Homestead Exemption Inapplicable in Mortgage Foreclosure Case

In this mortgage foreclosure case, the mortgagors argued that the mortgage agreement was invalid because only one spouse signed it.  In 2007, the husband executed a promissory note with a bank in the principal amount of $100,000. The same day he signed a purchase money mortgage agreement with the bank.  His wife never signed the mortgage. In 2009, the bank foreclosed against the couple. The husband responded, stating that the property was their homestead and the mortgage was invalid, because the wife never signed. The wife never responded to the court’s inquiries and filings. At trial, the court found that since this was a purchase money mortgage, the homestead exemption did not apply and the foreclosure was valid. The court also entered a default judgment against the wife, even though she never responded to the suit. 

The couple appealed to the Iowa Court of Appeals arguing that the mortgage instrument was invalid. The bank argued that the point was “moot,” because the property had already been sold at a sheriff’s sale and the couple did not take action to stay the sale as required by Iowa law. However, the appellate court found that the sale of the property did not render the couple’s challenge moot. Even though the property was sold, the couple still had the right to take action to set aside the sale. 

Next, the appellate court addressed whether the trial court erred in entering a default judgment against the wife. In Iowa, a defaulting party must show good cause for not answering a lawsuit. A court may set aside a default judgment against a party for “mistake, inadvertence, surprise, excusable neglect or unavoidable casualty.” The court found no reason to set aside the default judgment against the wife. 

Finally, the appellate court looked to the issue of the validity of the mortgage signed by the husband. Generally, in Iowa, an encumbrance of the homestead, if the owner is married, is invalid as to both the owner and the spouse. However, the homestead exemption does not apply to purchase money mortgages. A purchase money mortgage only allows the bank to secure the unpaid purchase price of the mortgaged property. It is an antecedent debt- meaning that this type debt is normally viewed as being contracted prior to the acquisition of the homestead rights. Thus, the appellate court found in favor of the bank and the couple was unable to assert any additional defenses.  JP Morgan Chase Bank National Assoc., et al. v. Hawkins, No. 0-959/10-1015, 2011 Iowa App. LEXIS 171 (Iowa Ct. App. Feb. 23, 2011).