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Iowa The Process Iowa law places strong restraints on foreclosures,
particularly on loans for agricultural property. In Iowa, many special
notices must be given to borrowers advising them of their rights. Lenders are
not always permitted to foreclose at all. For example, a court may declare a
moratorium on foreclosures due to an economic emergency. There are basically
two ways to foreclose on nonagricultural property in Iowa: …..the
alternative non-judicial voluntary foreclosure procedure, in which the
borrower deeds the property over to the lender and …..filing a
lawsuit and obtaining judicial foreclosure under equity law. Alternative Non-judicial Voluntary Foreclosure If both the lender and the borrower agree in
writing, then a real estate mortgage can be foreclosed voluntarily as
follows: …..The borrower
conveys title of the property to the lender. …..The lender
accepts title and waives any rights to sue the borrower for any other claim,
such as a deficiency. …..The lender
gets immediate access to the property. The lender and borrower record a
statement, signed by both parties that they have elected voluntary
foreclosure. The lender sends by certified mail, notice of the voluntary
foreclosure to all junior lien holders, who have 30 days to exercise any
rights of redemption they may have. The borrower must sign a statutory
voluntary foreclosure form. …..The form
explains that by signing it the borrower surrenders any statutory right to
reclaim the property within one year and the right to continue to occupy the
property. However, the form states the borrower cannot be sued for a
deficiency if the form is signed. It also advises the borrower to seek legal
counsel concerning all the competing rights. The form also provides for its
own cancellation within five days. …..If a borrower
agrees to the voluntary redemption procedure, the lender may not report the
borrower to the credit bureau as being delinquent on the loan, but the lender
may state that the voluntary foreclosure procedure was used. Judicial Foreclosure Other than the voluntary foreclosure procedure
described immediately above, the only way a lender can foreclose a deed of
trust or a mortgage on Iowa real estate is by a lawsuit in court, governed by
principles of equity law. The lender must choose either to sue on the note or
sue to foreclose the mortgage, but not both. When a mortgage or deed of trust
is foreclosed, the court will render judgment for the entire amount due, and
direct the sale of the mortgaged property, or as much as is necessary. The
lender may sue a borrower for a foreclosure with or without redemption, but
the latter requires the borrower to sign a waiver. Foreclosure with Redemption The borrower retains a
right to redeem the property after the sale, unless the lender has chosen to
sue for foreclosure without redemption. Foreclosure without Redemption In the event that a
lender undertakes foreclosure without redemption, neither the borrower nor
junior lien holders have rights to redeem. However, if the borrower bids an
amount equal to the amount owed on the loan at the foreclosure sale, then the
borrower gets the property regardless of the fact that junior lien holders
might bid more at the sale. In foreclosure without redemption, the first page
of the lender's petition to foreclose the mortgage must contain a notice, in
capital letters of the same size as the rest of the petition warning the
borrower that the lender has elected foreclosure without redemption. This
means that the sale will occur promptly unless a written demand is filed with
the court to delay the sale. If the demand is filed, the sale of a principal
residence will be delayed 12 months from the entry of judgment. (Sale is
delayed two months on other properties and six months on the residence if the
lender's lawsuit waives recovery of a deficiency.) However, if the borrower
files such a demand for delay, then the lender can sue the borrower for a
deficiency. If no demand for delay is filed, the lender cannot sue for a
deficiency. Either way, however, once the sale takes place, the buyer at the
foreclosure sale can take possession immediately. Right to Cure In Iowa a borrower has a general right to effect
cure by making up missed payments prior to foreclosure. The lender must send
the borrower a notice of the borrower's rights to cure as a prerequisite to
foreclosure. Before filing a lawsuit or taking any action to
foreclose on a borrower's one- or two-family home, any regular lender, such
as a bank, S&L or mortgage company, who believes in good faith that a
borrower is in default on a deed of trust or mortgage on a homestead, must
give the borrower a notice of the right-to-cure default. Individuals who are
lenders do not have to give the notice. Mailing of Notice of Right to Cure Regular lenders must give the notice by direct
delivery or by mail to the borrower's residence. The notice does not have to
be given in nonresidential situations. Contents of Notice of Right to Cure The notice must state the name, address and phone number of the creditor
to whom payment is to be made, a brief description of the obligation secured by
the mortgage or deed of trust, that the borrower has the right to cure the
default, the nature of the alleged default, and the total
payment, in an itemized form, of deferral charges (late fees), the amount due
and any other action needed to cure the default and the exact date by which the amount must be paid or
an action must be performed. Failure to Cure by Proper Times If the borrower fails to perform in the proper
manner by the proper date, then the notice must also state that the lender
can initiate foreclosure. Once notice is given. the following timetable
applies: • 30 Days The borrower must be given no less than 30 days to
cure the default by tendering (sending) either a sum equal to all the missed payments due at the
time of the tender, or the amount stated in the notice of the right to
cure, whichever is less, or by tendering any other performance necessary to
cure a default as described in the notice of right to cure. • Such Extra Time as the Lender Gives A lender may give more than 30 days without
waiving or losing the right to commence foreclosure due to an uncured
default. 365 Days A borrower has a right to cure the default by
bringing in the payments, unless the creditor has given the borrower a notice
of the right to cure once before within the past 365 days. Curing the default
restores a borrower's rights under a mortgage or a deed. Special Protection Farm Foreclosure Due to the bad luck Iowa's farmers have sometimes
experienced, the state legislature has passed many special laws regulating
farm foreclosures. Iowa's legal protections against foreclosure of farmers
are truly exceptional compared to any other state. The procedures to
foreclose on agricultural property in Iowa are even more extensive. The
lender must attempt mediation on land used as an individual's farm, family
farm, or a qualified farm corporation through the Farm Mediation Service. A
notice and initial meeting must be held within 42 days of a request by the
farmer. The farmer also has a first right of refusal when agricultural
property is sold at execution. There are special deed in lieu procedures for
agricultural properties. In the special deed in lieu arrangement, the lender
takes title, but the farmer can lease the land back from the lender, and
repurchase the land within five years. The farmer may separately redeem the
house and up to 40 acres from the rest of the land even after a foreclosure.
Iowa's farmers should beat a path to a lawyer's office before giving up any
effort to fight foreclosure. Iowa's procedures to protect against foreclosure
are extensive enough that if a farmer has the will to hold on, there may
often be a legal way to do so. Regular Foreclosure After fulfilling the vast number of prerequisites
required under Iowa law, as previously described, a lender may obtain a
judgment against the borrower for the full amount of the balance due on the
loan. The real estate may then be sold under a general execution sale.
Remember, the lender may not sue both for foreclosure and to collect on the
note. So if the lender sues on the note, then, if and only if the sum found
to be due is sufficient, the real estate can be sold to pay off the judgment.
The sales are proper sheriff's sales. Once the property is sold, it may
eliminate the loan balance or reduce it. If some part of the loan balance is
left unpaid, the lender can still try to collect that part. Note that Iowa
banned deficiencies on agricultural foreclosures until July 1, 1991. Also,
the judgment is only good for two years and may not Moratorium If a borrower goes into default and is sued by the
lender, the borrower may file an answer admitting a default in whole or in
part, and then ask for a moratorium if the default was due to such
circumstances as a crop failure due to drought, flood, heat, hail, storm or
other climatic condition, or due to infestation of pests. Under such
circumstances, the court can extend the foreclosure date for up to one full
year. The court must appoint a receiver to take care of the property in the
meantime, and the original borrower is to be given preference over other
choices as receiver. The receiver may apply rents and income in a statutorily
defined order. The governor of Iowa may declare a state of economic emergency, applicable to various types of property, such as agricultural property, or to be applied to all types of property. The declaration makes such property eligible for a moratorium continuance, which may last as long as one year. However, a lender can apply to the court and show good faith efforts to restructure the debt, and show the financial difficulties the lender is faced with if foreclosure is not granted. The lender may also show that the borrower has not paid interest on the loan. Upon weighing all these competing considerations, a court may terminate the moratorium which would allow the foreclosure to go forward. Only one continuance can be granted per mortgage instrument under the governor's moratorium provisions |
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