Court Opinion

ID: 4520102
Source: CourtListenerOpinion
Date Created: 2020-03-27 14:03:27.998103+00
Date Added: 2024-06-11T11:51:11.062175
License: Public Domain

IN THE SUPREME COURT OF IOWA
                              No. 19–0657

                          Filed March 27, 2020

BLUE GRASS SAVINGS BANK,

      Appellee,

vs.

COMMUNITY BANK & TRUST COMPANY,

      Appellant.

      Appeal from the Iowa District Court for Muscatine County, John D.

Telleen, Judge.

      A subsequent lienholder appeals a foreclosure decree giving priority

under a future-advances clause to the full amount of credit extended by

the first lienholder rather than the maximum amount set forth in the

notice provision of the first lienholder’s mortgage. DISTRICT COURT

JUDGMENT REVERSED AND CASE REMANDED.

      H. Raymond Terpstra II of Terpstra & Epping, Cedar Rapids, for

appellant.

      Richard A. Davidson of Lane & Waterman LLP, Davenport, for

appellee.
                                     2

MANSFIELD, Justice.

      I. Introduction.

      This case requires us to interpret an Iowa statute relating to priority

of advances under mortgages. See Iowa Code § 654.12A (2013). A bank

made a series of loans to a farmer between April 2011 and March 2017.

Near the middle of that time period, in 2014, the bank obtained a mortgage

on a farm property with a future-advances clause. The bank’s mortgage

contained specific-dollar-amount language, as required by Iowa Code

section 654.12A:

           NOTICE: THIS MORTGAGE SECURES CREDIT IN
      THE AMOUNT OF $148,000.00. LOANS AND ADVANCES
      UP TO THIS AMOUNT, TOGETHER WITH INTEREST, ARE
      SENIOR TO INDEBTEDNESS TO OTHER CREDITORS
      UNDER    SUBSEQUENTLY   RECORDED    OR   FILED
      MORTGAGES AND LIENS.

      In May 2017, with his indebtedness to this bank exceeding

$556,000, the farmer turned to another bank for financing. He took out a

loan from the second bank for approximately $589,000, also secured in

part by the same farm property. In 2018, the first bank filed a foreclosure

proceeding. The fighting issue now is whether the first bank’s lien on the

farm priority has priority for all amounts due to the first bank or only up

to $148,000, plus interest.

      Based on the text of the statute, and other relevant considerations

we discuss within this opinion, we conclude the first bank’s priority is

capped at $148,000, plus interest. We also hold the first bank is not

allowed to collect default interest at 18% as part of its first-priority lien

because there was no written agreement to pay such a rate. Accordingly,

we reverse the foreclosure decree entered by the district court and remand

for further proceedings.
                                    3

      II. Facts and Procedural History.

      The facts of this case are relatively straightforward and undisputed.

Joseph L. Stecher is a farmer in Muscatine County. Between April 2011

and March 2017, he borrowed money from and issued promissory notes

to Blue Grass Savings Bank.     About halfway into the relationship, on

May 23, 2014, Stecher entered into a purchase money mortgage with Blue

Grass as mortgagee.     The mortgage covered Lot 1 of Stecher Farms

Subdivision in Muscatine County (Stecher Farms) and read in part as

follows:

            1. CONVEYANCE.            For   good    and    valuable
      consideration, the receipt and sufficiency of which is
      acknowledged, and to secure the Secured Debts and
      Mortgagor’s performance under this Security Instrument,
      Mortgagor does hereby grant, bargain, warrant, convey and
      mortgage to Lender, the following described property:

           Lot 1, of Stecher Farms Subdivision in Muscatine
      County, Iowa.

            ....

           NOTICE. THIS MORTGAGE SECURES CREDIT IN
      THE AMOUNT OF $148,000.00. LOANS AND ADVANCES
      UP TO THIS AMOUNT, TOGETHER WITH INTEREST, ARE
      SENIOR TO INDEBTEDNESS TO OTHER CREDITORS
      UNDER    SUBSEQUENTLY    RECORDED    OR   FILED
      MORTGAGES AND LIENS. HOWEVER, THE PRIORITY OF
      A PRIOR RECORDED MORTGAGE UNDER THIS SECTION
      DOES NOT APPLY TO LOANS OR ADVANCES MADE AFTER
      RECEIPT OF NOTICE OF FORECLOSURE OR ACTION TO
      ENFORCE A SUBSEQUENTLY RECORDED MORTGAGE OR
      OTHER SUBSEQUENTLY RECORDED OR FILED LIEN.

            2. MAXIMUM OBLIGATION LIMIT.                  The total
      principal amount secured by this Security Instrument at any
      one time and from time to time will not exceed the amount
      stated above. Any limitation of amount does not include
      interest and other fees and charges validly made pursuant to
      this Security Instrument. Also, this limitation does not apply
      to advances made under the terms of this Security Instrument
      to protect Lender’s security and to perform any of the
      covenants contained in this Security Instrument.
                                      4
             3. SECURED DEBTS.         The term “Secured Debts”
      includes and this Security Instrument will secure each of the
      following:

            A. Specific Debts. The following debts and all
      extensions, renewals, refinancings, modifications and
      replacements. A promissory note or other agreement, dated
      May 23, 2014, from Mortgagor to Lender, with a loan amount
      of $148,000.00 and maturing on May 23, 2017.

             B. All Debts. All present and future debts from
      Mortgagor to Lender, even if this Security Instrument is not
      specifically referenced, or if the future debt is unrelated to or
      of a different type than this debt.

      Notably, paragraphs 1 and 2 of the mortgage stated that the

mortgage secured credit up to a principal amount of $148,000.             The

mortgage also stated that loans and advances up to that amount were

“senior to indebtedness to other creditors under subsequently recorded or

filed mortgages and liens.”      Paragraph 3, on the other hand, defined

“secured debts” to include not only the $148,000 loan but “[a]ll present

and future debts from Mortgagor to Lender.” Paragraph 3, however, did

not discuss priority vis-à-vis subsequent lienholders.

      By March 2017, Stecher’s outstanding borrowings from Blue Grass

on the various promissory notes totaled approximately $556,965.32, not

including interest. Yet on the 2014 note that had been used specifically

to buy Stecher Farms, the principal balance was approximately

$139,341.51, down from the original $148,000.

      At that point, Stecher sought financing from another source—
Community Bank & Trust Company. On March 18, 2017, Community

Bank loaned Stecher $589,502.59, taking a mortgage on the same farm

property (i.e., Stecher Farms). A Community Bank loan officer reviewed

Blue Grass’s existing mortgage at the time of the transaction.            He

concluded that Blue Grass’s mortgage only gave Blue Grass lien priority

up to $148,000, plus interest.
                                       5

      About a year-and-a-half passed.        On August 10, 2018, following

unsuccessful farm mediation, Blue Grass filed a petition in the Iowa

District Court for Muscatine County to foreclose on Stecher Farms. Blue

Grass alleged that its mortgage secured its entire $556,965.32 debt, plus

interest.

      Stecher did not contest foreclosure. However, Community Bank,

which was named as a defendant because of its junior mortgage, filed an

answer alleging that Blue Grass’s mortgage was “capped at a loan amount

of $148,000.00.” Blue Grass moved for summary judgment of foreclosure;

Community Bank resisted the motion.

      The district court held a hearing, and on April 8, 2019, the court

granted Blue Grass’s summary judgment motion. Relying largely on an

unpublished decision of our court of appeals, the district court found that

Blue Grass’s priority over Community Bank was not limited to the

$148,000 amount set forth in the mortgage. Rather, Blue Grass’s priority

extended to all debt secured by the Blue Grass mortgage to the extent the

funds had been advanced to Stecher before the recording of the

Community Bank mortgage. The district court also ruled that Blue Grass

was entitled to charge an 18% rate of interest after default.

      That same day, the district court entered a decree of foreclosure.

The decree was consistent with the court’s summary judgment ruling,

although it did not include interest at the default rate because the court

decided the interest rate was a moot point. Since the principal amount of

the debt being foreclosed on by Blue Grass far exceeded the value of the

property, it did not matter what interest rate was allowed. 1

      Community Bank appealed, and we retained the appeal.

      1At the summary judgment hearing, Blue Grass estimated the value of Stecher
Farms to be $200,000.
                                     6

      III. Standard of Review.

      “We review rulings on motions for summary judgment for correction

of errors at law.” Young v. Iowa City Cmty. Sch. Dist., 934 N.W.2d 595,

601 (Iowa 2019).

      IV. Analysis.

      A. Is the Priority of Blue Grass’s Mortgage Lien Capped at

$148,000 in Principal? Iowa Code section 654.12A, entitled “Priority of

advances under mortgages,” was enacted in 1984 and amended in 1990.

See 1990 Iowa Acts ch. 1001, § 1; 1984 Iowa Acts ch. 1272, § 2.           It

provides in relevant part,

             Subject to section 572.18, if a prior recorded mortgage
      contains the notice prescribed in this section and identifies
      the maximum credit available to the borrower, then loans and
      advances made under the mortgage, up to the maximum
      amount of credit together with interest thereon, are senior to
      indebtedness to other creditors under subsequently recorded
      mortgages and other subsequently recorded or filed liens even
      though the holder of the prior recorded mortgage has actual
      notice of indebtedness under a subsequently recorded
      mortgage or other subsequently recorded or filed lien. So long
      as credit is available to the borrower, payment of the
      outstanding mortgage balance to zero shall not extinguish the
      prior recorded mortgage if it contains the notice prescribed by
      this section. The notice prescribed by this section for the prior
      recorded mortgage is as follows:

              NOTICE: This mortgage secures credit in the amount of
      ....... Loans and advances up to this amount, together with
      interest, are senior to indebtedness to other creditors under
      subsequently recorded or filed mortgages and liens.

Iowa Code § 654.12A (2013). The May 23, 2014 mortgage between Stecher

and Blue Grass had such a notice, identifying $148,000 as the relevant

amount of credit. Yet it also purported to secure not just the $148,000

loan that had just been extended, but “[a]ll present and future debts from

Mortgagor to Lender.” This is sometimes referred to as a “dragnet clause.”
                                    7

See Freese Leasing, Inc. v. Union Tr. & Sav. Bank, 253 N.W.2d 921, 923

(Iowa 1977).

      The question then becomes, “What is the legal significance of the

notice prescribed by Iowa Code section 654.12A?”       Community Bank

contends that the amount in the notice—$148,000 plus interest—is the

maximum priority that Blue Grass’s mortgage can obtain over a

subsequently recorded mortgage on the same property. Blue Grass, on

the other hand, contends that the notice does not limit its priority where

the advances occurred before the second mortgage was recorded. In other

words, according to Blue Grass, the dollar credit limit in the

section 654.12A notice only applies to advances that occur after the later

mortgage is recorded.

      In any question of statutory interpretation, we begin with the words

of the statute. See State v. Gross, 935 N.W.2d 695, 703 (Iowa 2019). “If

the language is unambiguous, our inquiry stops there.” Id. (quoting State

v. Richardson, 890 N.W.2d 609, 616 (Iowa 2017)).

      On its face, Iowa Code section 654.12A states that “loans and

advances made under the mortgage, up to the maximum amount of credit

together with interest thereon, are senior to indebtedness to other

creditors under subsequently recorded mortgages.” Iowa Code § 654.12A.

It draws no distinction between advances made before the subsequent

mortgage is recorded and those made afterward. Thus, at first blush, the

language of section 654.12A supports Community Bank’s position that

$148,000, the amount in the notice here, is an overall cap. See id. The

language seems plain.

      Reading further, the first sentence of section 654.12A also includes

the following clause: “even though the holder of the prior recorded

mortgage has actual notice of indebtedness under a subsequently
                                       8

recorded mortgage or other subsequently recorded or filed lien.” Id. This

indicates on its face that the statute protects principal advances up to the

maximum amount even in that particular situation, but the statute does

not suggest principal advances above that amount are ever protected.

Significantly, the “NOTICE” that immediately follows and that is also part

of the statute omits that clause—suggesting it is not essential to

understanding the meaning of section 654.12A. See Iowa Ins. Inst. v. Core

Grp. of the Iowa Ass’n for Justice, 867 N.W.2d 58, 72 (Iowa 2015) (“[W]e

read statutes as a whole . . . .”).

      Moreover, the section uses the term “subsequent[],” not the term

“intervening” that is seen in other contexts. There is a potential difference

between the two. “Intervening lien” might imply that one is talking about

liens that intervene between two events—presumably (1) the recording of

the first lien and (2) the disbursement of the future advances that are

claimed to have priority over the second, intervening lien. Thus, to say

that future advances up to a maximum amount have priority over an

“intervening” lien might imply that the advances in question occurred after

the second lien was recorded. “Subsequent[]” has no such connotation.

      But    Blue    Grass    argues   we   should   interpret   Iowa   Code

section 654.12A against the backdrop of the common law. Some of the

nation’s leading textualists see a role for interpreting texts in that way.

See, e.g., Apple Inc. v. Pepper, 587 U.S. ___, ___, 139 S. Ct. 1514, 1526

(2019) (Gorsuch, J., dissenting); Ziglar v. Abbasi, 582 U.S. ___, ___, 137
S. Ct. 1843, 1871 (2017) (Thomas, J., concurring in part and concurring

in the judgment). So have we. See Rowedder ex rel. Cookies Food Prods.,

Inc. v. Lakes Warehouse Dist., Inc., 430 N.W.2d 447, 452 (Iowa 1988). Iowa

Code chapter 4 directs that we may consider the common law when a

statute is ambiguous. See Iowa Code § 4.6(4).
                                           9

       Under the common law in Iowa, a first mortgage is presumed to have

priority over any junior mortgage. See Van Dusseldorp v. State Bank of

Bussey, 395 N.W.2d 868, 870 (Iowa 1986) (“The bank’s mortgage was

executed and recorded prior to that of plaintiff.               Consequently, any

indebtedness which it secures would be prior to the lien of plaintiff's

mortgage.” (Footnote omitted.)). Mortgages with dragnet clauses are also

enforceable (even if disfavored). See Freese Leasing, Inc., 253 N.W.2d at

925; see also Decorah State Bank v. Zidlicky, 426 N.W.2d 388, 390 (Iowa

1988) (“Future advances clauses are valid but courts look upon them with

a definite lack of enthusiasm.”). However, under the common law rule,

“actual notice of a subsequent encumbrance would defeat the priority of

advancements under a prior recorded mortgage.”                  First State Bank v.

Kalkwarf, 495 N.W.2d 708, 713 (Iowa 1993).                    Thus, once the first

mortgagee had actual knowledge of a subsequent encumbrance, any

further advances under the first mortgage would occupy a third position

behind the subsequent encumbrance. 2

       Blue Grass contends that section 654.12A was intended to give

senior lienholders more rights than they had under the common law by

protecting even advances they made with actual knowledge of the junior
lien up to the amount in the notice, without affecting their prior common

law rights as to advances made before the junior lien was in place. In the

view of Blue Grass, the entire purpose of section 654.12A was to fortify the

first lienholder’s rights.

       Blue Grass directs us to National Bank of Waterloo v. Moeller, 434
N.W.2d 887 (Iowa 1989).          The case was decided just a few years after

        2There is some question whether advances that were “obligatory”—i.e., that the

lender was obligated to make—would nonetheless have priority. See Nat’l Bank of
Waterloo v. Moeller, 434 N.W.2d 887, 888 (Iowa 1989); Corn Belt Tr. & Sav. Bank of Belle
Plaine v. May, 197 Iowa 54, 64–65, 196 N.W. 735, 740 (1924).
                                    10

section 654.12A was enacted, although the statute did not apply because

the underlying transactions predated it. Id. at 890–91. National Bank of

Waterloo and the Mason City Production Credit Association (PCA) both had

liens on Moeller’s property and were engaged in a priority dispute. Id. at

888.   The PCA’s prior mortgages secured approximately $275,000 in

indebtedness, and they included future-advances clauses. Id. The bank

had obtained its mortgage later, in March 1983. Id. By December 1983,

though, Moeller’s balance due to the PCA was down to $70,000. Id. at

890. However, further advances by the PCA that “clearly related to” the

original transactions pushed that figure up to $300,000 by 1985. Id. at

890, 892. That is when the bank foreclosed. Id. at 890. Applying an

analysis that focused on “the equities of the present case,” we found that

the PCA’s liens had priority over the bank’s lien. Id. at 891–92. We noted

that the bank was “very much aware of PCA’s prior mortgages” yet took no

action for eighteen months to assure that its mortgage had priority. Id. at

891.

       Regarding Iowa Code section 654.12A, we commented in Moeller as

follows:

             The new law, passed in 1984, clearly favors senior
       mortgagees. It provides, in pertinent part, that mortgage
       instruments containing prescribed language giving notice of a
       future advances provision,

             are senior to indebtedness to other creditors
             under subsequently recorded mortgages . . . or
             filed liens even though the holder of the prior
             recorded mortgage has actual notice of
             indebtedness under a subsequently recorded
             mortgage or other subsequently recorded or filed
             lien.
Id. at 891 (quoting Iowa Code § 654.12A (1987)). Again, we didn’t apply

section 654.12A in the Moeller case. See id. That means the foregoing
                                     11

statements were dicta. Nonetheless, seizing on the “clearly favors senior

mortgagees” language, Blue Grass argues that the 1984 law was intended

to improve the position of senior lienholders, not make it harder for them

to enforce future-advances clauses as to amounts advanced ahead of

junior liens.

      We are not sure the dicta in Moeller were correct or at least complete.

Perhaps Iowa Code section 654.12A was intended to clarify the common

law and make it more administratively workable.            In other words,

sometimes the new provision would benefit the senior lienholder by

priming the senior lienholder’s advances up to the dollar limit in the notice

regardless of the timing of those advances. Sometimes the new provision

would benefit the junior lienholder by capping the priority of the senior

lienholder’s advances to the dollar limit in the notice regardless of timing.

Either way, it would eliminate uncertainty for the parties and reduce the

need to resort to “the equities” as we did in Moeller. Both parties would be

able to rely on the amount set forth in the recorded notice within the first

lienholder’s mortgage. Notably, in Moeller, we cited no authority for our

suggestion that section 654.12A was only a win for senior lienholders.

      The legislative history lends some support to the view that

section 654.12A aimed for administrative clarity. See Iowa Code § 4.6(3)

(2013) (stating that if a statute is ambiguous, the court may consider “[t]he

legislative history”).   The section was enacted as part of a new law

governing “home equity mortgages.” See 1984 Iowa Acts ch. 1272. The

legislation was entitled, “An Act providing for the creation of a home equity

line of credit and priority of advances under mortgages securing the home

equity line of credit.” Id. The legislation was divided into two parts. Id.

Section 1 of the legislation authorized home equity loans, whereas

section 2 became Iowa Code section 654.12A. Id.
                                          12

      We can surmise that the general assembly believed the notice-and-

cap provision in section 654.12A would help support the home equity loan

industry in Iowa. Home equity loans in the 1980s often involved frequent,

small-scale extensions of credit.           Richard P. Eckman & Andrew T.

Semmelman, A Look at Home Equity Loans: Some Problems and Solutions,

41 Bus. Law. 1079, 1079 (1986) [hereinafter Eckman & Semmelman]

(“Customers typically access home equity loans by credit card or by writing

a check against the account.”). The outstanding balance could fluctuate

constantly. Id. Therefore, subsequent lenders needed a quick and easy

way to estimate the available equity in the home. Meanwhile, prior home

equity lenders needed to know they had a lending cushion up to a fixed

amount or credit limit. The section 654.12A notice in the mortgage would

have accomplished both things. 3 If our theory about the origins of section

654.12A is correct, it logically suggests that the notice and dollar cap

would apply regardless of timing. Of course, the statute is not limited to

home equity loans, but its genesis as part of home-equity-lending

legislation suggests its underlying purpose may have been administrative

convenience rather than favoring one category of lienholders over another.

      The Restatement (Third) of Property: Mortgages is also instructive.
See Restatement (Third) of Prop.: Mortg. (Am. Law Inst. 1997).                       This

Restatement, adopted in 1997, was the first restatement of the law of real

property security. See id. at 3. One of its major goals was “to assist in

     3Eckman and Semmelman note the following about state statutes modifying the

common law governing lien priority for future advances:
      Most states’ statutes governing lien priority for future advances afford any
      future advance the lien priority of the originally recorded mortgage.
      However, certain statutes condition this priority protection on the lenders
      having provided certain disclosures in the original mortgage document.
Eckman & Semmelman, 41 Bus. Law. at 1084–85 (footnote omitted). They place Iowa
Code section 654.12A in the second category of statutes.
                                     13

unifying the law of real property security by identifying and articulating

legal rules that will meet the legitimate needs of the lending industry while

at the same time providing reasonable protection for borrowers.” Id. In a

comment entitled “Agreements to secure future advances, as against third

parties,” the Restatement explains the significance of a maximum principal

amount,

            If the mortgage merely mentions that future advances
      will be secured, a subsequent grantee or lienor cannot tell
      from a reading of the mortgage what the secured amount may
      be, but will be on notice that an inquiry must be made of the
      mortgagee to discover that amount. Even if the mortgage
      states the maximum principal amount, such an inquiry is
      highly prudent, since the mortgage’s statement will not inform
      the subsequent grantee or lienor of the accrued interest,
      advances to protect security, or other similar items to which
      he or she will be subordinate. Nevertheless, the statement of
      maximum principal provides at least a rough gauge of the
      maximum total balance.
Id. § 2.1 cmt. c, at 48. Thus, when the mortgage discloses a maximum

principal amount, the Restatement indicates the subsequent lienor should

be able to rely on it as “a rough gauge of the maximum total balance.” Id.

An illustration in the same section goes on:

            7. A borrows $100,000 from B and executes a mortgage
      on A’s land. The mortgage recites: “This mortgage is given to
      secure payment of $100,000, and shall secure future
      advances, but the total principal shall not exceed $100,000.”
      Subsequently the parties enter into a separate agreement that
      B will advance an additional $50,000 to A, and that this
      advance will be secured by the mortgage. Thereafter A sells
      the land to C, who has no notice of the separate agreement.
      Only $100,000 of the total principal debt is secured by the
      mortgage as against C; the remaining $50,000 is unsecured.
Id. § 2.1 cmt. c, illust. 7, at 49–50.     This illustration in some ways

resembles the present case. Community Bank had notice of the $148,000

cap on future advances and no notice that this cap had been lifted. Under
                                     14

such circumstances, the Restatement seemingly would limit Blue Grass’s

priority to the $148,000, plus interest.

      A recent law review article also appears to confirm our interpretation

of Iowa Code section 654.12A.       See R. Wilson Freyermuth & Dale A.

Whitman, Residential Mortgage Default and the Constraints of Junior Liens,

57 U. Louisville L. Rev. 207, 218–19 (2019). The article discusses various

types of state legislation, including the following:

             The second model for state legislation on future
      advances simply declares that all advances up to some
      maximum amount stated in the mortgage will have full
      priority against intervening liens. At least seventeen states
      have such statutes, although some are limited to specific
      types of loans. The approach is simpler, of course, but it
      disregards the borrower’s ability to obtain junior financing. In
      this legal environment, the only practical stance a second
      mortgage lender can take is to assume that advances up to the
      stated maximum might be made by the first lender, and to
      consider only the property’s value in excess of that maximum
      as being available to secure a second mortgage loan.
Id. (emphasis added) (footnote omitted). Although Iowa is not specifically

identified as a state with a “second model” law, see id. n.59, section

654.12A clearly does fall within the description.      Notably, the authors

suggest a subsequent lender can consider the property’s value “in excess

of that maximum as being available to secure a second mortgage loan,”

without drawing any distinction based on the timing of the first lender’s

advances.

      In    addition,   as   Community     Bank   points   out,   its   favored

interpretation of Iowa Code section 654.12A dovetails with the law in

several other states. In New Mexico Bank & Trust Co. v. Lucas Bros., a first

lienholder held a $20,000 mortgage that also contained a dragnet clause.

582 P.2d 379, 380 (N.M. 1978). At the time the second lienholder obtained

its mortgage, the first lender had a balance due of $5000 on the mortgage
                                    15

but $55,200 in total debt from the borrower. Quoting from New Mexico’s

recently enacted counterpart to section 654.12A, the New Mexico Supreme

Court commented, “Although not controlling in the present case, we are

persuaded by the rationale and the logic of the statute.” Id. at 381. The

New Mexico court went on, “Because potential lenders rely upon the

recorded mortgages to determine whether to make other loans there must

be certainty as to the extent to which a mortgage encumbers property.” Id.

Accordingly, the court found the first lienholder “has first priority in the

real estate in the amount of $20,000 plus costs, interest and attorney’s

fees.” Id. at 382. Other jurisdictions have reached similar conclusions.

See Mark Twain Kansas City Bank v. Cates, 810 P.2d 1154, 1162–63 (Kan.

1991) (finding that under a similar Kansas statute, where the first

lienholder with a $200,000 mortgage and a dragnet clause was owed

$600,000 when the second lienholder obtained its position, the first

lienholder’s priority could be no more than $200,000); S. Side Nat’l Bank

v. Commerce Bank of St. Louis, N.A., 897 S.W.2d 657, 659 (Mo. Ct. App.

1995) (“These two provisions [of the Missouri Code] make it clear that all

advances made pursuant to a deed with a future advance clause relate

back to the date of the deed for creditor priority purposes, so long as the

balance owing on any given day does not exceed the face amount of the

mortgage.”).   Significantly, Community Bank highlighted caselaw from

these three jurisdictions in its briefing, and Blue Grass did not respond.

      Two other points should be noted. First, even reading the mortgage

alone without reference to Iowa Code section 654.12A, it appears to grant

Blue Grass priority over a subsequent lienholder only up to the principal

amount of $148,000 plus interest. True, there is language in the mortgage

that would grant Blue Grass a security interest in Stecher Farms to cover

“[a]ll present and future debts.”    But on the subject of priority, the
                                    16

mortgage speaks with one voice. It states that “LOANS AND ADVANCES

UP TO [$148,000], TOGETHER WITH INTEREST, ARE SENIOR TO

INDEBTEDNESS TO OTHER CREDITORS UNDER SUBSEQUENTLY

RECORDED OR FILED MORTGAGES AND LIENS.” No one disputes that

Blue Grass can claim a security interest in Stecher Farms for the full

amount of Stecher’s indebtedness to it.     The pertinent question is the

relative priority between Blue Grass’s security interest above $148,000,

plus interest and Community Bank’s security interest.

      Second, as was pointed out by Community Bank at oral argument,

the principal amount in the Iowa Code section 654.12A notice does not

necessarily tie the lender’s hands. As a condition of its ongoing extensions

of credit, Blue Grass could have asked `Stecher to execute an amendment

to the Stecher Farms mortgage increasing the limit above $148,000. Blue

Grass did not do so.

      For all these reasons, we conclude that $148,000 is the principal

amount as to which Blue Grass’s mortgage has priority over Community

Bank’s mortgage. We now turn to the issue of default interest.

      B. Can Blue Grass Collect 18% Default Interest? The Blue

Grass promissory notes provide as to interest:

      3. INTEREST. Interest will accrue on the unpaid Principal
      balance of this Notes at the rate of [typically 5.500 or 6.000]
      percent (Interest Rate).

      A. Interest After Default. If you declare a default under the
      terms of the Loan, including for failure to pay in full at
      maturity, you may increase the Interest Rate otherwise
      payable as described in this section. In such event, interest
      will accrue on the unpaid Principal balance of this Note at the
      Interest Rate in effect from time to time under the terms of the
      Loan, until paid in full.

      B. Maximum Interest Amount. Any amount assessed or
      collected as interest under the terms of this Note will be
      limited to the maximum lawful amount of interest allowed by
      state or federal law, whichever is greater. Amounts collected
                                     17
      in excess of the maximum lawful amount will be applied first
      to the unpaid Principal balance. Any remainder will be
      refunded to me.

      C. Statutory Authority. The amount assessed or collected
      on this Note is authorized by the Iowa usury laws under Iowa
      Code §§ 537.2601 and 535.2 et.seq.

      On the morning of the summary judgment hearing, March 20, 2019,
Blue Grass filed an affidavit of its loan officer recalculating interest
amounts due and stating that Blue Grass “elected to increase the interest
rate of the loans from the date of default and/or maturity to 18% per
annum.”     (The affidavit was misdated March 19, 2017, but was
presumably executed March 19, 2019.) Until then, Blue Grass had been
claiming interest at the nondefault rates shown in the promissory notes,
which generally ranged from 5.5% to 6.0%. Community Bank objected to
this procedure at the ensuing hearing.
      Iowa Code section 535.2 allows agricultural lenders and borrowers
to “agree in writing to pay any rate of interest.” Iowa Code § 535.2(2)(a)(5).
The promissory notes did not specify an actual default rate of interest,
although they indicated that Blue Grass may increase the interest rate
upon default. We need not decide whether such an open-ended “Interest
After Default” provision constitutes a valid written agreement under
section 535.2 that could allow a default rate of 18% to be charged.
Regardless, Blue Grass’s attempted retroactive increase just two-and-half
hours before the summary judgment hearing does not comply with either
the parties’ agreements or section 535.2.      We hold that Blue Grass is
limited to the interest rates it had continuously charged and alleged up
until the day of the summary judgment/foreclosure hearing.
      V. Conclusion.
      For the foregoing reasons, we reverse the judgment of the district
court and remand for further proceedings consistent with this opinion.
                                 18

    DISTRICT     COURT     JUDGMENT       REVERSED       AND      CASE
REMANDED.
    All justices concur except Waterman, J., who takes no part.