Farm Creditor Gave Borrower Proper Notice of Right to Cure

On April 14, 2021, the Iowa Court of Appeals issued a ruling on a foreclosure of agricultural real estate. After the borrower defaulted on two mortgages, the creditor petitioned to foreclose on the properties. Because the creditor gave proper notice 12 months prior to the default, the borrower no longer had the right to cure and the court affirmed the foreclosure decree.

Background

A farmer obtained four loans from Compeer Financial Services (Compeer). As collateral, the farmer and his parents granted Compeer a mortgage on two properties. The farmer failed to make payments on two of the loans. On April 5, 2017, Compeer sent a notice of default and right to cure to each of the three farm borrowers stating that:

The above defaults may be cured by [Loan One] being paid in the sum of $28,552.65 plus late charges…and [Loan Two] being paid in the sum of $5,679.05 plus late charges … plus other applicable charges. . . within 30 days from the date this letter was mailed to you.

Failure to cure this default on or before that date may result in acceleration of the sum secured by the Mortgage and sale of the mortgaged premises.

The notice also stated that the remaining two loans were in default as well due to cross-default provisions in the loan documents. Eventually, the second two loans were in default regardless of the cross-default provisions.

On February 8, 2018, Compeer sent a second notice of default and right to cure setting the payment deadline for March 25. After no payments were made, Compeer petitioned for foreclosure and moved for summary judgment. The farm borrowers admitted to being in default, but claimed that the February 8^th notice was not proper under Iowa Code Chapter 654.

The district court found that Compeer did provide proper notice regarding the right to cure the default. The court granted the motion for summary judgment and entered the foreclosure decree. The farm borrowers filed a motion to set aside the foreclosure which the court denied. The borrowers appeal.

Right to Cure a Default and Proper Notice

In affirming the judgment, the court explained that a creditor must give proper notice of any right to cure a default before foreclosing a mortgage on agricultural land. Iowa Code § 654.2A. The court then considered whether the farm borrowers had the right to cure on February 8^th, the date of the alleged default. A borrower has the right to cure a default unless the creditor has given the borrower proper notice of a right to cure “with respect to two prior defaults on the obligation secured by the…mortgage” or “a prior default within twelve months prior to the alleged default.” Id. § 654.2A(3). The court quickly determined the first exception did not apply because two notices were not given for each individual loan.

Turning to the second exception, the court determined whether the farm borrowers had proper notice within 12 months prior to the alleged default. To give proper notice of the right to cure, the notice must be in writing and include information such as:

• The creditor’s name, address, and telephone number;
• The obligation secured by the mortgage;
• The alleged default;
• The borrower’s right to cure the default;
• How to cure the default;
• The total payment necessary to cure the default;
• The date by which the payment must be received; and
• A statement that if the borrower does not cure the default, the creditor is entitled to initiate a foreclosure action.

Id. § 654.2B. A borrower cannot use the failure to comply with one of these provisions as a defense unless he was substantially prejudiced. Id.

The April 5, 2017, notice was in writing and included Compeer’s information, it stated that the default could be cured by paying specific amounts for each loan, and it set the payment deadline for 30 days. The court determined that the notice met the remaining statutory requirements and was therefore a proper notice of the right to cure sent within the previous 12 months of the default.

Consequently, the farm borrowers did not have a right to cure on February 8^th and Compeer was not required to give notice of the right to cure. Additionally, even if the notice was not in compliance, the farm borrowers were not substantially prejudiced due to the “numerous, repeated, uncured, and material defaults” they had committed.