Earlham Sav. Bank v. Morrell

• Decision Date: 10 July 2013
• Docket Number: No. 12–1818.,12–1818.
• Citation: 837 N.W.2d 681
• Parties: EARLHAM SAVINGS BANK, Plaintiff–Appellee, v. Steven L. MORRELL and Janice Clair, Defendants–Appellants.
• Court: Iowa Court of Appeals

837 N.W.2d 681

EARLHAM SAVINGS BANK, Plaintiff–Appellee,

v.Steven L. MORRELL and Janice Clair, Defendants–Appellants.

No. 12–1818.

Court of Appeals of Iowa.

July 10, 2013.

Appeal from the Iowa District Court for Dallas County, Gary G. Kimes, Judge.

The defendants appeal the district court's ruling granting Earlham Savings Bank's foreclosure petition. AFFIRMED.

S.P. DeVolder of The DeVolder Law Firm, Norwalk, for appellants.

Chet A. Mellema and Thomas M. Boes of Bradshaw, Fowler, Proctor & Fairgrave, P.C., Des Moines, for appellee.

Heard by DOYLE, P.J., and BOWER, J., and HUITINK, S.J.^*

DOYLE, P.J.

In this mortgage foreclosure action, the defendants Stephen Morrell and Janice Clair appeal the district court's judgment and decree of foreclosure in favor of Earlham Savings Bank. The defendants contend the district court erred in finding (1) Clair's signature was not required on the mortgage because the defendants did not prove they had a common-law marriage at the time the mortgage was formed; (2) the mortgage secured Morrell's first and second loans; and (3) Earlham Savings Bank established Morrell had defaulted and the amount of the default. We affirm.

I. Scope and Standards of Review.

“Review of an equitable claim to foreclose a mortgage is de novo. 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 State Bank & Trust Co. v. Michel, 683 N.W.2d 95, 98 (Iowa 2004) (internal quotation marks and citation omitted).

II. Background Facts and Proceedings.

Steven Morrell and Janice Clair began a relationship in 2000, and they began living together in Morrell's residence in Waukee shortly thereafter. Both had previously been married. In 2003, Morrell purchased from his parents the residential property in which he and Clair lived. The warranty deed from the purchase specifically conveyed the property to “Steve Morrell, a single person.” Morrell and Clair have never obtained a marriage license, nor have they had a marriage ceremony.

Morrell owned a business specializing in heating and cooling systems. Since its opening, the business used Earlham Savings Bank as the business's lender. The business's main contact with the Bank was Loan Officer James Adkins. The business also had a corporate checking account with the Bank.

In March 2008, Adkins informed Morrell that the business's corporate checking account was overdrawn by $75,000. Adkins requested that Morrell come to the Bank and take care of the overdrafts, and it was proposed that Morrell take out a home equity loan against the equity in his residential property to cover the overdrafts.

Morrell then applied for a home equity loan with the Bank. Morrell met with Atkins, and Morrell provided his partially completed loan application form to Adkins. The form asked for the applicant's marital status, but Morrell had not checked any box to indicate his status. It is undisputed that Atkins checked the “unmarried” box on the application for Morrell. However, the parties dispute the conversation Adkins and Morrell had concerning his marital status prior thereto.

Ultimately, Morrell's home equity line of credit from the Bank was approved with a credit limit of $75,000. Before closing on the loan, the Bank had a title search completed to ensure that Morrell's home was free from title defects and encumbrances. The title company provided a certificate to the Bank, which indicated the property had been transferred to “Steve Morrell, a single person.” Additionally, Morrell provided his 2006 U.S. individual income tax return to the Bank. The filing status on the return indicated Morrell was the “head of the household.” The “single” and “married” statuses were not checked on the return. In the exemptions section of the return, the “spouse” box was not checked. However, Morrell listed Janice Clair, along with the couple's child born in 2006, as dependents. Under the “Dependent's relationship to you” column, Morrell's return stated “other” for Clair.

As security for the line of credit, the Bank took a security interest in “a real estate mortgage dated March 26, 2008.” The first page of the loan document prepared by the Bank stated the line of credit was a “consumer credit transaction.” Additionally, the loan documents indicated the borrower was “Steven L. Morrell,” and Morrell signed for the loan. No other signature for a borrower was requested or received. Atkins signed the loan documents for the Bank.

In conjunction with the loan, Morrell executed an open-end mortgage with the Bank. The mortgage stated the mortgagor was “Steven L. Morrell, A Single Person.” The mortgage was secured by Morrell's residential property. The mortgage document was signed by Morrell as the mortgagor. Beneath Morrell's signature, is an acknowledgment signed by Adkins as the notary public stating:

On this 26th day of March, 2008 before me, a Notary Public in the state of Iowa, personally appeared Steven L. Morrell, A Single Person, to me known to be the person(s) named in and who executed the foregoing instrument, and acknowledged that he/she/they executed the same as his/her/their voluntary act and deed.

Following the acknowledgment, the mortgage set forth a homestead waiver, stating: “I understand that homestead property is in many cases protected from the claims of creditors and exempt from judicial sale; and that by signing this contract, I voluntarily give up my rights to this protection for this property with respect to claims based upon this contract.” Morrell's signature follows the waiver. Clair did not sign the mortgage.

On October 16, 2008, Morrell's business took out another loan with the Bank in the amount of $110,000 to cover more overdrafts. Morrell signed the promissory note for the loan as “Steven L. Morrell, Manager/Member.” The note was secured by numerous items, including Morrell's March 26, 2008 open-end mortgage secured by his personal residence, as well as three other mortgages on different property. The document listing the security items for the October 16, 2008 loan stated the money was “being advanced under the open-end feature of the Real Estate Mortgages listed....” That document was signed by “Steven L. Morrell, Manager/Member.” Additionally, a commercial security agreement, listing the four mortgages as security, was executed and signed by “Steven L. Morrell,” with Morrell's business as the stated debtor.

Morrell failed to make payments as agreed under both loans. In 2010, the Bank filed a foreclosure petition without redemption. The petition, as later amended, stated Morrell had defaulted and was “currently in default in his obligations to [the Bank] under the [Line of Credit], Second Loan and Mortgage.” The petition indicated the line of credit and mortgage referenced were the line of credit and subsequent open-end mortgage executed in March 2008. The “second loan” referred to in the petition was the October 2008 $110,000 business loan for Morrell's business. The amended petition stated the Bank was owed at that time $66,727.38, plus accrued interest of $5939.75 and a per diem interest charge of $12.80, under Morrell's line of credit. Additionally, the petition stated the Bank was owed at that time “the sum of $110,000 plus accrued interest of $20,070.45” on the second loan. The Bank's petition stated Morrell and Janice Clair were parties in possession of the real estate, but it asserted any claims they had were subordinate or inferior to the Bank's claim.

In June 2011, Morrell filed his answer and affirmative defenses. His answer stated he was married and “presumably has been married at all material times.” Among other things, Morrell asserted as a defense the mortgage was void pursuant to the provisions of Iowa Code section 561.13 (Supp.2007). Clair also filed an answer and asserted the same affirmative defenses as Morrell.

The Bank filed a motion for summary judgment. Morrell and Clair resisted, again asserting the mortgage was void because they were married and Clair had not signed the mortgage. Additionally, they asserted that even if the court determined they were not married, the second loan was void because there was non-compliance with the requirements of a three-day notice of rescission. The court denied the motion, finding a fact issue existed as to whether Morrell and Clair were married.

In August 2012, a trial on the petition for foreclosure was held. Adkins testified he asked Morrell if he was married, and Morrell responded: “No. I'm not married.” Morrell's 2006 and 2007 U.S. individual income tax returns were admitted into evidence after being offered by the Bank to show Morrell was not holding himself out as married at the time the loans were executed. Atkins also testified Morrell never indicated at any time that he was going to use the proceeds of the line of credit for anything other than commercial purposes.

Morrell testified that he and Clair were married under the common law at the time he executed relevant loan and mortgage documents. He testified that he and Clair continuously cohabitated. He testified that a few months before he and Clair's first child was born in 2006, he and Clair discussed becoming husband and wife. He testified that right before the child was born, he and Clair “struck an agreement” that they were married in Iowa under the common law. Morrell testified that since that time, he and Clair have been continuously living together as husband and wife. He testified that after their child was born he changed his and Clair's insurance policies to a single-family policy. Morrell also testified that shortly after their first child was born, Clair introduced herself to Adkins as Morrell's wife.

Morrell testified he asked Adkins when he was getting ready to sign the documents if Clair also needed to sign because of their common law marriage. He testified that Adkins told him she did not have to sign because...