This case presents the question of whether a nonpurchase-money mortgage that refinanced an existing mortgage and advanced new funds is subject to a surviving spouse’s dower interest under Iowa Code § 633.211.
In 2005, a married man entered into an installment contract for the purchase of a warehouse for $1.3 million to convert the property to a multi-tenant, high bay warehouse. The contract was structured for monthly interest-only payments until January 2007, when the full amount of the principal and unpaid interest was due, in order to give the husband time to obtain financing for the purchase and renovation of the property. On the same date as the contract was executed, a warranty deed conveying the property to “Edward J. Boesen, a married person” was delivered to an escrow agent pending satisfaction of the contract.
Whenever the husband purchased real estate in the past, he typically formed an LLC and transferred the real estate to the corporation. Accordingly, an LLC was formed for this purpose. The husband obtained a loan from one bank to purchase the property and the note was secured by a mortgage on the property. A year later the seller noticed the original deed had never been recorded, so he issued a new deed to “Edward J. Boesen, a married person.” A few weeks later a warranty deed conveying the property to the LLC was signed by the married couple, as husband and wife. A short time later, the husband wanted to make an investment in another company and asked to refinance the loan. The husband contracted with Meta Bank for a revolving line of credit and ultimately a commercial promissory note both secured by a mortgage on the warehouse property.
The husband died intestate in 2008, leaving his surviving spouse. The note from Meta Bank defaulted and the bank foreclosed on the mortgage. The wife intervened in the action and argued she was the fee simple owner of the warehouse by virtue of her statutory dower interest. Following a bench trial, the trial court held that the wife could not assert a dower claim over the seller of the property, which was the bank who stood in the shoes of the seller by having paid the purchase price of the property. The court also found that the wife had no dower interest in the property because her husband had taken the property only as an intermediary for the LLC to which the property was deeded.
On appeal, the court agreed with the trial court’s ruling. Relying on an 1858 case, Barnes v. Gay, the court held that a surviving spouse’s dower interest cannot exceed the interest held in the property by the deceased spouse. The surviving spouse is unable to take the property against a mortgagor when the deceased spouse failed to pay for the property, because the deceased spouse never held the property free and clear. The surviving spouse, therefore, could not assert she was the fee simple owner, because her husband never held a fee simple interest in the property.
The court also agreed that no dower interest arises when the deceased spouse held title to the property in trust or as an intermediary for another. In this case, the property was immediately deeded to the LLC, so the deceased spouse was merely an intermediary. Meta Bank v. Estate of Boesen, No. 0-980/10-0679 (Iowa Ct. App. Jan. 19, 2012).
Note: For a review of purchase-money mortgage interests, see Freedom Financial Bank v. Estate of Boesen, No. 9-926/09-0397, 2010 Iowa App. Lexis 756 (Iowa Ct. App. Jul. 14, 2010).