Norwest Credit, Inc. v. City of Davenport, 99-1235.

• Decision Date: 25 April 2001
• Docket Number: No. 99-1235.,99-1235.
• Citation: 626 N.W.2d 153
• Parties: NORWEST CREDIT, INC., presently known as Wells Fargo Credit, Inc., A Minnesota Corporation, Appellant, v. CITY OF DAVENPORT, a Political Subdivision of the State of Iowa; City Assessor of the City of Davenport, Appellees, and Brammer Company, LLC, a Minnesota Limited Liability Company, et al., JB Disbursing Services, Inc., a Minnesota Corporation; Plant Services Incorporated, an Iowa Corporation; Yates Electric, Inc., an Iowa Corporation; Midwestern Automatic Fire Sprinkler Co., Inc., an Iowa Corporation; Colona Sand & Excavating, Inc., an Illinois Corporation, Defendants.
• Court: Iowa Supreme Court

626 N.W.2d 153

NORWEST CREDIT, INC., presently known as Wells Fargo Credit, Inc., A Minnesota Corporation, Appellant, v. CITY OF DAVENPORT, a Political Subdivision of the State of Iowa; City Assessor of the City of Davenport, Appellees, and Brammer Company, LLC, a Minnesota Limited Liability Company, et al., JB Disbursing Services, Inc., a Minnesota Corporation; Plant Services Incorporated, an Iowa Corporation; Yates Electric, Inc., an Iowa Corporation; Midwestern Automatic Fire Sprinkler Co., Inc., an Iowa Corporation; Colona Sand & Excavating, Inc., an Illinois Corporation, Defendants.

No. 99-1235.

Supreme Court of Iowa.

April 25, 2001.

Kimberly J. Walker and Benjamin W. Hopkins, Faegre & Benson, L.L.P., Des Moines, and D. Charles Macdonald, Faegre & Benson, L.L.P., Minneapolis, Minnesota, for appellant.

Thomas D. Warner and Brian E. Heyer, Davenport, for appellees.

Deborah M. Tharnish of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, and Robert L. Hartwig, Des Moines, for amicus curiae, Iowa Bankers Association.

Considered en banc.

SNELL, Justice.

This appeal asks us to decide if a tax assessment recorded second in time to a mortgage survives foreclosure of the mortgage under Iowa Code section 403.6(19) (1999). The district court held that a purchaser at the foreclosure sale is bound by the later assessment on the property under the statute. We disagree and reverse the decision of the district court.

I. Factual Background and Procedure

This case comes to us from a supplemental ruling issued by the district court following the grant of summary judgment in favor of Norwest Credit, Incorporated. On appeal, Norwest Credit will now be referred to by its present name, Wells Fargo Credit, Incorporated (Wells Fargo). The background facts leading up to this appeal are as follows.

Brammer Company, LLC (Brammer) is a cabinet manufacturing company doing business in Davenport, Iowa. On November 18, 1997, Brammer and Wells Fargo entered into a loan agreement for the amount of $2.6 million. In exchange for the loan, Brammer mortgaged certain real property in Scott County to Wells Fargo. This mortgage was properly recorded by Wells Fargo on December 4, 1997.

On August 5, 1998, Brammer entered into an assessment agreement with the City of Davenport in exchange for a $500,000 economic development grant. Exactly eleven months after Wells Fargo recorded its mortgage, Davenport properly recorded the assessment agreement on November 4, 1998.

An assessment agreement is a way to finance improvements to local real estate, usually in blighted areas. See Black's Law Dictionary 111-12 (7th ed.1999).

These assessments are, in a certain sense, taxes. But an assessment differs from a general tax in that an assessment is levied only on property in the immediate vicinity of some local municipal improvement and is valid only where the property assessed receives some special benefit differing from the benefit that the general public enjoys.

Robert Kratovil, Real Estate Law 465 (6th ed.1974). The agreement is usually financed by the real estate holder assuming a bonded indebtedness. In the instant case, the amount of the bond covering the loan to Brammer was $500,000. The assessment on the real estate in question was then fixed at $2.5 million. The goal of this agreement was to amortize repayment of the $500,000 grant through the increased taxes Brammer would pay given the property's new taxable value.

Before such time, Brammer defaulted on its loan payments to Wells Fargo. Wells Fargo commenced foreclosure of the mortgage on February 3, 1999. Several defendants were named in Wells Fargo's foreclosure action, including: Brammer, the City of Davenport, and the Assessor of the City of Davenport. The latter two defendants were included because of their interest in the encumbered real estate through the assessment agreement.

Brammer did not contest foreclosure. Wells Fargo moved for summary judgment which was granted. The district court reserved for supplemental ruling the question of whether the recorded assessment was a junior obligation on the land such that it would be extinguished by a foreclosure sale. Wells Fargo argued that the assessment agreement was akin to a junior mortgage because it came second in time. As such, the foreclosure sale purchaser would not be obligated to repay the $500,000 bond, nor be bound by the assessed value of the property.

Conversely, Davenport argued that an assessment agreement is superior to any recorded mortgage regardless of the timing and is binding on the foreclosure sale purchaser. The district court agreed with Davenport; Wells Fargo appealed. The issue is whether a purchaser at the foreclosure sale should be considered a subsequent purchaser or encumbrancer and therefore be subject to the assessment agreement recorded by the City of Davenport.

II. Scope and Standard of Review

Although in equity, our review of an appeal from the grant of summary judgment is on legal error. Keokuk Junction Ry. Co. v. IES Indus., Inc., 618 N.W.2d 352, 355 (Iowa 2000) ("Notwithstanding the nature of this equitable action, the court cannot find facts de novo in an appeal from summary judgment." (citation omitted)). When our review necessarily calls upon us to interpret the scope and meaning of statutory provisions, our review is also for correction of errors at law. State v. Cortez, 617 N.W.2d 1, 3 (Iowa 2000). In both regards, our court is "not bound by the trial court's determinations of law." State v. Eickelberg, 574 N.W.2d 1, 3 (Iowa 1997).

III. Issue on Appeal

Our determination depends upon our interpretation of Iowa Code section 403.6(19). Specifically, we address whether a foreclosure sale purchaser at a foreclosure sale necessitated by a defaulted senior mortgage is a subsequent purchaser for purposes of a later recorded assessment. Section 403.6(19) states in relevant part:

Recording of an assessment agreement complying with this subsection constitutes notice of the assessment agreement to a subsequent purchaser or encumbrancer of the land or any part of it, whether voluntary or involuntary, and is binding upon a subsequent purchaser or encumbrancer.

Iowa Code § 403.6(19) (emphasis added). Normally, junior interests in real property are inferior to a mortgage recorded first in time. See id. §§ 558.41, 654.12A. Also, junior liens are generally extinguished by foreclosure of a senior lien. Id. § 654.23. But for the question of the interpretation of section 403.6(19), these would be the applicable rules. Section 403.6(19), however, may create an exception.

The recording statutes indicate they may be trumped under certain circumstances. For example:

An interest in real estate evidenced by an instrument so filed shall have priority over any lien that is given equal precedence.... Nothing in this section shall abrogate the collection of, or any lien for, unpaid property taxes which have attached to real estate pursuant to chapter 445, including taxes levied against tangible property that is assessed and taxed as real property pursuant to chapter 427A, or the collection of, or any lien for, unpaid taxes for which notice of lien has been properly recorded pursuant to section 422.26.

Id. § 558.41. Consider also:

[T]he 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.

Id. § 654.12A. However, section 403.6 is not listed among those that override the standard recording pecking order.

Wells Fargo and the Iowa Bankers Association in an amicus curiae brief suggest that the term subsequent purchaser cannot refer to a foreclosure sale purchaser because it would have the unfair effect of binding a senior mortgagee to a later encumbrance.

Fundamental to the law of real property is the rule that one may not convey or alienate a greater interest in land than he owns, and, consistently with this axiomatic principle, it is firmly established that a mortgagor cannot, without the consent of the mortgagee, make a dedication of the mortgaged premises so as to adversely affect the interest of the mortgagee.

W. Fertilizer & Cordage Co. v. BRG, Inc., 228 Neb. 776, 424 N.W.2d 588, 593 (1988) (citations omitted). Further, the Iowa Bankers Association argues that the district court's holding is in direct conflict with the maxim: "If a person other than the mortgagor purchases at the sale, the liens of junior lienholders are extinguished." Iowa Code § 654.23.

The question then remains, is a foreclosure sale purchaser a subsequent purchaser under section 403.6(19)? Our...