Opinion ID: 1231705
Heading Depth: 1
Heading Rank: 5

Heading: Substantial Compliance with Section 561.22.

Text: The bank argues alternatively that it substantially complied with section 561.22 when it had the defendants sign a document that included the following language: Security interest: We will take a mortgage on your home. You could lose your home if you do not meet the obligations in your agreement with us. Additionally, it argues, the Michels knew they were mortgaging their home as collateral for the loan. [4] We need not determine whether substantial, as opposed to strict, compliance is sufficient because the circumstances upon which the bank relies fail to establish even substantial compliance with section 561.22. In deciding whether a party has substantially complied with a statutory requirement, we evaluate whether the asserted compliance assures that the reasonable objectives of the statute will be met. See Harrison v. Employment Appeal Bd., 659 N.W.2d 581, 586 (Iowa 2003) . We do not think such assurance is present here. First, informing a debtor that he is mortgaging his home is not the same as informing the debtor that he is waiving his homestead exemption right by doing so. Although a debtor may understand he has pledged his home as collateral for a loan, he may not realize that he no longer has the benefit of the homestead exemption. See Red River State Bank v. Reierson, 533 N.W.2d 683, 687 (N.D.1995) (noting statute requiring explanation of homestead exemption waiver similar to section 561.22 reflected the legislature's concern many borrowers did not know they were waiving exemption rights by mortgaging their homesteads). As we have already observed, the primary purpose of section 561.22 is to impress upon debtors the significance of waiving their homestead exemption. See Mills, 482 N.W.2d at 435. Where, as here, the contract clause purportedly complying with section 561.22 does not even mention the homestead exemption, there cannot be substantial compliance. Cf. Harrison, 659 N.W.2d at 587 (holding no substantial compliance where required notice was given to employee orally rather than by certified mail as required by statute since oral notice did not impress upon employee importance of matter as contemplated by statute); Burnham v. City of West Des Moines, 568 N.W.2d 808, 811 (Iowa 1997) (holding no substantial compliance with statute requiring that sheriff be given notice of appeal of compensation commission's decision because purpose of statute was not accomplished where sheriff was given no notice of any kind). Furthermore, we do not think the defendants' subjective understanding of the transaction constitutes substantial compliance or excuses the bank's noncompliance with the statute. This precise argument was rejected by the North Dakota Supreme Court interpreting a similar statutory provision in Red River State Bank. Under North Dakota law, mortgages on any homestead must include a conspicuous statement informing the debtor that homestead property is in many cases protected from the claims of creditors and exempt from judicial sale and, that by signing the mortgage, the debtor is giving up his or her right to this protection. Red River State Bank, 533 N.W.2d at 686. Although Red River State Bank included such a statement in the mortgage signed by the debtors, the statement was not conspicuous. Id. at 687. The court concluded the debtors' understanding that they were mortgaging their homestead to the bank did not relieve the bank from including a printed and conspicuous waiver clause in the mortgage itself. Id. at 687-88. To overlook the statutory requirements, the court reasoned, `would amount to saying that the Legislature performed an idle act.' Id. (citation omitted). We agree with this reasoning. To conclude there was substantial compliance with section 561.22 in the absence of the required disclosure would be tantamount to ignoring the legislature's policy decision that all mortgages on agricultural land must include the specified disclosure signed by the borrowers. Cf. Iowa Dep't of Transp. v. Iowa Dist. Ct., 534 N.W.2d 457, 459 (Iowa 1995) (rejecting substantial compliance argument where its acceptance would effectively nullify the [statutory] requirement). Regardless of the defendants' subjective understanding of the transaction, they were statutorily entitled to the admonition required by section 561.22. Cf. Beal Bank, 670 N.W.2d at 124 (holding mortgage on homestead void because not signed by owner's spouse as required by statute, even though mortgage given to guarantee spouse's business debt); Anderson v. Culbert, 55 Iowa 233, 235, 7 N.W. 508, 508 (1880) (holding husband's conveyance of homestead in exchange for other real estate was void where wife did not sign contract, even though she had knowledge of the trade and encouraged it). The bank did not comply with the statute and therefore, the bank did not obtain an effective waiver of the defendants' homestead rights. Consequently, the court of appeals correctly held that the bank was not entitled to foreclose the mortgage on the Michels' homestead. See In re Wagner, 259 B.R. at 699 (holding waiver of homestead rights in agricultural land is only effective if the contract contains a written disclosure in compliance with section 561.22); Red River State Bank, 533 N.W.2d at 688 (holding bank's failure to comply with statutory requirements for homestead exemption waiver rendered bank's mortgage unenforceable); cf. Beal Bank, 670 N.W.2d at 124 (holding mortgage not signed by spouse as required by statute protecting spouse's homestead rights is void and mortgage cannot be foreclosed).