Close is Not Good Enough When It Comes to the Redemption of Farmland

On December 3, 2021, the Iowa Supreme Court affirmed that the assignee of foreclosed agricultural property did not meet the statutory requirements to redeem the farmland. A debtor may redeem property by paying the sale price plus costs and interest within a one-year period of the sale. See Iowa Code § 628.13. Because the assignee did not pay the full price within the redemption period, the Supreme Court affirmed that the redemption was untimely.

Background

The original owner of the 208 acres of farmland obtained a mortgage from a bank. The promissory notes provided two interest rates, a variable interest rate of 4.25 percent and an interest rate of 21 percent upon default. After the original property owner failed to make the mortgage payments, the bank initiated foreclosure proceedings and sold the land at a sheriff’s sale to Wayne Mlady. The original farmland owner assigned his statutory right of redemption to Sue Ann Dougan, his new creditor.

Within the one-year period, Dougan attempted to redeem the property by tendering a check for $1,690,000. She petitioned the court to set the interest rate to the 4.25 percent nondefault rate. Mlady resisted, claiming that the 21 percent default rate prevailed. As a precaution in the event the court determined she owed the 21 percent default interest rate, Dougan tendered an additional check for $247,001 for a total of $1,937,001. Due to a math error, however, this amount fell $1,798.79 short of the $1,938,799.79 actually due.

The trial court determined that Dougan was entitled to redeem the property at a 21 percent default interest rate and could deposit the additional $1,798.79 shortfall. Both parties appealed. The Court of Appeals held that because under the terms of the mortgage a foreclosure proceeding was a default, the 21 percent default interest rate applied. The Court of Appeals also ruled that because Dougan did not pay the entire amount due within the redemption period, the redemption was not timely. Dougan once again appealed and the Iowa Supreme Court granted further review.

Interest Rate

The promissory notes provided two interest rates, a variable interest rate of 4.25 percent and an interest rate of 21 percent upon default. On appeal, Dougan argued that the 4.25 percent nondefault rate controlled because Mlady, through the payment at the foreclosure sale, brought the notes out of default. However, the terms of the notes did not contain a provision to cure the default and allow a reversion to the nondefault rate. Therefore, the Court affirmed that the 21 percent interest rate applied. A finding to the contrary, the Supreme Court reasoned, would undermine the stability necessary for farm marketability.

Dougan next argued that the $247,001 partial payment lowered the amount of interest accruing daily. However, “a redeeming party [is] required to pay interest at [the contract] rate until the time of redemption.” Fed. Land Bank of Omaha v. Bryant, 445 N.W.2d 761, 763 (Iowa 1989). Because Dougan did not make a full payment, the Court held that interest continued to accrue.

Timeliness of Redemption

A debtor may redeem their property by paying “the sale price plus the remaining amount of the certificate holder’s lien, including costs and interest” within the statutory redemption period. First Nat’l Bank of Glidden v. Matt Bauer Farms Corp., 408 N.W.2d 51, 53 (Iowa 1987). The right of redemption is purely statutory. The Court noted that unless there is fraud or mistake, it must follow the law. Here, there was no evidence that Dougan was given the wrong payoff amount. In fact, Dougan attempted to deposit the entire amount owed at the 21 percent default rate. The Court determined that Dougan’s attorney simply miscalculated the amount and could not blame any other party for that math error.

Dougan, relying on several cases, nevertheless asked the Court to provide equitable relief. See Olson v. Sievert, 30 N.W.2d 157, 159 (Iowa 1947); Wakefield v. Rotherham, 25 N.W. 697, 698 (Iowa 1885). The Court found those cases distinguishable because they involved the clerk providing the wrong payment amount. An error made by the redeemer or the redeemer’s attorney does not relieve them of the duty to ascertain the correct payoff amount. Accordingly, the Supreme Court affirmed that the 21 percent default interest rate applied and that Dougan’s attempted redemption was untimely.