CITIMORTGAGE, INC., Plaintiff-Appellant, vs. MATTHEW D. DANIELSON a/k/a MATTHEW DANIELSON and JAMIE DANIELSON, Defendants-Appellees.
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IN THE COURT OF APPEALS OF IOWA
No. 9-194 / 08-1473
Filed May 29, 2009
CITIMORTGAGE, INC.,
Plaintiff-Appellant,
vs.
MATTHEW D. DANIELSON a/k/a
MATTHEW DANIELSON and
JAMIE DANIELSON,
Defendants-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Karen A. Romano,
Judge.
Citimortgage, Inc. appeals from a district court ruling declaring the real
estate mortgage it held on property owned by Matthew Danielson to be void
under Iowa Code section 561.13 (2007). AFFIRMED.
Mollie Pawlosky and Jon P. Sullivan of Dickinson, Mackaman, Tyler &
Hagen, P.C., Des Moines; Theodore R. Boecker of Petosa, Petosa & Boecker,
L.L.P., Clive; and Thomas J. Miller, Attorney General, and Grant Dugdale,
Assistant Attorney General, for appellant.
Jerrold Wanek of Garten & Wanek, Des Moines, for appellee.
Heard by Vaitheswaran, P.J., and Potterfield and Doyle, JJ.
2
DOYLE, J.
Citimortgage, Inc. appeals from a district court ruling declaring the real
estate mortgage it held on property owned by Matthew Danielson to be void
under Iowa Code section 561.13 (2007). We affirm the judgment of the district
court.
I. Background Facts and Proceedings.
In late April 2007, Matthew Danielson entered into an agreement to
purchase a newly constructed home in Ankeny for $320,228. Matthew and his
wife, Jamie, met with their real estate agent, the builder, and the builder‟s real
estate agent on several occasions and walked through the home together
multiple times before deciding to purchase it.
The purchase agreement was
contingent upon Matthew obtaining financing for one hundred percent of the
purchase price at or below seven percent interest. A closing date of May 10,
2007, was set.
Because Jamie‟s credit was poor, Matthew decided to apply for a loan on
his own. He contacted mortgage broker Jason Larson, who was employed by
One Source Mortgage, Inc., for assistance in securing a loan. Matthew knew
Larson because their children attended the same daycare. Larson arranged for
Matthew to obtain a loan through Citimortgage and retained attorney David
Pulliam to act as the closing agent. In anticipation of the closing, an attorney for
the builder‟s real estate agent prepared a warranty deed conveying title in the
property to Matthew as “a married person.” The deed was later changed by
someone else to refer to Matthew as “an unmarried person.”
3
The closing date was pushed back several times. Finally, on May 24,
2007, Larson called Matthew and asked him to meet in “about 45 to 50 minutes”
at a food court in a shopping mall for the closing. Matthew asked Larson if his
wife needed to be present. Larson said no. Matthew attempted to call Jamie
anyway because she handled the couple‟s finances and was employed as a loan
originator for a mortgage banker. He was unable to reach Jamie and attended
the closing alone with Larson.1
At the closing, which Matthew described as “rushed,” Larson had Matthew
sign a large packet of documents. Included in that packet were two uniform
residential loan applications. One application appears to have been generated
by One Source Mortgage while the other was apparently generated by
Citimortgage.
Both loan applications identify Larson as the interviewer and
indicate the application was taken by telephone. Matthew and Larson signed
both applications at the closing on May 24, 2007.2 The applications refer to
Matthew as “unmarried” and as a “[s]ingle man.”
Matthew also signed a
promissory note in the amount of $320,228 at the May 24 closing. The note is
payable to Citimortgage and secured by a purchase money mortgage on
Matthew‟s home. The mortgage, which contains a homestead exemption waiver
clause, identifies the borrower as “Matthew D. Danielson, a single man.”
1
It appears Larson handled the closing himself. Pulliam testified that he had no
recollection of the closing or Matthew. Matthew likewise testified that he had never met
Pulliam prior to the trial and that Larson had conducted the closing on his own.
2
Although Larson‟s signature appears on both loan applications, Pulliam testified that he
actually signed Larson‟s name for him on the Citimortgage loan application as indicated
by Pulliam‟s initials that appear after Larson‟s name.
4
Matthew, Jamie, and their son have resided in the house since the
closing. They failed, however, to make payments on the mortgage. Citimortgage
consequently initiated foreclosure proceedings in December 2007 against
Matthew. Matthew filed an answer and raised Citimortgage‟s failure to secure
Jamie‟s signature on the mortgage as required by Iowa Code section 561.13 as
an affirmative defense. Citimortgage amended its petition to add Jamie as a
defendant. The Danielsons then filed a counterclaim to quiet title to the property,
seeking an order from the court that Matthew‟s mortgage with Citimortgage is
void under section 561.13.
The district court denied summary judgment motions filed by Citimortgage
and the Danielsons, and the matter proceeded to trial before the court. At the
close of the evidence, the court ruled from the bench that the mortgage was void
under section 561.13 and denied Citimortgage‟s claim that Matthew fraudulently
misrepresented his marital status. Citimortgage appeals.
II. Scope and Standards of Review.
“Review of an equitable claim to foreclose a mortgage is de novo.” Iowa
State Bank & Trust Co. v. Michel, 683 N.W.2d 95, 98 (Iowa 2004). We give
weight to the fact findings of the district court, especially when considering the
credibility of witnesses, but are not bound by them. Iowa R. App. P. 6.14(6)(g).
III. Discussion.
“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
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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
6
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. 3 We
do not agree.
Our supreme court has recognized in “other circumstances that „courts of
equity are bound by statutes and follow the law in [the] absence of fraud or
mistake.‟” Michel, 683 N.W.2d at 107 (quoting Mensch v. Netty, 408 N.W.2d
383, 386 (Iowa 1987)).
It is a well-settled principle of equity that
misrepresentations amounting to fraud in the inducement of a contract, whether
innocent or not, give rise to a right of avoidance on the part of the defrauded
party.
First Nat’l Bank v. Brown, 181 N.W.2d 178, 182 (Iowa 1970). Here,
however, Citimortgage attempts to use the Danielsons‟ supposed fraud in
procuring their mortgage to enforce that mortgage rather than avoid it. In any
event, to prevail on such a claim, Citimortgage must prove “(1) a representation,
3
Citimortgage raises a variety of alternative theories on appeal seeking to preclude the
application of section 561.13, including mutual mistake, equitable estoppel, and
ratification. It additionally challenges the status of the property as a homestead at the
time the property was encumbered, arguing,
With . . . a purchase money mortgage, the party that is purchasing the
property is not using the property as a homestead at the time that the
mortgage is executed, because the purchase money mortgage is
necessary for the party to acquire the initial ownership in the property.
Although it appears some of these theories were raised in the district court proceedings,
the only issue decided by the district court was Citimortgage‟s claim of fraud. See Meier
v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002) (“It is a fundamental doctrine of appellate
review that issues must ordinarily be both raised and decided by the district court before
we will decide them on appeal.”). “When a district court fails to rule on an issue properly
raised by a party, the party who raised the issue must file a motion requesting a ruling in
order to preserve error for appeal.” Id. No such motion was filed in this case. We
therefore confine our analysis to Citimortgage‟s claim of fraud.
7
(2) falsity, (3) materiality, (4) an intent to induce the other to act or refrain from
acting, and (5) justifiable reliance.” City of Ottumwa v. Poole, 687 N.W.2d 266,
269 (Iowa 2004). We believe this case fails on the last two elements.
The evidence presented at trial establishes, as the district court found, that
“everyone involved who actually had a role in this actual transaction . . . knew
that Mr. Danielson was married.” Matthew and Jamie toured the home together
with their real estate agent, the builder, and the builder‟s real estate agent before
Matthew agreed to purchase it. They also met with those individuals on several
other occasions to discuss matters related to the purchase of the home. The
warranty deed prepared by the attorney for the builder‟s real estate agent
originally referred to Matthew as “a married person,” though someone later
changed that deed to identify him as “an unmarried person.” Matthew, whom the
district court found to be credible, see Iowa R. App. 6.14(6)(g) (stating we give
weight to the district court‟s credibility determinations in equity cases), testified
that Larson “absolutely” knew he was married. He specifically asked Larson
before the closing if his wife needed to be present, and Larson said no. Matthew
nevertheless attempted to contact her on his way to the closing. In light of the
foregoing, we do not believe the record reveals any intent on Matthew‟s part to
induce Citimortgage to act on the basis of the representations in the closing
documents regarding his marital status.
Indeed, it appears Citimortgage approved Matthew for the loan before
receiving a signed copy of his loan application. Matthew did not sign the loan
applications prepared by Larson until the closing on May 24, 2007.
Yet
8
Citimortgage issued a commitment letter to Matthew on May 16 advising him that
his application for a mortgage had been approved. No evidence was presented
as to what information Citimortgage relied on in approving the loan to Matthew
and preparing the mortgage that identified him as a “single man.” We cannot see
how Citimortgage could have justifiably relied on the representations contained in
the loan applications and the mortgage itself regarding Matthew‟s marital status
in agreeing to loan him $320,228 on May 16 when those documents were not
executed until May 24. See Lockard v. Carson, 287 N.W.2d 871, 878 (Iowa
1980) (stating the recipient of a fraudulent representation cannot recover “if he
blindly relies on a misrepresentation the falsity of which would be patent to him if
he had utilized his opportunity to make a cursory examination or investigation”).
Finally, even if we were to assume for the sake of argument that Matthew
fraudulently induced Citimortgage to enter into the mortgage by representing that
he was not married, there is no evidence present in the record from which we
could conclude that Jamie had any part in that supposed fraud.
It is clear from our review of cases applying section 561.13 that the statute
is intended to protect “the whole family unit.” Martin, 720 N.W.2d at 736, 739 (“If
the statute is not satisfied, the deed is invalid as to both the husband and the
wife.”); see also Beal Bank, 670 N.W.2d at 124 (voiding mortgage in favor of
spouse whose signature was omitted); Hostetler v. Eddy, 128 Iowa 401, 406, 104
N.W. 485, 487 (1905) (holding contract not signed by wife “was void in favor of
both husband and wife”). As we alluded to earlier, “[o]ur law has chosen to
9
provide special procedures to protect homestead rights, and has defined this
protection in a comprehensive manner.” Martin, 720 N.W.2d at 738.
[T]he purpose of the homestead laws is to provide a margin of
safety to the family, not only for the benefit of the family, but for the
public welfare and social benefit which accrues to the State by
having families secure in their homes.
Id. (citation omitted).
We therefore construe homestead laws “broadly and
liberally” in favor of the beneficiaries of the legislation, which include “the wife,
the children, and the husband himself,” Thayer, 218 Iowa at 458, 255 N.W. at
509, to secure its benevolent purposes. See Martin, 720 N.W.2d at 738.
While it may be tempting for courts to fashion remedies deemed to be fair
and just under the particular circumstances of a case, “the law has defined those
concepts and must dominate the decision making process.” Id. “[I]t is not for
courts to overlook the language of a statute to reach a particular result deemed
unjust under the particular circumstances of a case.” Id. “This rule protects the
integrity of the legislature‟s judgment that certain transactions will be given effect
only if they comply with the requirements set out in the statute.” Michel, 683
N.W.2d at 107 (refusing to apply equitable mortgage where bank did not comply
with the disclosure requirements of section 561.22 even though debtors knew
they were mortgaging their homestead); see also Thayer, 218 Iowa at 458, 255
N.W. at 509 (“The homestead right is created by statute, and this can only be
alienated in the manner provided by statute.”). We are thus bound to apply
section 561.13 to invalidate the mortgage in this case as it did not contain the
signatures of both spouses and Citimortgage did not establish any fraud on the
part of either spouse in obtaining the mortgage. See Michel, 683 N.W.2d at 109
10
n.6 (“[A] creditor is bound by statutory requirements in the absence of fraud or
mistake.”).4
IV. Conclusion.
We conclude the mortgage was entered into while Matthew was married,
and his wife did not execute the same or a like instrument joining in the
encumbrance.
It was therefore void under Iowa Code section 561.13.
Citimortgage has not established any fraud on the part of either spouse that
would avoid the effect of section 561.13. We therefore affirm the judgment of the
district court dismissing Citimortgage‟s petition to foreclose its mortgage on the
property and declaring that mortgage to be void under section 561.13.
AFFIRMED.
4
We note, as did the court in Michel, that our decision does not leave Citimortgage
without remedies. See Michel, 683 N.W.2d at 107 n.5 (observing the bank could pursue
a personal judgment against the debtors).
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