Iowa Supreme Court affirms that Iowa Code section 615.1(1) does not bar lender from pursuing a second foreclosure decree

You may recall that in May 2015, the Iowa Court of Appeals issued a decision in U.S. Bank, N.A. as Trustee in Trust for SASCO 2006-BC3 Trust Fund v. Jereme Lamb, holding that a mortgagee does not lose its mortgage by taking a judgment; the mortgage remains a lien that can be foreclosed until the debt is paid. Lamb sought further review from the Iowa Supreme Court, which today affirmed the Court of Appeals.

Like the Court of Appeals, the Iowa Supreme Court began with Iowa Code section 615.1. Section 615.1 is, “a ‘special statute of limitations’ that ‘was passed with the legislative purpose of aiding judgment debtors.’” The section states, “After the expiration of a period of two years from the date of entry of judgment, . . . all liens shall be extinguished.”

The Court found “all liens” to be ambiguous in its context. “All liens” did not necessarily mean “all liens,” because of the “location of the phrase within a statute that appears to narrowly govern certain judgments [which] imposes an obligation of further analysis to determine the objective meaning of the statute.” The bank had raised a plausible interpretation of the words that was consistent with the overall statutory language—“all judgment liens arising from a foreclosure judgment”—such that further inquiry was necessary.

The Court then analyzed the words “all liens” in great detail. By looking at the chapter title, “Limitations on Judgments,” and the section label, “Execution on certain judgments prohibited,” the Court reasoned that the term, “all liens,” in the larger statutory context, means, “all [judgment] liens.” Code section 615.1 specifically and repeatedly refers to, “judgments,” further supporting this interpretation. Case law under the predecessor to the current language in Iowa Code section 615.1(1) supported the interpretation, as well.

The Court, therefore, concluded that the best reading of section 615.1(1) is that “all liens …refers only to judgment liens arising from a foreclosure proceeding in which the underlying judgment becomes null and void by operation of the two-year limit imposed by Iowa Code section 615.1(1).” Thus, the mortgagee did not lose all rights in the property upon the expiration of two years, but rather lost only the ability to enforce judgment liens obtained by the now unenforceable foreclosure judgment.

The Court also rejected the argument that the two-year statute of limitations means that a rescission of the foreclosure action is barred after two years. Section 615.1(1) by its terms relates only to enforcing the foreclosure judgment, not rescission. To determine when a rescission action may be brought, the Court must look to Code section 654.17(1). Although the judgment lien is null and void after the passage of two years from the date of judgment, the mortgage indebtedness survives. When a foreclosure judgment is subject to Iowa Code section 615.1, the penalty under Iowa Code section 654.17(2) for failure to execute on the judgment within the prescribed two-year period is that the mortgagee forfeits the right to obtain a deficiency judgment in any subsequent foreclosure action. It does not extinguish the mortgagee’s rights altogether. The “mortgagee’s rights” to which 654.17(2) refers is not the special two-year statute of limitations created in Iowa Code section 615.1, but is instead either a ten-year or twenty-year statute of limitations found in the Iowa Code for actions on written contracts or real estate mortgages.

Thus, the Court affirmed the Court of Appeals’ ruling that “all liens” in Iowa Code section 615.1(1) applies only to all judgment liens, and that the two-year special statute of limitations in Iowa Code section 615.1(1) does not limit the period of time for a mortgagee to rescind a prior foreclosure judgment. For questions regarding U.S. Bank v. Lamb or regarding estate mortgage foreclosure, contact Mollie.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.