Court Opinion

ID: 9852586
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:33:08.048235+00
Date Added: 2024-06-11T09:22:30.235963
License: Public Domain

CARTER, Justice,
dissenting.
I dissent.
The majority opinion unnecessarily and without articulating a single policy ground supporting its result significantly retracts the protection previously afforded mortgagors under our redemption laws. It is particularly unfortunate that this occurs at a time when, because of prevailing economic conditions, mortgagors are particularly in need of such protection.
There are two issues presented by this appeal: (1) whether, when the mortgagor’s assignee redeems from the sale on foreclosure of a senior mortgage during the six-month period where such right of redemption is exclusive, a junior lienor may thereafter redeem the property from the mortgagor’s assignee; and (2) whether, in the circumstance presented, the mortgagor’s assignee redeems the property free of the liens of junior creditors. As to the first question, the answer should be clear, based on the language of Iowa Code section 628.5 which conditions creditors’ redemption rights to situations in which “no redemption is made by the debtor.”
On the second issue, an understanding of the effect of our redemption laws as they apply to the foreclosure of mortgages re*660quires an examination of general principles of law which operate in the foreclosure of mortgages prior to the time the redemption statutes come into play. Historically, the chancery courts, in order to protect mortgagors from the strict foreclosures of the common law, established a right in the mortgagor to get back his land following default. This was called an “equity of redemption.” See G. Osborne, Mortgages § 6, at 12-15 (2d ed. 1970) (hereinafter cited as Osborne). Accordingly, in order for the mortgagee’s title in the mortgaged property to become absolute, it was necessary for the mortgagee to go into court and seek a decree cutting off such “equity of redemption” on the part of the debtor. Osborne § 6, at 12-13. This was ordinarily accomplished by a decree requiring the debtor to pay by a fixed day or be forever barred. Osborne § 6, at 13.
To protect mortgagors from the loss of their property by foreclosure on account of a debt which is less than the value of the security, many jurisdictions, including Iowa, opted in favor of a system of foreclosure by sale. See Kramer v. Rebman, 9 Iowa 114 (1859). This type of foreclosure is now mandated by Iowa Code section 654.5. In foreclosures by sale, the debtor’s “equity of redemption” from the mortgage is cut off by the decree, the court orders sale of the mortgaged property to satisfy the mortgage obligation and the debtor is accorded a right of redemption from the sale under certain prescribed conditions. This right to redeem from the sale is measured by the amount which has been bid for the property. In this regard, we have stated:
The purpose of [foreclosure by sale] apparently is, while preserving to the mortgagee an adequate remedy, to provide for a hearing to both parties, and to finally settle and determine their rights, and, in cutting off the mortgagor’s right of redemption, to do so through the medium of a sale under decree and supervision of the court, with a right of statutory redemption, and thereby to secure from the mortgaged property for both parties the utmost practicable.
Tice v. Tice, 208 Iowa 145, 149, 224 N.W. 571, 573 (1929).
It is also an essential feature of foreclosure by sale that other lienholders on the property be joined in the action in order that their liens, like the mortgagee’s equity of redemption be cut off “to pass to a purchaser [at the sale] the entire title to the property.” Osborne at 664. The mortgagor has the right to have the full value of the property applied to the discharge of all liens against it. We stated in Mayer v. Farmers’ Bank, 44 Iowa 212, 216 (1876):
The equity of redemption must not be confounded with a right of redemption. A mortgagor has an equity of redemption until the sale, and not afterward, and this is true whether the sale is made upon foreclosure or under [general execution]. After sale, he [the mortgagor] has a right of redemption if the statute gives it, and so has the [junior] lien-holder.
(Emphasis added.) Like the mortgagor, the junior lienholders obtain, as a substitute for their interest in the property, such rights of redemption as are provided by statute. No particular words are necessary in the decree to accomplish this result. See Stoddard v. Forbes, 13 Iowa 296, 298 (1862).
Under this system, the junior liens are extinguished by the decree, or, if one prefers to view it that way, at the very latest by the sale. Manifestly, in such a system, junior lienors have no justifiable expectation that their liens will survive the sale. Their expectations are only that, under the statutory scheme of redemption, they may themselves acquire the property for an amount sufficiently below its value to permit some recoupment of their obligation. In this regard, however, they must take the statutory system of redemption as the legislature has established it, including the risk of redemption by the mortgagor or the mortgagor’s assignee during the exclusive period.
Within ■ the context of our established system of foreclosure by judicial sale, our
*661decisions have followed a consistent course in declaring that junior liens are extinguished at the conclusion of the statutory redemption process. E.g., Anderson v. Renshaw, 229 Iowa 93, 98-99, 294 N.W. 274, 277-78 (1940); Cadd v. Snell, 219 Iowa 728, 733-35, 259 N.W. 590, 592-93 (1935); Paulsen v. Jensen, 209 Iowa 453, 458, 228 N.W. 357, 359 (1929); Cooper v. Maurer, 122 Iowa 321, 326-27, 98 N.W. 124, 125-26 (1904). In the present case, the statutory redemption process terminated upon redemption from sale by the mortgagor’s assignee.
The majority seeks to escape from the inevitable consequence of the cited eases by completely ignoring the mechanics of foreclosure by judicial sale. It is axiomatic in a system of foreclosure by sale that any interest of the mortgagors in the real estate is extinguished by the sale in order that the purchaser at the sale may obtain a clear title. All that remained in the mortgagor or junior lienholders following the sale was a mere incorporeal hereditament derived from the statutes governing redemption from sale. The majority opinion misinterprets the language in some of our decisions as establishing the time for extin-guishment of junior liens as the expiration of the redemption period for creditors. One need only recognize foreclosure by sale for what it is in order to realize that such reliance is misplaced. The extinguishment of all liens at the time of sale is essential to the successful operation of that system. 5 G. Thompson, Real Property § 4838 (1924); Comment, 27 Iowa L.Rev. 482, 485 (1942). Moreover, in reviewing the policy reasons underlying extinguishment of liens of junior lienholders upon foreclosure, there is absolutely no reason to turn the issue on the timing of the redemption made by the mortgagor or the mortgagor’s assignee.
It is significant that, to the extent some courts have sought to establish the liens of junior creditors against property held by redeeming mortgagors, such cases do not suggest that the liens were not extinguished upon sale. The protection of liens in these cases has developed under theories in which the junior liens may be “revived.” See Durfee & Doddridge, Redemption from Foreclosure Sale-The Uniform Mortgage Act, 23 Mich.L.Rev. 825, 850 (1925) (hereinafter cited as Durfee & Doddridge ). There is no authority in our cases for holding as the majority does that, if a mortgagor or a mortgagor’s assignee redeems during the exclusive period, they take the property subject to the junior liens. Indeed, as the majority concedes, Tirrill v. Miller, 206 Iowa 426, 429, 218 N.W. 303, 304 (1928) holds otherwise.
If the law really is as the majority suggests, this is a matter of critical importance in the functioning of mortgage foreclosure litigation. Vital property interests turn on the timing of the mortgagor’s redemption. Given this circumstance, it is strange that in more than 100 years of litigation this court has never before suggested that the timing of the mortgagor’s redemption is of any significance in determining the status of junior liens. Moreover, at least four critical examinations of our redemption system by legal commentators have been undertaken not one of which has suggested that the timing of the mortgagor’s redemption makes any difference in determining the status of junior liens. See Bauer, Statutory Redemption Reconsidered: The Operation of Iowa’s Redemption Statute in Two Counties Between 1881 and 1980, 70 Iowa L.Rev. 343, 379-84 (1985) (hereinafter cited as Bauer)-, Osborne § 309, at 642-44; Blum, Iowa Statutory Redemption After Mortgage Foreclosure, 35 Iowa L.Rev. 72, 73 (1949); Durfee & Doddridge at 857.
Indeed, Osborne and Durfee & Dod-dridge suggest the contrary. The former states:
The [preferred] scheme is designed to put pressure on the foreclosing mortgagee at the time of the sale to bid what he thinks the property is worth, up to the amount of his debt; and it puts pressure on a junior lienor during the period of his right to redeem to bid more than the price paid by the senior mortgagee. Iowa at the present time comes closest to *662this suggested solution. Under its statute the mortgagor’s assignee on redemption clearly takes free of all liens against the mortgagor.
Osborne at 642 (footnotes omitted). Similarly, Durfee & Doddridge have suggested that under the Iowa decisions the redemp-tioner simply succeeds to the rights of the purchaser. Durfee & Doddridge at 857. They see this as a desirable result and suggest that junior lienors like senior lien-ors should be forced to bid at the sale at their peril in order to preserve their security interest. These authors suggest that:
The pressure applied to junior lienors is desirable and the hardship on them is by no means shocking.
We cannot make of the land a miraculous pitcher, and the attempt to do so will merely discourage redemption, encourage underbidding and defeat the purpose of the statute.
Id. at 853.
It is difficult to suggest any reason for the provisions of section 628.3 which give the mortgagor an exclusive right of redemption for the first six months, except as a vehicle for exerting pressure on junior lienors to bid at the sale. Under the majority’s approach, the mortgagee’s exclusive right now becomes meaningless in any case where there are junior liens. In addition, the presence of such an illusory right in our statutes creates a trap for the unwary debtor who will often be acting without advice of counsel.
A major flaw in the majority’s approach is the resulting overbreadth of the category of creditors who will be afforded protection. The majority concedes that junior lienors who have been afforded an opportunity to redeem and have not done so should lose their liens, but holds that it is otherwise when the mortgagor’s redemption during the exclusive period precludes redemption by creditors. This distinction is impossible to justify based on the realities of junior lien status. A recent study indicates that more than ninety percent of all junior lienholders fail to make redemption. See Bauer, 70 Iowa L.Rev. at 370, 377.
Under the majority’s holding in the present case, there is no method for distinguishing legitimate redemption rights from purely illusory redemption rights. The result will be to give a windfall to those junior lienors whose security interests are worthless based upon the value of the property and who would not have redeemed from the sale even if they had enjoyed an opportunity to do so.
If it were the intent of chapter 628 to protect junior lienholders in the manner that the majority proposes, they and not the mortgagor would logically have been given the exclusive right of redemption at the outset of the redemption process thereby permitting them to establish their position if the value of the property warranted such action but extinguishing their liens in those cases where it did not. The fact that our legislature has granted to the mortgagor an exclusive right to go forward in the redemption tug-of-war and has denied to junior lienors the right to redeem from a previously redeeming mortgagor leads to the inescapable conclusion that it had no intent to protect junior lienors in the situation presented in the present case.
UHLENHOPP and WOLLE, JJ., join this dissent.