First Federal Savings & Loan Ass'n of Storm Lake v. Blass

Citations: 316 N.W.2d 411; 1982 Iowa Sup. LEXIS 1303Docket: No. 65473

Court: Supreme Court of Iowa; February 16, 1982; Iowa; State Supreme Court

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Simplot Soilbuilders appealed an adverse ruling in a mortgage foreclosure case regarding the distribution of an overplus from the sale of real property, arguing that the trial court improperly deemed its garnishment of the overplus detrimental to senior lienholders as improper and that these lienholders were not precluded from claiming their rights under the doctrine of laches. Simplot also contested the trial court's decision to charge it interest for its alleged wrongful use of the overplus. The case originated when First Federal Savings and Loan Association filed for mortgage foreclosure against Joseph and Marlene Blass, involving several judgment lienholders, including Simplot and others. A decree entered on May 23, 1978, foreclosed the mortgage, with the property sold on June 23, 1978, generating an overplus of $12,126.70 after settling First Federal’s judgment and costs. The decree did not specify the distribution method for the overplus. 

The lienholders, including Loring Hospital, Sac County Implement, and others, held unsatisfied judgment liens entered chronologically, with the April 11 lienholders agreeing to share any available funds on a pro rata basis. Simplot obtained an additional judgment against the Blasses on December 5, 1977, and sought to satisfy its judgments through a general execution issued on June 22, 1978. On the day of the foreclosure sale, Simplot garnished the overplus without notifying other lienholders and later obtained a judgment to apply the overplus to its liens. On October 31, 1979, other lienholders moved to determine their priorities regarding the overplus, which Simplot resisted. Following a hearing, the trial court ruled that Simplot's judgment lien was not superior to the others and that the doctrine of laches did not prevent the other lienholders from asserting their claims. The ruling was affirmed by the appellate court.

The order vacated the judgment that condemned the overplus and directed its application towards satisfying Simplot’s judgment liens. It required Simplot to return the overplus to the clerk of court and allowed any party to request a hearing to establish lien priorities. On June 11, 1980, the trial court ruled on the priority of liens based on the chronological order of judgment dates and mandated Simplot to pay interest at a rate of seven percent per annum from the garnishment of the overplus until payment to the clerk. As a result, Simplot’s lien from February 14, 1977, was fully satisfied, while its December 5, 1977, lien remained unsatisfied.

On appeal, Simplot argued that section 626.82 of The Code should govern the overplus distribution instead of sections 654.7 and 654.9. Simplot claimed that section 654.7 pertains only to overplus in the mortgagee's possession, arguing that garnishment of overplus held by the sheriff post-foreclosure sale aligns with section 626.82. However, the court found no authority supporting Simplot's interpretation. It clarified that upon mortgage foreclosure, the court directs a sale where the sheriff acts on behalf of the court, and overplus should not remain with the mortgagee. Instead, it emphasized that chapter 654 governs mortgage foreclosures and specifies the distribution of overplus after satisfying the mortgage and related costs.

This case involves a mortgage foreclosure action in which Simplot's second judgment lien is subordinate to other lienholders' claims. Citing *The County of Polk ex rel. the School Fund v. Sypher*, the court notes that when lands are sold under execution, liens transfer to any surplus from the sale and are distributed in order of priority. Thus, Simplot cannot undermine the rights of senior lienholders by claiming the surplus proceeds, which are governed by section 654.9.

In *Hoyer v. Graham, Schenck*, a similar case is referenced but distinguished based on its specifics. The court ruled that the senior lienholder had a superior right to the surplus from a foreclosure sale but could not claim damages without proving actual harm. The senior lienholder should have filed a motion in the foreclosure case to access remedies relating to the surplus, which was appropriately pursued in the current matter.

Simplot argues that the doctrine of laches should bar the senior lienholders from claiming their rights to the surplus, noting a sixteen-month delay in asserting those rights. However, the trial court found laches inapplicable and noted it was not pled by the other lienholders. The court emphasized that laches requires proof of unreasonable delay that prejudices another party. Simplot contends that it faced prejudice as it could have taken protective measures had it known of the other lienholders' claims on the surplus. However, the trial court's determination that laches does not apply stands firm.

Simplot's February 14, 1977, judgment lien has been fully satisfied due to the trial court's determination of lien priorities, while its December 5, 1977, judgment lien is subordinate to others amounting to approximately $88,000. The foreclosure sale price of the property was $36,500, and there is no evidence suggesting the property had sufficient value for redemption under chapter 628, The Code, nor that Simplot would have redeemed it even if it were feasible. Additionally, there is no indication Simplot could have satisfied its judgment from other debtor properties if other lienholders had acted sooner. Simplot's claim of prejudice related to the trial court's application of the doctrine of laches is unfounded.

Furthermore, the trial court ordered Simplot to pay interest on the overplus at a rate of seven percent per annum, reasoning that failing to charge interest would result in a windfall for Simplot. Simplot contests this ruling. The court emphasized that mortgage foreclosure actions are equitable, allowing for judicial flexibility in remedies. It noted Simplot's attempts to undermine senior lienholders' rights by garnishing the overplus, which is governed by section 654.9, The Code, when multiple liens exist. Simplot's use of funds it was not entitled to was deemed wrongful, supporting the trial court's decision to impose interest. The ruling is affirmed.