Validity of Mortgage Determined

September 3, 2009 | Erin Herbold

The sale, transfer, or mortgage of a homestead in Iowa, if the homeowner is married, is invalid, unless the title owner’s spouse also signs-off on the transaction (Iowa Code §561.13).  Consequently, a mortgage that is not signed by a spouse will be declared void by the courts, and a deed that is not signed by both spouses is also void or invalid. 
   
Here, a mortgagor executed a mortgage as a “single person.” The mortgage contract stated that the mortgagor would occupy and use the mortgaged property as his principal residence within 60 days of the mortgage filing and maintain the property as his residence for at least one year thereafter. The mortgagor failed to pay the note on the mortgage for several months and, as a result, the bank accelerated the time for payment on the principal.  When the mortgagor was unable to make the payments or pay the remaining balance due, the bank filed a foreclosure action. The mortgagor resisted the bank’s foreclosure, saying that at the time the mortgage was executed, he was a married person and his spouse had not signed the mortgage.  Thus, according to the mortgagor, the mortgage was never valid and should be declared void.  At the time the transaction was entered into, the bank inquired as to the mortgagor’s marital status and he replied that he was separated.  Consequently, the bank simply assumed the mortgagor was divorced and saw no need to get a spouse’s signature.  Importantly, at the time the mortgagor signed the mortgage he didn’t understand much English and purportedly told the realtor that he was married, but separated.   

At trial, the court determined that the evidence showed that the mortgagor was married at the time the mortgage was executed and was therefore invalid because his spouse never signed the document authorizing the transaction. The court rejected the bank’s equitable estoppel argument, an argument that, based on a four-factor test, can be used to overcome a deed being declared void.  Those factors are:  (1) whether the mortgagor misrepresented or concealed “material facts” (meaning facts that would sway the outcome of the transaction, if known at the time); (2) the bank lacked knowledge of the true facts; (3) the mortgagor intended the bank to act on those representations; and (4) the bank detrimentally relied on the misrepresentations.

On appeal, the court affirmed based on the language of the statute.  While not ruling on the equitable estoppel issue – the court determined that an “equitable mortgage” is not available to overcome a void mortgage.  The bank also claimed that the trial court was incorrect in their assessment that the mortgage was invalid because, according to the bank, Iowa Code §561.13 does not apply to “purchase money mortgages.”  But, that issue wasn’t preserved for appeal because it wasn’t raised at the trial court level.  Nationwide Advantage Mortgage Co. v. Ortiz, No. 9-584/ 08-1420 (Iowa Ct. App. Sept. 2, 2009).