8th Cir. Holds a future advance clause applied to separate commercial loans to the co-mortgagor

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The United States Court of Appeals for the Eighth Circuit recently ruled that the wording of a future advance clause entitled the foreclosed mortgagee to excess proceeds from a condominium sale when there was an outstanding balance owing. to the same mortgagor on separate commercial loans granted to another co-mortgagor.

A copy of the notice in Sanborn Savings Bank v. Released is available at: Link to Opinion.

The appeal arose out of a consumer loan granted by the plaintiff mortgagee (“mortgagee”) to the defendant’s husband (“husband”). The loan was secured by a mortgage signed by the defendant (“wife”) and her husband and secured by their condominium located in Iowa. The mortgage included a future advances clause which gave the mortgagee a security interest in the co-ownership covering future funds that the husband might borrow.

The husband subsequently borrowed additional money in the form of three notes to operate his business (the “Commercial Notes”). The wife was not party to these notes. Shortly thereafter, Mari filed for Chapter 7 bankruptcy. Husband and wife subsequently sold the condo, divorced, and wife moved to another state.

After the note evidencing the loan to the wife was paid on the sale, there remained approximately $249,117.65 of the sale proceeds which were escrow in the husband’s bankruptcy. The bankruptcy court found that under the future advances clause, Husband’s portion of the escrowed proceeds was required to repay the corporate notes. The bankruptcy court further found that Husband could not claim a homeownership exemption for the proceeds.

The mortgagee subsequently brought a separate action against the wife seeking a declaratory relief that the wife’s portion of the proceeds would be subject to the future advances clause of the mortgage and that the mortgagee could enforce the proceeds to commercial tickets. The trial court granted summary judgment in favor of the mortgagee and the wife appealed.

The wife initially argued that the trial court erred in finding that the mortgage’s future advances clause secured the corporate notes.

In Iowa, where there is no clear evidence of a contrary intention, a future advances clause will encompass a particular debt in two cases: (1) when they are of the same kind and quality or relate to the same transaction or series of transactions as the principal secured obligation; and (2) the document evidencing the subsequent advance mentions the mortgage as security therefor. Freese Leasing, Inc. v. Union Tr. & Spar. Bank253 NW2d 921, 927 (Iowa 1977).

The wife argued that the business notes were of a “completely different character” from the original note evidencing the loan to her.

However, the Eighth Circuit pointed out that the nature of the debt only matters when there is “no clear and supportive evidence of a contrary intention” that the mortgage can secure another debt. unrelated. The mortgage in question clearly indicated that it could guarantee “[a]all present and future debts of [Husband] at [Bank]”, without requiring that the debt be mentioned in the title of future debt, that the “future debt [wa]s unrelated to or of a different type from this one[at] debt”, or if the husband “contracts[red] [debts] individually or with others who cannot sign this [Mortgage].”

The Eighth Circuit held that the compelling evidence demonstrated that the mortgage also secured the business notes, noting the unambiguous wording of the future advances clause, its bold presence, and the wife’s signature at the end of the mortgage. as well as his initials on the page containing the future advance clause.

The wife alternatively argued that the mortgage was rendered unenforceable by various contractual formation issues.

The wife first argued that there was no consensus because she had not discussed or understood the terms of the provision for future advances. However, under Iowa law, it is not a defense to performance of a contract that a party has not fully read and considered the terms of the contract. Bryant c.Am. Spoiler express. Advisors, Inc., 595 NW2d 482, 486 (Iowa 1999). Because there was no evidence of duress, incapacity, coercion, or other training issues, and the wife agreed to the terms by signing the contract, the Eighth Circuit found that the wife was bound by the contract. See Gosiger, Inc. v Elliot Aviation, Inc.823 F.3d 497, 502 (8th Cir. 2016).

The wife then argued that her initials and signature on the mortgage did not mean that she had agreed to be bound by its terms and implications. The Eighth Circuit again found no evidence questioning his enforcement of the mortgage. See Bryant595 NW2d at 487. The argument that the mortgage forced the wife to give up her property rights in violation of public order was also rejected because the regulation invoked by the wife did not apply to the banks such as Mortgagee.

The wife further argued that the clause was inadmissible. The Eighth Circuit noted that the wife’s argument was essentially that the contract was a bad deal and therefore denied the claim. See C&J Vantage Leasing Co. v. Wolfe795 NW2d, 65, 80 (Iowa 2011) (“[T]The doctrine of iniquity does not exist to save parties from bad deals. “)

The wife also argued that the mortgagee had failed to demonstrate a prima facie case of entitlement to the proceeds because he had failed to prove that the proceeds included the limitation of maximum mortgage obligations clause. The Eighth Circuit also rejected this argument, as it was raised for the first time on appeal.

Similarly, the argument that the mortgage was not an agreement of credit due to the absence of the disclosure that would be required by Iowa Code § 535.17(3) was rejected as it also was raised for the first time on appeal.

The wife further advanced numerous fair arguments which were excluded because the mortgage was a “credit agreement” under Iowa Code § 535.17(5)(c). Although the wife argued that the mortgage was not a “credit agreement” under this provision of the Iowa code, the Eighth Circuit disagreed in finding that a mortgage is to Iowa’s definition of a “credit agreement”. Finally, all of the wife’s remaining arguments were not addressed as the Court deemed them “entirely unfounded and/or frivolous.

Thus, the Eighth Circuit upheld the trial court’s judgment, denied Wife’s motion to certify questions of law to the Iowa Supreme Court, and denied Mortgagee’s motion to strike part of the brief. in response from Wife as moot.

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