Putensen v. Hawkeye Bank of Clay County, 96-674

• Decision Date: 18 June 1997
• Docket Number: No. 96-674,96-674
• Citation: 564 N.W.2d 404
• Parties: Charles PUTENSEN, As Conservator of Carolyn A. Putensen, Appellant, v. HAWKEYE BANK OF CLAY COUNTY, Appellee.
• Court: Iowa Supreme Court

Page 404

564 N.W.2d 404

Charles PUTENSEN, As Conservator of Carolyn A. Putensen, Appellant, v. HAWKEYE BANK OF CLAY COUNTY, Appellee.

No. 96-674.

Supreme Court of Iowa.

June 18, 1997.

Ned A. Stockdale of Fitzgibbons Brothers, Estherville, for appellant.

Stephen F. Avery of Cornwall, Avery, Bjornstad & Scott, Spencer, for appellee.

Considered by HARRIS, P.J., and LARSON, NEUMAN, SNELL, and ANDREASEN, JJ.

HARRIS, Justice.

Though the point is disputed, we can assume that a bank had actual knowledge that one of its borrowers who, though not adjudged incompetent, suffered from at least some mental disability. The question is whether, in a foreclosure proceeding under Iowa Code chapter 655A (1993), this actual knowledge obligated the bank to obtain process against the borrower in accordance with Iowa rule of civil procedure 56.1(c) so as to accord the protections established for persons adjudged to be incompetent. The trial court determined there was no such obligation and we agree.

I. Iowa Code chapter 655A provides a simplified alternative to the customary real estate mortgage foreclosure proceedings specified in Iowa Code chapter 654. It is not available to foreclose mortgages on agricultural land. A nonjudicial foreclosure of nonagricultural land under the alternative procedure requires the mortgagee to give the mortgagor notice described in Iowa Code section 655A.3. ¹ A mortgagee must also provide an opportunity for the mortgagor to cure under section 654.2D. ² The notice "shall be served as provided in the rules of civil procedure for service of original notice." Iowa Code § 655A.4. The mortgagor then has thirty days either to cure the default or to cancel the proceedings by filing a rejection of the notice (thereby requiring the mortgagee to pursue foreclosure under Iowa Code chapter 654). Id. §§ 655A.5, .6. If the mortgagor fails to cure or file a rejection within the thirty-day period, the mortgagee can file a copy of the notice and proof of service with the county recorder and thereby effect foreclosure on the real estate. Id. § 655A.7. The consequences of this nonjudicial foreclosure are:

1. The mortgagee acquires and succeeds to all interest of the mortgagor in the real estate;

2. All liens which are inferior to the lien of the foreclosed mortgage are extinguished; and

3. The indebtedness secured by the foreclosed mortgage is extinguished.

Id. § 655A.8. The chapter 655A procedures for nonjudicial foreclosure do not provide for entry of a judgment--nor indeed for any participation--by the district court. Neither does the recorder act in any manner beyond receiving and retaining the papers filed by the mortgagee.

II. Carolyn Putensen borrowed $38,500 from Hawkeye Bank of Clay County (Hawkeye Bank) to purchase a home in Spirit Lake in July 1993. The purchase price was $54,500. When Carolyn failed to make a mortgage payment on the loan in April 1994, Hawkeye Bank attempted to reach her several times but was unsuccessful. On May 11 a loan officer visited with Charles Putensen, Carolyn's former husband, who reported that she was in a mental institution in Nevada, after the Nevada state patrol had found her along an interstate highway. On May 16 Carolyn appeared at Hawkeye Bank and made a mortgage payment. A bank loan officer described her as appearing normal and mentally stable, though in some respects her later behavior could only be described as unusual.

On June 2 Carolyn gave Hawkeye Bank a handwritten note stating she was selling the house and would not make any further payments. Hawkeye Bank responded to her in writing that she was required to continue to make the mortgage payments. She failed to do so and accordingly, on July 30, the bank served her with notice of foreclosure pursuant to Iowa Code chapter 655A. Carolyn was served at the same time with notice of a small claims petition filed by Hawkeye Bank concerning a credit card debt. Carolyn reacted only to the small claims petition. She retained an attorney, John Sandy, to represent her on the small claims action but did not retain counsel for the foreclosure matter. She also failed to file a rejection of the foreclosure notice within the thirty days specified in Iowa Code section 655A.6.

On September 7 the bank completed the foreclosure by filing the supporting affidavit specified in Code section 655A.7 and brought a forcible entry and detainer action to evict Carolyn and her son from the home. Carolyn and her son also retained John Sandy to represent them in the forcible-entry-and-detainer action which resulted in an order of removal. After Carolyn's eviction she began living in her car. On November 29 she was committed to a mental hospital. In March 1995 Hawkeye Bank sold the property for $46,300.

In March 1995 Charles Putensen was appointed as Carolyn's conservator in a voluntary proceeding. On April 3 he filed the present action as a petition to vacate the nonjudicial foreclosure. The petition was later amended to withdraw the petition and substitute a claim for money damages.

The district court sustained the bank's motion for summary judgment. The court relied on several grounds, including a determination that the appointment of a guardian ad litem is not required in order to commence a nonjudicial foreclosure proceeding when "the mortgagor has not been adjudged incompetent and is not confined to a hospital for the mentally ill."

The matter is before us on Charles' appeal.

III. Summary judgment is appropriate under Iowa rule of civil procedure 237 only when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Iowa R. Civ. P. 237(c); City of West Branch v. Miller, 546 N.W.2d 598, 600 (Iowa 1996). In reviewing a summary judgment, we consider the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any. City of West Branch, 546 N.W.2d at 600. No fact question exists if the only dispute concerns the legal consequences flowing from undisputed facts. Id.

We examine the record before the district court to decide whether a genuine issue of material fact exists and whether the district court correctly applied the law. Gerst v. Marshall, 549 N.W.2d 810, 811-12 (Iowa 1996). We view the facts in the light most favorable to the party opposing the motion for summary judgment. Id. If reasonable minds could draw different inferences and reach different conclusions based on these facts, then summary judgment is inappropriate. Walker Shoe Store, Inc. v. Howard's Hobby Shop, 327 N.W.2d 725, 728 (Iowa 1982). Our review of constitutional challenges is de novo. State v. White, 545 N.W.2d 552, 554 (Iowa 1996).

IV. Charles contends a court can and should vacate the foreclosure, either under Iowa rule of civil procedure 252(c) ³ or on the basis of a court's inherent power. Hawkeye Bank denies a court holds authority to vacate foreclosure on either basis. We choose to leave the point unresolved. Without suggesting that this authority exists, we decline to exercise it because we conclude it would be imprudent to do so.

We think the enhanced protection incident to requiring a guardian ad litem should arise only after there has been an adjudication of incompetence. Financial institutions are not equipped to assess mental conditions of their customers and should not be expected to do so. The line between the idiosyncratic person and a mildly or even moderately mentally disturbed person can easily become blurred. An idiosyncratic person is surely entitled to free access to a bank's services, and this freedom would be compromised to any extent such persons could escape responsibility for their commercial transactions. Utter chaos would attend a rule that would require a bank to conduct its customer relations on the basis of its lay assessment of the customer's mental condition.

We conclude the business community is free, in the absence of bad faith, to rely on the legal capacity of adult persons who have not been adjudged incompetent.

V. Charles also raises due process challenges under both the federal and state Constitutions. He believes the foreclosure did not comply with due process because, in view of the bank's actual knowledge of Carolyn's mental condition, it should have provided her with service as provided in Iowa rule of civil procedure 56.1(c) (service of original notice of action against persons judicially adjudged incompetent).

We first consider the challenge under article I, section 9 of the Iowa Constitution ("no person shall be deprived of life, liberty, or property, without due process of law"). It is the exclusive prerogative of our court to determine the constitutionality of Iowa statutes challenged under our own Constitution. Iowa-Illinois Gas & Elec. Co. v. City of Fort Dodge, 248 Iowa 1201, 1224, 85 N.W.2d 28, 41 (1957). We are not bound in doing so by the United States Supreme Court's interpretations of the due process clause in the federal Constitution, although we may look upon them for such guidance as we think they afford. Davenport Water Co. v. Iowa State Commerce Comm'n, 190 N.W.2d 583, 593 (Iowa 1971). Our freedom to interpret our own Constitution is of course in contrast to determinations in federal constitutional challenges, in which we are obliged to conform with the interpretations of the United States Supreme Court. State v. James, 393 N.W.2d 465, 466 (Iowa 1986).

We have observed a threshold question in due process challenges under our Constitution to be whether state action is involved. Jensen v. Schreck, 275 N.W.2d 374, 384 (Iowa 1979). A requirement for state action seems to have originated in federal cases interpreting the due process clause in the fifth and fourteenth amendments of the federal Constitution which were concerned with the rights of sovereign states in the federal system of government. Because federalism is of little or no concern in a state constitutional interpretation, and in view of our...