Sloppy Lender, State Homestead Law Leave Iowa Couple w/ Voided Mortgage; Bank Left Holding The Bag After Failing To Get Wife's Signature On Loan Docs

In Ankeny, Iowa, the Des Moines Register reports:

• Talk about sticking one to the bank. Matt and Jamie Danielson own their $278,000 Ankeny home outright, and paid almost nothing for it. A hasty home-loan approval and a 123-year-old law that requires mortgages be signed by both spouses helped the couple fight foreclosure all the way to the Iowa Court of Appeals. They won, and though they made only one payment to lender Citimortgage, the mortgage is now void and they get to keep the home.

• "It's dumb luck that we're in this house," said Matt Danielson, 33. The banking lobby is chagrined. The Iowa Bankers Association is backing legislation that would change the law so this never happens again.

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• The law's original intent was to protect husbands and wives from liability if one spouse made a disastrous financial decision unbeknownst to the other or against her or his wishes. [...] The Iowa law invoked by [attorney Jerry] Wanek in the Danielson case dates to 1888, and has its roots in a law passed in 1851. It was intended to stop one spouse from ripping off the other. It invalidates sales of — or loans on — a home, unless both spouses sign. The idea is to prevent one spouse from refinancing a mortgage and taking off with the cash.(1)

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• Wanek, the Danielsons' lawyer, doesn't believe it's right to pass a law to protect banks from their own - or their mortgage brokers' - mistakes.

For more, see Iowa loophole voids mortgage, gives couple 'a free house'.

For the ruling of the Iowa Court Of Appeals, see Citimortgage, Inc. v. Danielson, 771 N.W.2d 653, 2009 Iowa App. LEXIS 1071 (Iowa Ct. App., 2009) (Go here for the Google Scholar version, containing embedded hyperlinks).

(1) Part of the commentary made by the state Court of Appeals on the application of the Iowa homestead law (Chapter 561, Iowa Statutes) in this case follows (bold text is my emphasis):

• "Homestead rights are jealously guarded by the law." Michel, 683 N.W.2d at 101; see also Merchants Mut. Bonding Co. v. Underberg, 291 N.W.2d 19, 21 (Iowa 1980) ("Homestead laws are creatures of public policy, designed to promote the stability and welfare of the state by preserving a home where the family may be sheltered and live beyond the reach of economic misfortune.").
  
  One way in which the legislature has sought to protect homesteads is through Iowa Code section 561.13, which invalidates encumbrances of the homestead not signed by both spouses unless and until the spouse of the owner executes the same or a like instrument. See Thayer v. Sherman, 218 Iowa 451, 458, 255 N.W. 506, 509 (1934) (The provisions of this section are for the benefit of all who are interested in the homestead. It is designed as a protection to the wife, the children, and the husband himself.).
  
  If section 561.13 is not satisfied, the transaction is invalid as to both the husband and the wife. See Martin v. Martin, 720 N.W.2d 732, 736 (Iowa 2006) (finding deed attempting to convey a homestead invalid where it was not signed by the owner‟s spouse); Beal Bank v. Siems, 670 N.W.2d 119, 124 (Iowa 2003) (holding mortgage on homestead void because not signed by owner‟s spouse as required by section 561.13).
  
  Section 561.13 was not satisfied in this case because the mortgage encumbering the parties' homestead was signed only by Matthew, who was married to Jamie at the time of the encumbrance. The mortgage is therefore invalid and void as to both Matthew and Jamie. See Martin, 720 N.W.2d at 738 (emphasizing section 561.13 makes a conveyance or encumbrance of the homestead "invalid—that is, void—without the signature of both spouses, not merely voidable by the spouse who did not sign").
  
  Citimortgage attempts to avoid the harsh effect of section 561.13 in this case by asserting Matthew procured the mortgage by fraudulently misrepresenting his marital status, which it contends should result in the imposition of an equitable mortgage. The district court denied this claim, finding there was "not one piece of evidence to indicate Mr. Danielson knowingly or with any intent to defraud gave false information to anyone throughout this transaction." Citimortgage claims the district court erred in so concluding. We do not agree.

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One somewhat interesting piece of trivia is that attorney Jerrold Wanek, who represented the Danielsons as reported in the Des Moines Register story, also successfully represented the homeowner who voided his mortgage in the above-referenced Beal Bank v. Siems case, which was decided by the Iowa Supreme Court in 2003.

For another relatively recent Iowa case where a sloppy lender was left holding the bag in a similar situation, see Wells Fargo Bank, N.A. v. Hudson, 2007 Iowa App. LEXIS 1867 (Iowa Ct. App. 2007) :

• The district court dismissed on summary judgment Wells Fargo Bank's (Wells Fargo) petition for foreclosure of a real estate mortgage on property owned by defendant Troy D. Hudson. The court found the undisputed facts to be that (1) the property at the time the mortgage was given was the homestead of Troy and his wife, defendant Jodi Hudson, and (2) Jodi Hudson had not signed either the note or the mortgage. Under these facts in applying Iowa Code section 561.13 (2005), the district court found the mortgage was null and void. On appeal Wells Fargo contends (1) the district court erred in granting summary judgment, and (2) Wells Fargo should have been found to have an equitable mortgage or equitable lien on the property. We affirm.