Redemption after Foreclosure Requires Strict Compliance

A recent case from the Iowa Court of Appeals illustrates how redemption works after a farm foreclosure and warns debtors that they must strictly follow the letter of the law to redeem their land.

After a judicial foreclosure in Iowa, a debtor can generally redeem or buy back their agricultural land within one year after sale. See Iowa Code §§ 626.95, 628.3. That right may be assigned to another party.

Background

In Sibley State Bank v. Zylstra, No. 19-0126 (Iowa Ct. App. Aug. 19, 2020), two of the debtors’ farm parcels were sold at a sheriff’s sale after the bank foreclosed on the property. The sheriff’s sale took place on October 2, 2017, at the Osceola County Courthouse. One parcel of 238 acres sold for $974,284 to the bank, and the other of 79 acres sold to a third-party for $410,000.  The winning bidders took the property subject to the debtors’ one-year right of redemption.

Three-hundred, sixty-four days later, on October 2, 2018, the debtors assigned their redemption rights to the defendant. After an unsuccessful attempt to obtain the redemption amount from the deputy sheriff, the debtors and the defendant went to the clerk of court’s office on October 2. The defendant wrote a check in the amount of $1,384,284 for “2 sheriffs deeds for 2 farms 320 acres.” The clerk printed a receipt for the defendant showing “zero dollars” due. The clerk testified that she told the defendant that she had no idea what the redemption amount should be and that she would accept what he gave her. The defendant stated that the clerk informed him that “as far as she knew,” it should be payment in full.

On October 5, 2018, the bank filed an application asking the court to order that no redemption had occurred. Specifically, the bank alleged that the proper redemption amount, when insurance, legal fees, interest, and taxes were added in, was $1,648,747, and that the defendant had not paid the required redemption amount before the end of the statutory one-year period. The defendant alleged that he did not know of the additional amounts due until October 5, and he tendered a check to the clerk for the difference on October 9. The district court found that the required sum for the redemption was $1,634,873.58, which included interest and costs, but not attorney fees. The district court ruled that because the defendant had not tendered the full payment within the one-year redemption period, the attempt to redeem the property was insufficient.

Appeal

On appeal, the defendant argued that the court should have used its equitable powers to apply a short extension to the one-year time frame. He also asserted that he should have at least been awarded one of the parcels, since his payment was more than sufficient to redeem one of the two.

The court rejected his arguments, first pointing out that the right to redeem is purely statutory. During the one-year redemption period, the debtors (or their assignee) could have redeemed the property by paying the sale price, plus the remaining amount of the certificate holder’s lien, including costs and interest. See Iowa Code § 628.13. The failure to properly redeem in one year entitled the certificate holder to the deeds. The court stated that it was “disinclined to move the goal posts as a matter of equity,” pointing out that the Iowa Supreme Court has been reluctant to extend the statutory deadline. The court stated that it was incumbent upon the debtors or the defendant to seek the correct payoff amount before the expiration of the deadline. The court explained that the fault for the incorrect payment was with the defendant alone, not the clerk or the bank.

The court also rejected the defendant’s argument that he was entitled to one of the two farms. Noting the lack of precedent on this question, the court stated that the statutory process of redemption cannot be a guessing game for the certificate holders. The defendant, the court explained, was trying to redeem two parcels, not one. “His insufficient payment for the redemption of two properties together cannot translate into an after-the-fact redemption of one property without direction to the clerk of court that he intended to do so.”

Considerations

This case demonstrates that technical details matter when it comes to redemption. Debtors seeking to redeem after a foreclosure should seek competent counsel to assist. The district court pointed out that if the defendant had questions about the requisite redemption amount, he should have taken advantage of the “safe harbor” provision of Iowa Code § 628.21. This provision states, “In case any question arises as to the right to redeem, or the amount of any lien…” the person may “deposit the necessary amount” accompanied by an affidavit stating the nature of the question or objection. It is unclear whether such an affidavit would have ultimately protected the defendant in this case. A safer approach is to begin the redemption process well before the deadline.