Supreme Court clarifies requirements for serving notice of forfeiture of real estate contract

In some instances, a seller may forfeit the rights of a buyer under a real estate contract. Under Iowa law, a seller can forfeit the buyer’s interest if the right of forfeiture is reserved in the contract and the buyer fails to satisfy contract requirements that give the seller the right to forfeit the contract. If forfeiture occurs, the buyer loses rights in the property and the property reverts back to the seller unless the buyer corrects the breach and pays the seller’s cost of serving notice of forfeiture within 30 days of being notified of the forfeiture. The notice of forfeiture must also satisfy certain statutory requirements to be enforceable. That’s what this case involves.

The plaintiffs, a married couple, entered into a contract with the defendant for the purchase of a residence the defendant owned that was under construction. The defendant also financed the purchase. The purchase contract called for an amount down and monthly payments thereafter with a balloon payment at the end. The contract allowed the defendant to forfeit the plaintiff’s interest for failure to make timely monthly payments. After construction was complete, the plaintiffs moved into the residence, but failed to make some of the monthly payments on time. As a result, the defendant served notice of forfeiture. However, the defendant only served a single joint notice of forfeiture on one of the plaintiffs. Iowa law requires that all persons holding interests in the real estate must be served with notice.  (Iowa Code §656.2(2)).  Both the trial court and the Iowa Court of Appeals ruled that the serving of the single joint notice was sufficient.

The Iowa Supreme Court disagreed. While the Court noted that faulty service is not detrimental where at least one party has been legally served, that exception applies only when those that are given faulty service are not indispensable to the legal proceedings at issue. Here, the Court reasoned, it was unclear which party was properly served since service involved only a single joint notice. The Court also reasoned that if they held that one of the plaintiff’s interest had been forfeited and the other plaintiff’s interest had not, that it would be impractical to expect the person’s whose interest had not been forfeited to make full payment for a one-half interest in the property. As such, the Court held that neither of the plaintiff’s interests had been validly forfeited. Fairfax v. Oaks Development Co., 713 N.W.2d 704 (Iowa Sup. Ct. 2006).