Seller Not Entitled To Notice of Foreclosure

In Iowa, a mortgagor is only required to inform a “borrower” of a possible foreclosure on mortgaged property.  In this case, a homeowner sold her home to a buyer for $150,000. The buyer obtained a bank mortgage for $127,500 and a mortgage loan from the seller for $10,000. Unfortunately, the mortgage loan was not recorded. A few months later, the buyer transferred the property back to the seller by general warranty deed to repay loans made to the buyer from the seller, including loans for home improvements and other expenses.  The buyer subsequently defaulted on his bank loan, and notice of intent to foreclose was sent to the buyer who never cured the default.  A few months later, the bank filed a mortgage foreclosure naming the seller as the defendant. After discovering that the home had been foreclosed on, the seller resisted the foreclosure upon the premise that she never received a notice of right to cure the default. However, the seller never disputed the foreclosure on the premise that she was not the holder of the mortgage.

At trial, the court said the Iowa Code specifies that a creditor only has a duty to give a “borrower” a notice of right to cure. Here, the seller did not claim to be a borrower, thus the creditor had no duty to warn her of the foreclosure. The seller next claimed that the bank never reimbursed her for monies expended to cure outstanding delinquent property taxes and sewer liens to avoid a tax sale of the property, but the court was hesitant to order the bank to pay those costs.
On appeal, the court agreed that the creditor had no duty to warn the seller of foreclosure and the seller had no proof of monies expended to restore the property. Therefore, the bank was allowed to proceed with foreclosure actions on the property. Christiana Bank & Trust v. Haddon, No. 9-216/08-0406 (Iowa Ct. App., May 6, 2009)