The Honorable Ronald E. Longstaff, United States District

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Judge for the Southern District of Iowa.

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No. 95-1102

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United States of America, *

*

Plaintiff - Appellee, * Appeal from the United States

* District Court for the

v. * Southern District of Iowa.

*

John W. Peckham, *

*

Defendant - Appellant,*

*

M. Louise Peckham, *

*

Victor Edwards, *

*

Defendants. *

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 Submitted: September 15, 1995

 Filed: December 27, 1995 

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Before RICHARD S. ARNOLD, Chief Judge, McMILLIAN and HANSEN, Circuit

Judges.

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HANSEN, Circuit Judge.

John W. Peckham appeals from the district court's denial of his

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motion to alter or amend an order directing the United States Marshal to

reimburse the government from the proceeds of a foreclosure sale for real

estate taxes the government had advanced prior to the entry of the

foreclosure judgment. Peckham argues that the district court erred because

the foreclosure judgment did not specifically provide for reimbursement of

prior paid taxes. We affirm the order of the district court.
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I.

The following facts are undisputed. The United States of America,

acting through the Farmers Home Administration, made several loans to John

W. and M. Louise Peckham which were secured by a mortgage on the Peckhams'

real estate. When the Peckhams defaulted on the loans, the government

filed a complaint for foreclosure on the property. The parties negotiated

a settlement, which the district court finalized in a judgment and decree

of foreclosure on May 25, 1994. The judgment provided for the payment from

the proceeds of the ordered sale of the unpaid principal, accrued interest,

and costs of the litigation and of the execution sale. 

A writ of execution was issued pursuant to the judgment, and the

United States Marshal sold the property. When the property sold for more

than the value of the encumbrances against it, John Peckham filed a motion

to compel the government to pay him the overplus. The government replied,

stating that Peckham was entitled to a lesser amount than he sought after

the government calculated its costs and interest, which included the

delinquent real estate taxes which the government had advanced the day

before the foreclosure judgment was entered. The district court entered

an order requiring payment to Peckham of an overplus of $34,138.53, as

calculated by the government. 

Peckham then filed a motion to alter or amend the order, asserting

that he was entitled to a $65,541.96 overplus. Peckham contended that the

government was not entitled to the amount it had paid in real estate taxes

one day before the district court entered the foreclosure judgment.

Specifically, Peckham argued that the judgment did not provide for

reimbursement of real estate taxes paid prior to the judgment. He further

argued that the mortgage agreement itself, which did provide for

reimbursement of tax payments advanced by the mortgagee to protect its

interests, did
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not provide the court any authority, because under Iowa law the agreement

had merged into the judgment. The district court held a hearing on

Peckham's motion to alter or amend the order and found that the real estate

taxes were costs to which the government was entitled pursuant to the

foreclosure judgment and denied Peckham relief. Peckham appeals.

II.

We review a motion to alter or amend a judgment for an abuse of

discretion. See Creative Cookware, Inc. v. Northland Aluminum Prods., 678

F.2d 746, 751 n.12 (8th Cir. 1982) (citing 6A Moore's Federal Practice at

59.15(4)). 

As a preliminary matter, we observe that "federal law governs

questions involving the rights of the United States arising under

nationwide federal programs." United States v. Kimbell Foods, Inc., 440

U.S. 715, 726 (1979). Under 28 U.S.C. § 2410(c), we apply "the local law

of the place where the court is situated" to determine the effect of a

foreclosure judgment on a mortgage held by the United States. Cf. Donovan

v. Farmers Home Admin., 19 F.3d 1267, 1268-70 (8th Cir. 1994) (applying

state law under § 2410(c) to determine the status of the government's

lien).

Peckham relies on the doctrine of merger, which is well-settled law

in Iowa. Under this doctrine, a mortgagee who obtains an in rem judgment

is limited to the terms of that judgment and cannot subsequently pursue an

in personam judgment on the underlying obligation. Farm Credit Bank of

Omaha v. Faught, 492 N.W.2d 422, 424 (Iowa 1992). "The doctrine of merger

is an aspect of res judicata which prevents relitigation of existing

judgments. . . . It serves to prevent the splitting of causes of action."

Brenton State Bank of Jefferson v. Tiffany, 440 N.W.2d 583, 585 (Iowa 1989)

(citations omitted). 
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We disagree with Peckham's assertion that the doctrine of merger

applies to this case. This case does not involve a creditor splitting

causes of action. The government did not pursue a separate, in personam

suit against the Peckhams after obtaining an in rem judgment; rather, the

government contested the Peckhams' calculations on the amount of overplus

due to them under the foreclosure judgment from the sale of the property.

The district court did not render a second judgment on the underlying debt

after entering an in rem judgment on the mortgage; rather, it interpreted

the original in rem judgment to include the real estate taxes as

reimbursable costs of the Marshal's sale. Thus, the question here is not

whether the debt merged into the judgment, thus precluding a second

judgment, but whether the district court abused its discretion in

determining that the advanced real estate taxes were costs reimbursable

under the foreclosure judgment. See United States v. Heasley, 283 F.2d

422, 426-27 (8th Cir. 1960) ("[T]he rule in federal courts is well settled

that the matter of confirming a judicial sale rests in the sound judicial

discretion of the trial court and this discretion will not be disturbed on

appeal except in cases of its abuse."). 

After carefully reviewing the record and the parties' briefs, we find

no abuse of discretion. Peckham contends that the language of the judgment

did not grant the court authority to order reimbursement, noting that the

judgment does not specifically provide for the reimbursement of prejudgment

costs and that the itemized award does not include real estate taxes. We

believe, however, that the judgment contains language supporting the

district court's decision. The judgment states that the Marshal's Service

is to deduct the costs of the sale and then bring the remaining proceeds

into court to satisfy the interest and the plaintiff's judgment. In our

view, the government paid the real estate taxes as a cost incurred in

preparation for the Marshal's sale. Because the Marshal had authority per

the judgment to pay
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these as costs of sale, the district court did not abuse its discretion in

ordering payment. 

Furthermore, the record indicates that neither the government nor the

Peckhams intended the settlement--which was finalized in the judgment--to

preclude the government from recovering all of its costs. In fact, Peckham

concedes that at the time the judgment was entered, he had no idea the

government had already paid the delinquent taxes. Thus, he assumed that

the government would incur any costs to facilitate the sale after the

judgment was entered and that those costs would be reimbursed from the

proceeds of the sale. It was, of course, reasonable for the parties to

believe the settlement provided for the government's reimbursement of

costs, because the parties had explicitly agreed to this in the mortgage

agreement. Looking at this record, the district court had ample evidence

from which to conclude that the settlement which became the final judgment

contemplated distribution of sale proceeds only after all of the

government's costs of sale had been reimbursed.

Peckham argues that to affirm the district court's decision would be

to circumvent Iowa's merger doctrine by effectively granting an in personam

judgment to the government after it had formerly obtained an in rem

judgment. As explained above, we view the court's decision as an

application of the original judgment, not a grant of a separate, in

personam judgment. However, even if we were to accept Peckham's view,

Peckham's argument would not carry the day. 

The application of the merger doctrine "is limited to equitable

concerns" and "will not be carried any further than the ends of justice

require." Brenton State Bank of Jefferson, 440 N.W.2d at 586. In this

case, the Peckhams received under the district court's order exactly what

was due to them. Had the government not advanced the taxes, the Peckhams

would not have received any more than the court's order allowed them in

this case,
 Peckham contends that in Faught, 492 N.W.2d at 425, the

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Supreme Court of Iowa was unimpressed by a mortgagee's argument

that application of the merger doctrine would result in a windfall

to the mortgagor. A close reading of the case reveals, however,

that the court was unimpressed because the alleged windfall was an

illusion.

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because potential buyers would have reduced their bids to reflect that the

property was being sold subject to the taxes. Thus, a reduced amount of

initial overplus would have been available for distribution, but the final

amount due the Peckhams would have been the same amount as the court

finally ordered to be distributed to them. Simply stated, applying the

merger doctrine to preclude the government from recapturing its advanced

costs and thereby bestowing on the Peckhams a real windfall to which they

are not entitled would not further the ends of justice. Accordingly, we

do not believe the Supreme Court of Iowa would extend the doctrine of

merger to the facts of this case. Cf. id. at 587-88 (noting that an

application of the merger doctrine would result in the debtors receiving

a considerable windfall at the expense of creditors).2

We have considered Peckham's remaining arguments and find them to be

without merit. For the reasons stated above, we find no abuse of

discretion in the district court's determination that the taxes were costs

of the sale under the foreclosure judgment. Accordingly, we affirm the

order of the district court.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.