of property, the redemption period is reduced to 90 days with the borrower having the right to redeem exclusively for the first 30 days and junior lienholders after 60 days. The period can also be shortened if the borrower was an occupant at the time of foreclosure, but is no longer an occupant. If there are no junior lienholders, the court can reduce the period to 30 days; if there are junior lienholders 60 days with the exclusive right to redeem for 30 days and junior lienholders redeeming after 45 days. Agreements in the mortgage may shorten the redemption period if the property is less than 10 acres in size. The borrower and lender may agree to shorten the period to 6 months if the lender waives the right to a deficiency judgment with the borrower having the exclusive right to redeem for the first 3 months and junior lienholders after 4 months. Th parties may also shorten the period to 60 days if the court finds the property is abandoned and the lender waives the right to a deficiency judgment, with the exclusive right to redeem for the first 30 days and junior lienholders after 45 days.
The borrower is entitled to possession during the entire period and is entitled to rents and proceeds during the period unless the mortgage provides otherwise. Starits v. Avery, 213 N.W. 769, 771 (Iowa 1927).
To redeem, the borrower must pay to the clerk's office the amount of the winning bid, all sums paid by the holder of the sheriff's certificate in effecting redemption, amount of the certificate holder's lien, and all costs and interest at the contract rate from the date of the sale. Iowa Code section 628.13. The borrower may also purchase assignment of the sheriff's certificate of sale and the clerk cancels the certificate. For lienholders to redeem, the lienholder must pay at least an amount equal to the winning bid plus costs with interest according to the terms of the lien on which redemption is based. Relations between other lienholders during redemption are covered by statute. Iowa Code sections 628.6-14.
The borrower may assign his right to redeem and the assignee acquires the same redemption rights as the borrower, but not the right of possession which the borrower retains for the rest of the period unless separately assigned. Hartman Mfg Co. v. Luse, 96 N.W. 972, 972-73 (Iowa 1903).
The nature of title depends on the redeeming party and the timing of the redemption. A borrower takes title free of any liability for deficiency. A borrower who redeems prior to the expiration of the junior lienholders' redemption period retains title subject to existing junior liens. If the borrower redeems after 9 months (or similar period if shortened) the title is free of any liens that were not redeemed during the redemption period. Anderson v. Renshaw, 294 N.W. 274, 278 (Iowa 1940). An assignee acquiring the borrower's right to redeem takes title free of all junior liens who fail to redeem regardless of when the assignee redeems. Farmers Prod. Credit Assoc. v. McFarland, 374 N.W.2d 654, 657 (Iowa 1985). The last redeeming lienholder entitled to a sheriff's certificate takes title free of any liens that did not exist prior to the mortgage. Tirrill v. Miller, 218 N.W. 303, 304 (Iowa 1928).
Forfeiture of Real Estate Contracts: (Iowa Code Chapter 656)
Forfeiture occurs after the vendee (person buying the home) violates the contract. Service of written notice must be served on persons in possession of the property, all the mortagees of the property, and a person who asserts a claim against the vendee (borrower's) interest. Failure to serve these parties can render the forfeiture invalid. Jamison v. Knosby, 423 N.W.2d 2 (Iowa 1988). Always include parties in possession, but eviction action is not necessary.
While publication is allowed, failure to exhaust all reasonable methods to locate the parties can set aside the forfeiture. Qualley v. State Federal Savings & Loan Association, 487 N.W.2d 353 (Iowa App. 1992). Prior to publishing notice, an Affidavit should be filed stating that the parties could not be located and the actions taken to locate the parties. Publication is not favored and can be challenged.
Written notice includes:
a. Reasonable identification of the contract default. Ensure that the legal description is correct.
b. Specify the terms of the contract which the vendee (borrower) failed to comply with.
c. Right to Cure Notice within 30 days if the property is a one or two family dwelling that is the borrower's residence. The borrower has 30 days after service to perform the terms in the default and pay reasonable costs of serving the notice. Failure to comply can lead to the contract being forfeited. Iowa Code section 654.2D (2009).
d. Specify the amount of attorney fees claimed pursuant to Iowa Code 656.7 and that payment is not required to comply with the notice and prevent forfeiture. Iowa Code section 656.2 (2009). Reasonable attorney fees are allowed in forfeiture. Iowa Code section 656.7 (2009). If the fees are not paid, the vendor seeking payment of attorney fees, may file a small claim action for enforcement.
Along with the notice is a blue form, Mediation Notice with Iowa Mortgage Help Hotline. This Mediation Notice is mandatory in all real estate contracts of $20,000 or more (except agricultural land- however if mixed agricultural and nonagricultural the issue has to be determined on a case by case basis, Qualley) or unless the court determines after notice and hearing that the time delay for mediation would cause the person irreparable harm. Iowa Code section 656.8 (2009). This must come in the initial communication from the lender to the borrower. If the blue form is not included, then the lender cannot go forward with forfeiture
The borrower has the right to cure the default within 30 days. If the borrower cures the default, then the forfeiture is stopped and the mortgage is reinstated.Iowa Code section 656.4 (2009). It is rare to be able to cure the default due to the amount of money that is owed that is in default. Usually it is cured only if the borrower has access to retirement or other funds.
If the debtor can pay the missed payments, along with other amounts past due, along with fees and costs to prosecute the forfeiture, the loan can be reinstated prior to judgment. Once the loan is reinstated, the forfeiture lawsuit is dismissed.
Additionally, the forfeiture can be put on hold for a period of time to work out a modification agreement. However, if the agreement is actively being developed, the case may have to be dismissed due to time limitations.
If the borrower is not able to pay the default amount, then Proof of Service and Affidavit are filed with the County Recorder. Iowa Code section 656.5 (2009). Then a forfeiture petition is served by the sheriff. There must again be another blue flyer with the petition (cannot be a photocopy). The borrower then can:
a. Answer the forfeiture petition within 20 days after service. The answer should contain any defenses to the forfeiture. A general denial is usually filed, if any defense at all. If there are no defenses, and the borrower is not disputing the forfeiture, then there is no need for an Answer. If the borrower does not provide an Answer, then a default judgment is issued. Most forfeitures are default. If the owner answers, then often Summary Judgment is utilized.
Most owners are usually not represented by attorneys during forfeiture proceedings, but the lender always is represented. This can place the owner at a disadvantage.
b. If there is no dispute, but the borrower wants more time, he can file a Demand for Delay of Sale. This demand must be filed before the judgment, but not necessarily within the 20 day period for filing an answer. The Demand can also be filed if an Answer is filed. This demand gives the borrower 6 or 12 months longer in the house, depending if the lender is waiving deficiency (shortfall after the Sheriff's Sale) or not (6 months if the lender waives deficiency). The time starts from the judgment. The borrower will not have to pay rent or make payments while still living in the house during the period of delay.
Under Iowa case law, if the vendor elects to pursue forfeiture remedy wherein the property is returned in its present condition in satisfaction of the debt, the contract vendee is extinguished from liability on the contract price. Thus if a fire destroyed the property, and the vendor pursued forfeiture, then the insurance proceeds belong to the vendee (home owner). Risken v. Clayman, 398 N.W.2d 833 (Iowa 1987).
If the forfeiture is set aside and special damages occur due to the forfeiture action, damages for slander of title may be awarded.
Possible Ways to Stop a Foreclosure:
Bankruptcy:
The borrower can file bankruptcy. The foreclosure action is stayed after the bankruptcy is filed until the home is released. Under Chapter 13, the default could be cured over the 3-5 year period for payments under the program. The home payments while under Chapter 13 include the home payment plus an additional amount to cure the default. Mortgages can also be stripped off if they are unsecured (treated as if unsecured credit cards). This can be important if the property value has dropped and there are additional mortgages that are no longer securing the property if there is not enough equity in the property to secure the property. If the borrower received a discharge in bankruptcy under either Chapter 13 or Chapter 7, the mortgage company cannot collect a personal judgment against the borrower or collect any deficiency from the Sale of the property. The lender however, can exercise its right to repossess the secured collateral (the property). A Chapter 7 may not cure the default, and you may lose the home after bankruptcy, but you may buy some time to come up with the deficiency to avoid foreclosure or be able to find a buyer for the home. A Chapter 7 will preven the lender from filing for a deficiency judgment after the foreclosure or short sale.
Short Sale:
Get an offer from a buyer to buy the home and provide this to the lender. In a short sale, the lender (as well as the owner) must approve a sale of the home. This can be for less than the amount owed (thus "short"). If the lender approves, and the sale goes through, the house is transferred without foreclosure. However, the lender may still pursue the difference from the debtor in a separate action, but sometimes doesn't.
Sell your home:
If foreclosure is threatened, you may be able to sell the home and pay off the mortgage debt. This is often not possible due to the amount owed and the lowered real estate values and market.
Loan Modification:
A loan modification allows changes or alterations to the original note. Iowa Mortgage Help Hotline may be able to assist. Be wary of companies that are offer loan modifications, though. There are a few unscrupulous companies that take your money and don't prevent foreclosure. The industry is unregulated, so buyers beware. If you can negotiate with your lender to modify your loan, you may be better off than working with an unknown company who may or may not be able to assist you.
Refinance:
If you can refinance your loan and payoff the loan threatening foreclosure then the foreclosure can be prevented.
Surrender your home:
You may be able to surrender the home without bankruptcy. However, be wary of surrendering your home if you are not insolvent, since the IRS may collect taxes for the deficiency amount. Bankruptcy assumes insolvency, so surrendering the home in bankruptcy does not create the tax problem. Without bankruptcy, you will need to prove insolvency or pay the taxes.
Farm Foreclosures:
Agricultural property has special foreclosure procedures in Iowa. The lender must attempt mediation through the Farm Mediation Service on an individual's farm, family farm or qualified farm corporation. A notice and initial meeting must be held within 42 days of the request by the farmer.
The first right of refusal when the farm is sold at execution belongs to the farmer and there are special deed in lieu procedures allowing the lender to take title, but the farmer to lease back from the lender and repurchase within 5 years. The farmer may also separately redeem the house and up to 40 acres even after the foreclosure.
U.S. Government Agency Mortgages
The Eighth Circuit Court has ruled that rights under Iowa state laws concerning foreclosure might be waived in contracts with federal agencies. For example, in U.S. v. Larson, 02-2633 (8th Cir 2003), the right to redemption by state law was waived in a contract with the Rural Housing Service (RHS)
_______________________________________
Disclaimers: Information on this web site can not be construed as legal advice, and you are advised to seek legal counsel and not rely on this or any other website. Use of this web site does not create an attorney/client relationship and should not be viewed as creating such a relationship.
The determination of the need for legal services and the choice of a lawyer are extremely important decisions and should not be based solely upon advertisements or self-proclaimed expertise.
A description or indication of limitation of practice does not mean that any agency or board has certified such lawyer as a specialist or expert in an indicated field of law practice nor does it mean that such lawyer is necessarily any more expert or competent than any other lawyer. All potential clients are urged to make their own independent investigation and evaluation of any lawyer being considered.
"We are a Debt Relief Agency. We Help People File for Bankruptcy Under the Bankruptcy Code."
Contingent fee rates are subject to rule 32:1.5(c) and (d). Percentages are computed after deduction of costs and the public is advised that, in the event of an adverse verdict or decision, the contingent fee litigant could be liable for court costs, expenses of investigation, expenses of medical examinations, and costs of obtaining and presenting evidence. Contingent fee agreements are not available for criminal law cases and most family law cases.
In the event a lawyer’s communication seeks to advise the client of litigation, the client is advised that the filing of a claim or suit solely to coerce a settlement or to harass another could be illegal and could render the person so filing liable for malicious prosecution or abuse of process.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained on this website is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding tax-related or other penalties under the U.S. Internal Revenue Code, or (2) promoting, marketing or recommending to another party any tax-related matter addressed herein.