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Wells Fargo Bank N.A. v. Valley Bank & Trust

Court of Appeal of Iowa

September 5, 2013

WELLS FARGO BANK, N.A., SUCCESSOR BY MERGER TO WELLS FARGO HOME MORTGAGE, INC. Plaintiff,
v.
VALLEY BANK AND TRUST n/k/a STATE SAVINGS BANK, Defendant-Appellant, and PRIMEBANK, Defendant-Appellee.

Appeal from the Iowa District Court for Plymouth County, Jeffery A. Neary, Judge.

Valley Bank and Trust n/k/a State Savings Bank (Valley) appeals the district court ruling condemning and establishing a priority of surplus funds in a foreclosure action.

John P. Loughlin of Loughlin Law Firm, Cherokee, for appellant.

Scott Bixenman of Murphy, Collins & Bixenman, P.L.C., Le Mars, for appellee.

David M. Erickson, Des Moines, and Donald Pavelka, Council Bluffs, for Wells Fargo Bank, N.A.

Thomas J. Miller, Attorney General, and Pamela D. Griebel, Assistant Attorney General, for State of Iowa.

Considered by Vogel, P.J., and Vaitheswaran and Bower, JJ.

BOWER, J.

Valley Bank and Trust n/k/a State Savings Bank (Valley) appeals the district court ruling condemning and establishing a priority of surplus funds in a foreclosure action. Valley argues the district court erred when it decided a future advances clause in the mortgage did not establish Valley's priority in collecting on a promissory note. Because we find the parties intended to cover both notes with the mortgage, we reverse and remand.

I. Background Facts and Proceedings

This case concerns an "Open-End Real Estate Mortgage" and two promissory notes executed by Edward and Kristine Lewin. The issue presented is whether a future advances clause, otherwise known as a dragnet clause, applies to a second promissory note executed on the same date as the mortgage. If it does, Valley has a priority position to collect against surplus funds remaining from a foreclosure action. If the clause does not apply, Primebank has the priority position.

The mortgage, executed on June 29, 2004, and recorded on July 7, 2004, contains a future advances clause which attempts to secure any future loans between the lender and borrower. The mortgage secured credit in the amount of $46, 500.

On the date the mortgage was completed, the Lewins executed two promissory notes. The first, for the sum of $46, 500, was secured by "Real property shown on the mortgage dated June 29, 2004." The second, in the amount of $111, 357.58, was secured by "Assignments dated 6/29/04 of 100% corporate stock of Cars, Inc."[1]

The foreclosure petition was brought by Wells Fargo Bank against the Lewins, Valley, Primebank, and others. A foreclosure decree was issued by the district court establishing the priority of lien holders. Wells Fargo was the most senior lien holder, followed by Valley and Primebank. Following a sheriff's sale, resulting in a surplus after the Wells Fargo lien was satisfied, Valley sought to condemn funds to recover on the two notes under the mortgage. Primebank resisted and argued the mortgage did not serve as security on the second note and Valley's superior security interest was limited only to the outstanding balance on the first note. The district court agreed. In the ruling condemning funds, the district court determined the mortgage ...


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