Iowa

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Iowa State Bank & Trust Co. v.
Phillip H. Michel and Marci K.Z. Michel,
No. 3-288 / 02-1055 (Iowa App. 10/15/2003)

No. 3-288 / 02-1055

COURT OF APPEALS OF IOWA

October 15, 2003, Filed

NOTICE: [*1] NO DECISION HAS BEEN MADE ON PUBLICATION OF THIS OPINION. THE OPINION IS SUBJECT TO MODIFICATION OR CORRECTION BY THE COURT AND IS NOT FINAL UNTIL THE TIME FOR REHEARING OR FURTHER REVIEW HAS PASSED. AN UNPUBLISHED OPINION OF THE COURT OF APPEALS MAY NOT BE CITED BY A COURT OR BY A PARTY IN ANY OTHER ACTION.

PRIOR HISTORY: Appeal from the Iowa District Court for Johnson County, Thomas M. Horan, Judge. Phillip and Marci Michel appeal a district court decision allowing Iowa State Bank & Trust Co. to foreclose a second mortgage on the Michels' property to satisfy a delinquent promissory note.

DISPOSITION: Affirmed.

COUNSEL: Thomas L. Fiegen of Fiegen Law Firm, P.C., Cedar Rapids, for appellants.

Gregg Geerdes, Iowa City, for appellee.

JUDGES: Considered by Sackett, C.J., and Huitink and Vogel, JJ.

OPINIONBY: HUITINK

OPINION: HUITINK, J.

I. Background Facts & Proceedings

Phillip and Marci Michel purchased forty-seven acres of land in Johnson County in 1988. About fifteen acres of the land is used to grow crops, about sixteen acres are enrolled in a timber reserve program, about eight acres are used for a horse pasture, and about eight acres are used for the house and out-buildings.

On March 27, 1998, the [*2] Michels obtained a loan of $ 225,000 from Iowa State Bank & Trust Company, which was secured by a second mortgage on their real property. The Michels used the funds to open a convenience store in Coralville. The convenience store was unsuccessful, and the Michels transferred their ownership interest to another party. They did not make any payments on the loan after March 27, 2000.

The Bank initiated foreclosure proceedings against the Michels in July 2000. The Michels claimed the Bank's mortgage was invalid because they had not executed a homestead waiver, as required by Iowa Code section 561.22 (1999). The district court determined the Michels owed $ 292,704.49 on the promissory note. Section 561.22 applies only to agricultural land, and the court concluded the Michels' property was not agricultural in nature. The court went on to find that even if the mortgage was statutorily invalid, it should be upheld on equitable grounds because the Michels intended to give the Bank a mortgage on their property at the time they borrowed the money. The Bank was asked to submit an affidavit regarding attorney fees.

The Michels appealed the district court's order on July 9, 2002. Subsequently, [*3] on July 18, 2002, the court awarded the Bank $ 39,046.35 in attorney fees. In order to stay proceedings on appeal, the Michels filed a supersedeas bond as required by Iowa Rule of Appellate Procedure 6.7. They pledged their interest in their forty-seven acres of real property as surety for the supersedeas bond.

On appeal, the Michels claim their property is agricultural in nature and the Bank should have followed the requirements of section 561.22. They also claim the district court erred in determining the mortgage should be enforced under equitable remedies. The Michels challenge the district court's award of attorney fees to the Bank. The Bank claims the Michels have waived their claims on appeal and that they did not timely appeal the attorney fee order.

II. Standard of Review

This case was tried in equity. Our review in equity cases is de novo. Iowa R. App. P. 6.4. "In equity cases, especially when considering the credibility of witnesses, the court gives weight to the fact findings of the district court, but is not bound by them." Iowa R. App. P. 6.14(6)(g).

III. Waiver

We first address the Bank's claim regarding waiver. The Bank points out that the [*4] Michels did not appeal the personal judgment against them for the balance due under the promissory note. The Michels admit they are only appealing that portion of the district court's judgment that found the Bank's mortgage was valid and enforceable. The Bank asserts that by posting the forty-seven acres as security for the supersedeas bond, the Michels have waived their homestead rights in the property. The Bank also asserts that due to this alleged waiver, the Michels' claims on appeal regarding the mortgage have been rendered moot. The Bank seeks to enforce the supersedeas bond.

We agree the failure to raise an issue on appeal waives that issue. Gallagher, Langlas & Gallagher v. Burco, 587 N.W.2d 615, 620 (Iowa Ct. App. 1998). The Michels, therefore, have waived a claim that they do not owe the balance due under the promissory note. The Bank is suggesting it may proceed in personam against the Michels, instead of by the in rem action of mortgage foreclosure proceedings. See Federal Land Bank v. Faught Bros., 468 N.W.2d 793, 794-95 (Iowa 1991) (noting a mortgagee may maintain a personal action on a note against a debtor or seek to foreclose the [*5] mortgage).

Generally, a homestead is exempt from sale to satisfy a judgment lien. n1 Iowa Code § 561.16; Baratta v. Polk County Health Servs., 588 N.W.2d 107, 110 (Iowa 1999). A homestead is precious property, and should only be encumbered when the encumbrance meets statutory requirements. Peoples Bank & Trust v. Lala, 392 N.W.2d 179, 188 (Iowa Ct. App. 1986). Thus, even if the Bank were proceeding in personam, the Bank would be required to show an express waiver of homestead rights, as found in section 561.21, before it could proceed against the homestead in order to satisfy the Michels' debts. See Hawkeye Bank & Trust v. Michel, 373 N.W.2d 127, 130 (Iowa 1985) (noting that under section 561.21, in order for a bank to proceed against a homestead, it must show homestead rights were expressly waived); Merchants Mut. Bonding Co. v. Underberg, 291 N.W.2d 19, 21 (Iowa 1980) (noting that in order to execute against a homestead, a party must show there has been a waiver of homestead rights under section 561.21).

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n1 The parties do not dispute that the real property in question is the Michels' homestead. We recognize a homestead may be limited to forty acres under section 561.2, but for purposes of this appeal, will consider the Michels' forty-seven acres as their homestead.

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A supersedeas bond is a method of keeping creditors at bay to maintain the status quo until an appeal is decided. Edge v. Harsha, 334 N.W.2d 741, 742 (Iowa 1983). The condition of the supersedeas bond is that the appellant will satisfy and perform the judgment if affirmed. Iowa R. App. P. 6.7(1). We determine that the Michels' action of pledging their real property as surety for the supersedeas bond for the purpose of maintaining the status quo until the appeal can be decided cannot be construed as an express waiver of their homestead rights so as to allow the Bank to proceed against the homestead in order to satisfy the Michels' debts. See Edge, 334 N.W.2d at 742 (noting a judgment lien and a supersedeas bond have differing purposes).

IV. Section 561.22

We turn to the Michels' appeal of the mortgage foreclosure proceedings. The Michels never signed a mortgage exemption waiver, as found in section 561.22. This section provides that if a homestead exemption waiver is contained in a written contract affecting agricultural land, the contract must contain the following statement:

I understand that homestead property is in many cases protected [*7] from the claims of creditors and exempt from judicial sale; and that by signing this contract, I voluntarily give up my right to this protection for this property with respect to claims based upon this contract.

Iowa Code § 561.22.

Section 561.22 further strengthens the longstanding special recognition which the legislature has given to homesteads. Peoples Bank & Trust, 392 N.W.2d at 191. Our supreme court has stated:

Homestead rights are jealously guarded by the law. Homestead laws are creatures of public policy, designed to promote the stability and welfare of the state by preserving a home where a family may be sheltered and live beyond the reach of economic misfortune. Homestead rights are purely statutory and get their vitality solely from the provisions of legislative enactment.

Merchants Mut. Bonding, 291 N.W.2d at 21 (citations omitted). In section 561.22, the legislature sought to elevate farmers' awareness of their homestead exemptions when called upon to waive them in providing security to borrow money. West Des Moines State Bank v. Mills, 482 N.W.2d 432, 433 (Iowa 1992). The legislature [*8] gave farmers an additional reminder they were giving up important rights when they signed an instrument containing a homestead waiver. Id. at 436.

A written contract, or mortgage, providing for a waiver of homestead rights in agricultural land should only be effective if the contract contains a written homestead waiver in compliance with section 561.22. In re Wagner, 259 B.R. 694, 699 (B.A.P. 8th Cir. 2001). North Dakota has a statute with identical text to the Iowa statute regarding a written waiver of homestead rights. See Iowa Code § 561.22; N.D. Cent. Code § 47-18-05.1(1) (1995); Wagner, 259 B.R. at 699. In interpreting the North Dakota statute, the North Dakota supreme court held there must be strict compliance with that state's homestead waiver statute in order for a mortgage to be enforceable. Red River State Bank v. Reierson, 533 N.W.2d 683, 688 (N.D. 1995).

If the Michels' real property qualifies as agricultural land, then the Bank's mortgage is not effective, because there was no written homestead waiver made in compliance with Iowa Code section 561.22 [*9] (1999). The term "agricultural land" in section 561.22 follows the definition found in section 9H.1(2), "'agricultural land' means land suitable for farming." Howard v. Schildberg Constr. Co., 528 N.W.2d 550, 554 n.2 (Iowa 1995); Qualley v. State Fed. Savs. & Loan, 487 N.W.2d 353, 357 (Iowa Ct. App. 1992). "Farming" is defined as the cultivation of land for the production of agricultural crops, the raising of poultry, the production of eggs, the production of milk, the production of fruit or other horticultural crops, grazing or the production of livestock. Farming shall not include the production of timber, forest products, nursery products, or sod and farming shall not include a contract where a processor or distributor of farm products or supplies provides spraying, harvesting or other farm services.

Iowa Code § 9H.1(11). n2

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n2 Prior to 1993, this section was referred to as Iowa Code § 172C.1(11). In 1993, it was transferred by the Code Editor to § 9H.1(11). Section 9H.1 was amended in 2002, and former § 9H.1(11) is now § 9H.1(19). The substance of the section, however, has not changed during this renumbering process.

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The district court held the Michels' land did not fall under the protection of section 561.22 because the majority of the forty-seven acres was not suitable for agricultural purposes. On our de novo review, we find the Michels' real property should be considered agricultural land because at least half is "suitable for use in farming." See Iowa Code § 9H.1(2). About fifteen acres of the Michels' property has been exclusively utilized to grow products such as hay, corn, soybeans, and oats. The production of agricultural crops is an aspect of farming. Iowa Code § 9H.1(11); Qualley, 487 N.W.2d at 357. Another eight acres is fenced to use as horse pasture, making the land suitable for "grazing or the production of livestock." See Iowa Code § 9H.1(11). The Michels also presented evidence that if they withdrew from the timber reserve program, the land currently in that program could be used for crops or pasture.

We conclude that because the Michels' property is agricultural land, the Bank's mortgage is not enforceable due to the fact the Michels did not sign a mortgage exemption waiver as required [*11] by section 561.22. The Bank failed to meet the statutory requirements to allow it to foreclose on the mortgage on the Michels' land.

V. Equitable Mortgage

Although the district court found the mortgage was enforceable, the court went on to also find that under equitable principles the Bank was entitled to relief. The court concluded the Bank had shown by clear and convincing evidence that it was entitled to an equitable mortgage on the Michels' property.

Ordinarily, an equitable mortgage may arise when the grantor of a deed absolute in form asserts it is intended as security for a debt only. Security Savs. Bank v. Colony Vill. Corp., 301 N.W.2d 702, 704 (Iowa 1981). Other written instruments intended to create a lien on real estate, however, have also been construed as equitable mortgages. Id. We have stated:

A lien created by contract but not sufficient as a legal mortgage will generally be regarded as an equitable mortgage and equity will imply a security from the nature of the transaction and give it effect in accordance with the agreement of the parties if there appears an intention to create a security.

Klotz v. Klotz, 440 N.W.2d 406, 408 (Iowa Ct. App. 1989) [*12] (citing In re Snyder, 138 Iowa 553, 558, 114 N.W. 615, 616 (1908)). "The legal invalidity or unenforceability of a mortgage is the exact situation calling for application of the equitable mortgage doctrine." Red River State Bank, 533 N.W.2d at 690 (citing G. Osborne, Handbook on the Law of Mortgages § 22 at 32 (2d ed. 1970) ("Equitable mortgages are . . . security transactions which fail to satisfy the requirements of legal mortgages but nevertheless are treated as mortgages in equity.")). An equitable mortgage or equitable lien may be enforced against a homestead interest. Cox v. Waudby, 433 N.W.2d 716, 719 (Iowa 1988).

In considering whether the Michels intended to give the Bank a mortgage on their homestead, the district court found:

In the present case, there clearly was an intent by [the Michels] to grant Iowa State Bank a mortgage on their home and 47 acres. This intent is demonstrated by the unambiguous mortgage, disclosure, and other documents which were signed and by the action of the Michels' attorney in preparing a title opinion which lists the mortgage in favor of Iowa State Bank. The actions of the Michels in [*13] contacting their insurance agent and requesting that Iowa State Bank be listed as a mortgage holder and loss payee on this property also demonstrates this intent. This knowledge is further demonstrated by the Michels claiming the interest they paid on their Iowa State Bank loan as deductible home mortgage interest. The deposition testimony of the Michels further confirms that they were fully aware that they were granting Iowa State Bank a mortgage on their home and 47 acres.

We agree with the district court's conclusion that the evidence clearly shows the Michels intended to give the Bank a mortgage on their homestead. We conclude the Bank has an equitable mortgage on the property which it may foreclose. Because we have found there is an equitable mortgage, we do not address the other equitable remedies discussed by the district court.

VI. Attorney Fees

The Michels appeal the award of attorney fees to the Bank. The assert that none of the documents they signed with the Bank provided for the recovery of attorney fees. The Bank claims the Michels did not timely appeal the attorney fee order.

The district court entered its findings of fact, conclusions of law, and decree [*14] on June 26, 2002. The decree provided, "[Bank] is to submit an affidavit regarding its attorney fees within ten days of this decree for consideration by the Court and inclusion in this judgment." The Bank filed a motion to tax attorney fees on July 3, 2002. The Michels filed their notice of appeal on July 9, 2002. The district court entered its order regarding attorney fees on July 18, 2002.

Iowa Rule of Appellate Procedure 6.1(2) provides:

Any final order or judgment on an application for attorney fees entered after the final order or judgment in the underlying action is separately appealable. Notwithstanding appeal of a final order or judgment in the underlying action, the district court retains jurisdiction to consider an application for attorney fees in that action. If the final order or judgment in the underlying case is also appealed, the appellant on any appeal of the order or judgment on the attorney fees application shall file a motion to consolidate the two appeals so that they may submitted and decided together.

Rulings on collateral or independent issues after final judgment are separately appealable as final judgments. State v. Formaro, 638 N.W.2d 720, 727 (Iowa 2002). [*15] A party needs to separately appeal the final order and the ruling on collateral issues. See Board of Waterworks Trs. v. City of Des Moines, 469 N.W.2d 700, 702 (Iowa 1991). In order to challenge the ruling on collateral issues, a party cannot rely upon the notice of appeal from the final order or judgment. Formaro, 638 N.W.2d at 727.

We determine the Michels have failed to properly appeal the attorney fee issue. We find this issue is not properly before us on appeal.

We affirm the decision of the district court.

AFFIRMED.

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