Court Rules that Farm Couple Lacked Good Faith When Seeking Delay of Foreclosure

On October 23, 2019, the Iowa Court of Appeals ruled that farm borrowers lacked good faith when they filed a motion to continue a mortgage foreclosure. The district court’s summary judgment allowing foreclosure by Farm Credit Services was thus allowed to stand.

Background

In 2008, a farming couple took out a mortgage from Farm Credit Services (Farm Credit) for thirty-five acres of agricultural land (Note 1). In 2009, the couple took out another mortgage from Farm Credit. These borrowers used nine acres of commercial land as collateral and executed a second promissory note (Note II).

In August 2017, after the borrowers failed to make payments when due, Farm Credit petitioned for foreclosure on both promissory notes. The borrowers denied the allegations the payments were in default. In September, Farm Credit moved for summary judgment. The borrowers resisted the motion, but a hearing was set for the end of October. The night before the hearing, the borrowers asked the court for a continuance. The borrowers requested a stay of the proceeding under Iowa Code section 654.15, claiming the reason for the default was excessive rain in the spring. The district court denied the motion for a continuance, finding it was not made in good faith and “[t]he Motion to Continue was filed as a last ditch effort to delay [the foreclosure] proceedings.”

Lack of Good Faith when Filing Mortgage Continuance

In Iowa, an owner of property may file for a continuance of a foreclosure action if the inability to pay is due a weather condition. In order to file a motion for a continuance, the owner must admit to indebtedness and the breach of the terms of the contract. Additionally, the motion must be filed in good faith and supported by evidence that the weather condition caused the default in payment.

In all actions for the foreclosure of real estate mortgages, . . . the owner may apply for a continuance of the foreclosure action if the default or inability of the owner to pay or perform is mainly due or brought about by reason of drought, flood, heat, hail, storm, or other climatic conditions or by reason of the infestation of pests which affect the land in controversy.

Iowa Code §654.15(1)(a).  

In this case, the borrowers first denied the allegations in the complaint and did not admit to them until approximately 45 minutes before the hearing. The evidence did not support their late claim that the rainfall was the reason the borrowers missed payments. Rather, the evidence showed that the missed payments were due to separate settlements owed by the borrowers for $1.1 million and nearly $1.2 million.

The court found that the purpose of Iowa Code section 654.15 is too allow a landowner to save the farm, not to delay an inevitable foreclosure proceeding. Between the timing of the last minute filing, the lack of evidence that the failure to pay was due to excessive rain, and the borrowers’ initial refusal to admit to their indebtedness as required under the statute, the court found their motion for a continuance was not filed in good faith. The court cited Farm Credit’s counsel in stating, “It’s a bit like rearranging the deck chairs on the Titanic.” Where, as here, “there was no prospect of the debtors redeeming all of the land used as collateral on the loans at issue, a moratorium would have been of no practical help to them and would have denied the lender what the mortgage gave it.” “Continuance in such cases should not be allowed; they are unjustifiable.”