The Iowa Court of Appeals recently entered a ruling which should be of general interest to lenders. The case of U.S. Bank v. Anna M. Weems, filed January 22, 2010, illustrates that long delays in the enforcement of a promissory note and mortgage can raise questions as to whether the lender is entitled to enforce the note and mortgage, even when the enforcement action is filed within the 10 year statute of limitations applicable to written agreements in general. Anna Weems made her last regular payment on a note and second homestead mortgage held by U.S. Bank in March of 2004. Between the time of that payment and U.S. Bank’s lawsuit against her on the note and mortgage over four years later, the Bank charged off the loan, quit assessing late fees and made no attempt to collect the note. During that four year period Weems had regular contact with the Bank, both in connection with the administration of her first mortgage loan (she kept up the payments on her first mortgage during that time) and in connection with “numerous” volunteer training seminars Weems conducted for Bank personnel. Based on the fact that the Bank said nothing to her during that time period regarding the delinquent second mortgage note, Weems argued that the Bank had by its conduct “abandoned” or “waived” its right to enforce the note and mortgage. The District Court disagreed, granting summary judgment in the Bank’s favor.
Lenders should take note that, although the Court of Appeals upheld the District Court’s ruling in favor of the Bank, the decision was based on a close (2 -1) vote of the appellate judge panel. One of the three judges who decided the case wrote a dissent in which he concluded that Weems was at the very least entitled to a full jury trial on the issue of whether the Bank had waived its right to enforce the note and mortgage in question. He found that “a jury might find that U.S. Bank waived its rights to foreclose on the second loan when it coaxed payments from Weems to apply to her first mortgage for four years while making no effort to collect her debt on the second mortgage secured by the same home.”
Current public sentiment regarding what some pundits have described as “abusive” mortgage lending practices is reason enough for any Bank to be very cautious about engaging in conduct which could result in a jury, rather than a District Court judge, deciding the Bank’s right to foreclose a mortgage. This lesson of this case, notwithstanding the final result, is that a lender can actually jeopardize its ability to foreclose a mortgage lien by its failure to start a foreclosure proceeding or to take some other action to collect the underlying note within some reasonable time period following the borrower’s default.
If you have questions, please contact Jon Sullivan at 515-246-4522 or jsullivan@dickinsonlaw.com.
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