In this case, farmers owned agricultural property and obtained a first mortgage on the property in 1988. A second mortgage with FSA followed in 1994. In 2000, the farmers again borrowed $182,000 from another bank and an additional $200,000 from FSA. Ultimately, the farmers defaulted on the loans and one of the banks filed a petition for foreclosure which was granted against the mortgaged premises in the amount of approximately $232,000. The court established the order of priority of the existing mortgages. The farmers appealed, but the appeal was not filed within the statutory time-frame. Thus, the property was sold at a sheriff’s sale to FSA for $510,000. A hearing was held in 2009 to determine the distribution to all of the parties who held mortgage interests. The farmers appealed to the Iowa Court of Appeals, arguing that they were entitled to the surplus funds received in the sheriff’s sale after the foreclosing bank was paid off.
The appellate court determined that the distribution of the sheriff’s sale funds under Iowa Code §§ 654.7 and 654.9 was proper. Iowa Code §654.7 states that “if there is an overplus remaining after satisfying the mortgage and costs, and if there is no other lien upon the property, such overplus shall be paid to the mortgagor. If there are any other liens on the property sold, or other payments secured by the same mortgage, they shall be paid off in their order.” Thus, the surplus from the sheriff’s sale was to be distributed in the order of the mortgages on the property. Here, the debt to FSA exceeded the amount that it would receive from the surplus and the famers were not entitled to anything. Commerce Bank v. Rice, No. 0-059/09-0509 (Iowa Ct. App., Feb. 24, 2010).