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Luana Savings Bank v. Caspersen

Court of Appeals of Iowa

March 22, 2017

LUANA SAVINGS BANK, Plaintiff-Appellant,
RONALD CASPERSEN, Defendant-Appellee.

         Appeal from the Iowa District Court for Clayton County, Margaret L. Lingreen, Judge.

         A bank appeals the district court's ruling in a breach-of-contract action. REVERSED AND REMANDED.

          Erik W. Fern of Putnam, Fern & Thompson Law Office, PLLC, Decorah, for appellant.

          Zachary C. Herrmann, Elkader, for appellee.

          Considered by Vogel, P.J., and Tabor and Mullins, JJ.

          VOGEL, Presiding Judge.

         Luana Savings Bank (the Bank) appeals from the district court's ruling in a breach-of-contract action instituted by the Bank against Ronald Caspersen. Specifically, the Bank argues Caspersen, who was a co-signor on a promissory note, was not entitled to a credit for the surplus from a foreclosure sale of the home of the other borrowers. Caspersen asserts the note was secured by a mortgage on the home and, thus, he was entitled to credit for the surplus amount. Because we conclude the note was not secured by the mortgage on the home, we reverse the ruling of the district court and remand for entry of judgment consistent with this opinion.

         I. Background Facts and Proceedings

         In early 2009, William and Shelly Mack contacted the Bank about financing for the purchase of a home at 209 Truman Street in Luana, Iowa. Because the Macks were not able to fund the entire purchase price of the home on their own, the Bank made two loans to the Macks on April 18, 2009. One loan, for $71, 350, signed only by the Macks, was secured as part of an open-end mortgage and included only the Macks as mortgagors. The mortgage instrument contained the following language:

For good and valuable consideration, the receipt and sufficiency which is acknowledged, and to secure the Secured Debt (defined below) and Mortgagor's performance under this Security Instrument, Mortgagor grants, bargains, warrants, conveys, and mortgages to Lender the Following described property:

         followed by a legal description and the address of the property. Under the "Secured Debt And Future Advances" section of the mortgage agreement, "Real Estate Loans of $71, 350.00 & $17, 000.00 for William D and Shelly A Mack Dated 4/18/09" was listed. The second loan, for $17, 000, was made on a consumer credit transaction form, and signed by the Macks and Caspersen. It contained this language: "Security: This note is secured by (describe separate document by type (e.g., deed of trust) and date)." The document then listed three vehicles but made no mention of the mortgage instrument. In the "Purpose" section of the agreement, "Balance Of Home Purchase" was listed. The note also contained a section entitled "Other Security, " which read: "Any present or future agreement securing any other debt I owe you also will secure the payment of this loan." It further stated: "Obligations Independent. I understand that my obligation to pay this loan is independent of the obligation of any other person who has also agreed to pay it."

         The Macks struggled to make payments on their loans and, on March 17, 2011, signed a Disclosure and Notice of Cancellation, which contained this provision: "If you agree to a voluntary foreclosure under this procedure you will not have to pay the amount of your debt not covered by the sale of your property but you also will not be paid any extra money, if any, over the amount you owe." See Iowa Code § 654.18(1)(f) (2010). They also signed an agreement with the Bank to initiate an alternative nonjudicial voluntary foreclosure procedure in accordance with Iowa Code section 654.18. The Macks agreed to convey all of their interest in the real estate to the Bank, and the Bank waived any right to a deficiency claim against the Macks. This was followed by a warranty deed, conveying title of the real estate to the bank with the phrase "given in lieu of foreclosure." An affidavit accompanying the deed declared "the release of personal liability of the parties named above." The Macks were the only parties who agreed to and signed the Disclosure and Notice of Cancellation, the Agreement for Alternate Nonjudicial Voluntary Foreclosure, and the affidavit. In June 2011, the bank sold the home for $80, 000.

         Caspersen continued to make weekly payments on the $17, 000 loan until June 2015, when the balance of the loan was $12, 279.24. However, because a balloon payment due in April 2014 was defaulted on, the Bank filed a petition on August 1, 2014, naming the Macks[1] and Caspersen as defendants, alleging breach of contract and seeking judgment for the remaining balance of the note plus interest. Caspersen did not file an answer. Nonetheless, a bench trial proceeded against Casperson. He resisted the Bank's attempt to secure a judgment against him for the remaining balance on the $17, 000 loan, asserting it was also secured by the mortgage on the real estate. He also claimed that the outstanding balance of that loan should be offset by the surplus from the sale of the real estate. The district court agreed with Caspersen based on its conclusions that the "other security" portion of the $17, 000 note incorporated the open-end mortgage agreement into the note and that the parties intended the $17, 000 note to be secured by the mortgage, as well as the primary promissory note. The court credited the surplus from the sale of the real estate to the balance of Caspersen's obligation and entered judgment for the Bank in the amount of $3779.24, plus interest. Following a motion to amend and enlarge filed by Caspersen, the court concluded the surplus should have been applied immediately following the sale and the balance and interest must be recalculated accordingly. The court amended its order and awarded judgment in favor of the Bank for $918.05, plus interest from June 2015. The Bank appeals.

         II. ...

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