Mlady v. Dougan
| Decision Date | 03 December 2021 |
| Docket Number | No. 19-1689,19-1689 |
| Citation | 967 N.W.2d 328 |
| Parties | Wayne Joseph MLADY, Appellant, v. Sue Ann DOUGAN, Appellee, Great Western Bank, Plaintiff, v. Conrad D. Clement, Manaco, Corp., and Parties in Possession, Defendants. |
| Court | Iowa Supreme Court |
Lynn Wickham Hartman (argued) and Dawn M. Gibson of Simmons Perrine Moyer Bergman PLC, Cedar Rapids, for appellant.
John L. Duffy (argued) of Heiny, McManigal, Duffy, Stambaugh & Anderson, P.L.C., Mason City, for appellee.
Robert L. Hartwig of Iowa Bankers Association, Johnston, for amicus curiae Iowa Bankers Association.
Waterman, J., delivered the opinion of the court, in which all participating justices join. McDermott, J., takes no part.
Close only counts in horseshoes and hand grenades, not our redemption statute. An attorney representing a sophisticated investor underpaid the amount necessary to redeem farmland by at least $1,798.79 below the minimum owed of $1,938,799.79 (exclusive of costs). The district court ruled the redemption was timely and resolved the parties’ dispute over the interest rate by ruling that the contract default rate of 21% controlled, not the 4.25% nondefault rate. Both sides appealed, and we transferred the case to the court of appeals, which affirmed the 21% interest rate but held the attempted redemption was untimely. We granted the attempted redeemer's application for further review.
On our review, we too affirm the district court ruling that the contractual default interest rate of 21% applies. We adhere to the letter of our redemption statutes and precedent and affirm the court of appeals decision requiring timely full payment of the amount necessary. We decline to grant equitable relief under these circumstances because to do so would undermine the predictability and certainty so important for the marketability of farmland after foreclosure.
Conrad Clement owned 208 acres of farmland in Howard County subject to a mortgage from Great Western Bank. When Clement failed to make payments, the bank obtained a default judgment and instituted foreclosure proceedings. The foreclosure was based on two unpaid promissory notes with the same interest rates: an initial rate of 4.25% and a default rate of 21%. Each note provided that "[u]pon default, including failure to pay upon final maturity, the interest rate on [these notes] shall be increased to 21.000% per annum based on a year of 360 days." The date of maturity for both notes was September 28, 2015. The default rate had been triggered by Clement's failure to pay them off by that date. The notes do not contain a cure provision allowing a postdefault reversion back to the nondefault rate. On March 24, 2017, the district court entered a decree of foreclosure allowing a sheriff's sale with "a one-year period of redemption exclusive to [Clement] following any such sheriff's sale."
On May 22, Wayne Joseph Mlady purchased the property at a sheriff's sale for $1,600,001. The sheriff issued a "Certificate of Purchase" that provided for a one-year redemption period expiring on May 22, 2018. The notice of sheriff's sale and the underlying default judgment both indicated the default interest rate of 21% and the per diem interest of $933.34.1
On March 28, 2018, Clement assigned his redemption rights to a creditor, Sue Ann Dougan. Two days later, Dougan deposited $1,690,000 with the Howard County Clerk of District Court.2 Dougan asked the clerk to tell her the interest rate. The clerk told Dougan to ask the district court.
On April 2, Dougan filed a petition under Iowa Code section 628.21 (2017) asking the court to set the interest rate at 4.25%. Mlady filed an answer asserting the applicable interest rate is 21% and challenging the validity of Clement's assignment to Dougan. On April 25, the district court, without determining the interest rate, denied Dougan's petition on grounds that her assignment was invalid because redemption rights were exclusive to Clement.
On May 9, Dougan moved for a new trial and for the court to reconsider, enlarge, and explain its ruling and also requested that the court "schedule a hearing on an expedited basis" to determine the applicable rate of interest. At her counsel's instruction, Dougan deposited an additional $247,001 with the clerk on May 21 as a protective payment in the event it was adjudicated that she owed the default interest rate. Her counsel, however, miscalculated the amount of interest that had accrued at the 21% rate. On May 22, or the last day within the redemption period, Mlady filed his resistance to Dougan's motion and Dougan applied for a stay of the issuance of the sheriff's deed.
On May 23, Mlady filed his resistance to the stay. The district court held a hearing on Dougan's request for a stay, which was denied. Mlady obtained the sheriff's deed to the property, allowing him to plant crops for the 2018 season. On May 24, Dougan deposited an additional $200,000 with the clerk to serve as a bond, filed her notice of appeal, and asked the district court to recall the deed. Mlady resisted. Because "the property is currently in the possession of Mr. Mlady," the district court set bond at $20,000 and did not "require the return of the deed" that was "conveyed prior to appeal."
We transferred the case to the court of appeals. The court of appeals reversed the district court on March 20, 2019, concluding "Dougan's assignment was valid and enforceable" and remanding the case for the district court to determine if Dougan's redemption was timely.
At the hearing on remand, Dougan testified she is entitled to redeem if the trial court determines that she paid the correct amount. Mlady testified he understood the applicable interest rate to be the default rate (or 21%) and would not have otherwise purchased the property. Both parties filed posthearing briefs supporting their positions.
Dougan argued 4.25% is the applicable contract interest rate and she timely redeemed the property because she deposited $1,937,001 before the May 22, 2018 deadline. If the interest rate is 4.25%, Dougan timely deposited more than sufficient funds with the clerk and is entitled to a refund. If the interest rate is 21%, Dougan argued the March 2018 deposit of $1,690,000 covered the outstanding interest and reduced the principal amount to $270,609, which thereby lowered the amount of interest accruing daily such that her second payment exceeded the amount required to redeem.
Mlady argued the applicable interest rate is the 21% contract default rate and Dougan was required to pay at least $1,938,799.79 by May 22, 2018, to redeem the property. The $1,938,799.79 includes Mlady's purchase price and interest owed at 21% for 363 days but does not include court costs.3 Because Dougan only deposited $1,937,001 total, Dougan was at least $1,798.79 short when the redemption period expired and failed to timely redeem the property. Mlady argued Dougan was not entitled to "a set-off interest payment[ ] because she made an initial partial payment to the Clerk of Court."
On June 12, the district court decided Dougan "validly exercised the right to redeem" the property and the applicable interest rate was the default rate and directed that the clerk shall pay the funds to Mlady. Both parties filed motions requesting that the court reconsider its ruling. Mlady urged the court to reverse its determination that Dougan timely redeemed and argued interest continues to accrue after he obtained the deed. Dougan argued Mlady is not entitled to interest after he received the deed on May 23, 2018, and requested, as a matter of equity, she be allowed to pay the $1,798.79 shortfall after the one-year redemption deadline.
On September 28, the district The court ruled that "Dougan's obligation to pay accruing interest to Mlady on the redemption balance ended as of May 23, 2018," and further ruled that "Mlady is entitled to a payment of $1,938,799.79 for certificate of purchase." The district court ordered the court costs "of the proceedings held pursuant to remand" are split evenly between the parties and allowed Dougan to deposit the additional $1,798.79.
Both parties appealed. Mlady argues the district court correctly applied the 21% default interest rate but erred by ruling that Dougan had timely redeemed because there is no statutory entitlement to make a late payment or any grounds for equitable relief. In the alternative, Mlady argues he is entitled to additional interest if Dougan's redemption is upheld. Dougan argues the district court correctly found she timely redeemed the property and that the 4.25% rate controls.
We again transferred the appeal to the court of appeals, which affirmed the district court's ruling that the default interest rate of 21% applied but reversed the ruling that Dougan timely redeemed. The court of appeals determined that "Dougan failed to strictly comply with the statutory requirement to pay the full amount due within the redemption period." Dougan applied for further review, which Mlady resisted. We granted Dougan's application and allowed the Iowa Bankers Association (IBA) to file an amicus curiae brief supporting Mlady's argument for the default interest rate. The IBA argued a contrary holding would "substantially raise the risk of financing agricultural and commercial transactions across the state" and erode the certainty required for the "financial institutions and other buyers or investors who bid at sheriff sales on foreclosed real estate."
"Because the case was tried in equity, our review is de novo." Decorah State Bank v. Wangsness , 452 N.W.2d 438, 439 (Iowa 1990). "We give weight to the factual findings of the trial court, but we are not bound by them." Id. "We review questions of statutory interpretation for correction of errors at law." Standard Water Control Sys., Inc. v. Jones...
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