IN THE MATTER OF THE ESTATE OF GEORGE BATTLE JR., Deceased. BRUCE P. BICKEL, Administrator of the Estate of George Battle Jr., EMMETT A. BATTLE, and SHERRY A. BATTLE, Petitioners-Appellants, vs. U.S. BANK, NATIONAL ASSOCIATION, N.D., and its Unknown Assignees, Trustees and Successors in interest, Respondent-Appellee.
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IN THE COURT OF APPEALS OF IOWA
No. 9-607 / 09-0170
Filed December 17, 2009
IN THE MATTER OF THE ESTATE OF
GEORGE BATTLE JR., Deceased.
_________________________________________
BRUCE P. BICKEL, Administrator of the
Estate of George Battle Jr., EMMETT A. BATTLE,
and SHERRY A. BATTLE,
Petitioners-Appellants,
vs.
U.S. BANK, NATIONAL ASSOCIATION,
N.D., and its Unknown Assignees,
Trustees and Successors in interest,
Respondent-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Story County, Michael J. Moon,
Judge.
Appellants argue the district court incorrectly reinstated a previouslyreleased mortgage after voiding a homestead mortgage not signed by a spouse.
REVERSED.
Bruce P. Bickel, Ames, for appellant Estate of Battle.
Robert A. Wright, Jr. of Wright and Wright, Des Moines, for appellant
Sherry Battle.
Craig R. Hastings of Hastings & Gartin LLP, Ames, for appellant Emmett
Battle.
Kara M. Sinnard of Whitfield & Eddy, P.L.C., Des Moines, for appellees.
Heard by Eisenhauer, P.J., Potterfield, J., and Mahan, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2009).
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EISENHAUER, P.J.
Appellants argue the district court incorrectly reinstated a previouslyreleased mortgage after voiding a homestead mortgage not signed by a spouse.
We agree the post-marriage homestead mortgage is void, but reverse the
reinstatement of the prior mortgage.
I.
Background Facts and Proceedings.
On March 1, 1990, George Battle Jr., the owner/operator of a restaurant,
purchased a house in Nevada, Iowa, which he occupied as his homestead. As of
1999, Battle utilized a personal banker at U.S. Bank who was involved in the
transactions described below, in other loan transactions with Battle involving his
business, and in conversations/transactions with Battle three or four times per
week.
On July 1, 2003, Battle signed a U.S. Bank credit application requesting a
loan for refinancing.
While the form listed Battle’s employment and gross
monthly income, many sections on the form were left blank—marital status, prior
bankruptcy,
nearest
relative,
other
income,
life
insurance,
obligations, and the entire “Financial Statement” section.
outstanding
On July 25, 2003,
Battle executed a promissory note for $89,759.15 with U.S. Bank. Battle secured
the 2003 Note by executing a mortgage. The information on the 2003 mortgage
is typewritten, with the exception of a handwritten date change to “25” and a
handwritten designation accurately stating Battle was “single.”
mortgage was recorded and became a lien on Battle’s homestead.
The 2003
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Battle married Sherry Battle on October 31, 2003. Sherry moved into the
homestead property and occupied it as her homestead.
In September 2004, Battle obtained a new loan from U.S. Bank. While it
is standard U.S. Bank procedure to have a written loan application in each loan
file and it would be unusual not to have one, U.S. Bank does not have a written
loan application for this loan.
Marital status is a standard question on U.S.
Bank’s loan application.
To generate Battle’s loan documents (i.e., note, borrower agreement), the
U.S. Bank loan officer physically keyed information into the bank’s computer
program called Wizard. Wizard data input is “the application, either from paper
or in person.” Battle’s personal banker does not remember whether she asked
Battle if he was married during the loan process.
Next, Battle’s information was sent electronically to U.S. Bank’s
underwriting department for loan approval.
The underwriting personnel
determined the information needed for verification and required the local U.S.
Bank office to fax to underwriting: (1) Battle’s property valuation ($139,000); and
(2) Battle’s 2002 and 2003 income tax returns. The 2003 tax return’s first page
listed Sherry as George’s spouse and indicated George and Sherry were
“married filing jointly.” Further, the 2003 return included “George and Sherry A.
Battle” at the top of every page. Generally, Battle’s personal banker did not
“review these documents past their title to make sure that I’m meeting the
underwriter’s requirement.”
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Battle’s personal banker does not recall the underwriting department
contacting her and asking for clarification regarding the Wizard data indicating
Battle was single while his 2003 tax return indicated he was married.
U.S.
Bank’s underwriting department electronically provided the 2004 note and the
borrower agreement to Battle’s local U.S. Bank office for printing.
The 2004 note does not indicate marital status, but the borrower
agreement stated Battle is the current owner of the property and he will execute
a mortgage to U.S. Bank. Further, a box was checked which indicated Battle
held title to the property as an “unmarried individual.”
Battle’s mortgage document is likewise generated from the U.S. Bank’s
data entry into Wizard. A third party title company, First American Equity Loan
Services, drafted the mortgage and filled in Battle’s name and marital status.
First American’s office in Cleveland, Ohio, prepared the 2004 mortgage which
states the mortgagor is “George Battle Unmarried.”
After Battle’s mortgage
document was created, First American transmitted it electronically to U.S. Bank.
Before printing the 2004 mortgage, the local U. S. Bank office filled in the local
information—bank name, bank address, bank telephone, execution date, and
dollar amount.
U.S. Bank obtained title insurance for Battle’s loan.
As a part of this
process, U.S. Bank received an online title report from First American stating the
title search “returns no ownership information for the address entered.” U.S.
Bank was then instructed by First American to take the following steps to close
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the loan: “Prepare the mortgage/deed of trust using the ownership information
supplied by the borrower from the loan application or Borrower’s Affidavit.” As
discussed above, U.S. Bank has no loan application. Neither does it have a
“Borrower’s Affidavit.”
On September 13, 2004, Battle signed the refinancing documents
prepared by U.S. Bank, including the 2004 note for $104,700 and the 2004
mortgage on his homestead. Sherry Battle was not a party to the loan and did
not sign any of the documents.
When U.S. Bank disbursed the 2004 note proceeds, $79,601.03 was used
to pay off the 2003 note and Battle received $24,798.97. In October 2004, U.S.
Bank filed a satisfaction of the 2003 mortgage with the Story County Recorder.
Battle died intestate in January 2006, while still married to Sherry and still
living in their homestead. In December 2007, Battle’s estate filed a petition to
quiet title to the homestead arguing the 2004 mortgage is void as an
encumbrance of the homestead without the signature of both spouses. Battle’s
son, Emmett, and Sherry joined as interveners.
In December 2008, the district court ruled the 2004 mortgage is void under
Iowa Code section 561.13 (2003), and the “homestead laws do not allow this
court to reform the mortgage to the detriment of Sherry.” The court also refused
to recognize an equitable mortgage because “if this court were to grant an
equitable mortgage to [U.S. Bank], it would be contrary to the purpose of the
homestead statute.” However, the court determined equitable principles allowed
it to reinstate the 2003 mortgage for U.S. Bank. This appeal followed. We
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review this equity action to quiet title de novo. Krotz v. Sattler, 586 N.W.2d 336,
338 (Iowa 1998).
II.
Reinstating the 2003 Mortgage.
No one disputes the 2004 mortgage is void under the homestead
protections contained in Iowa Code section 561.13: “A[n] . . . encumbrance of
. . . the homestead, if the owner is married, is not valid, unless and until the
spouse of the owner executes the same or a like instrument.” The issue on
appeal is whether the district court correctly awarded equitable relief to U.S.
Bank by reinstating the previously-released 2003 mortgage. Appellants argue
the professional negligence of U.S. Bank in the 2004 mortgage transaction, when
balanced against the injury to the innocent spouse, does not support
reinstatement of the 2003 mortgage to the detriment of Sherry.
Section 561.13 provides special procedures to protect homestead rights
and defines this protection in a comprehensive manner. Martin v. Martin, 720
N.W.2d 732, 737-38 (Iowa 2006). Consequently, courts construe the homestead
laws broadly and liberally in favor of the beneficiaries of the legislation. Id. at
738.
The statute prevents “the destruction of homestead rights of married
persons, except in the manner prescribed by the statute.” Wright v. Flatterich,
225 Iowa 750, 756, 281 N.W. 221, 224 (1938) (emphasis added). Because the
homestead right is peculiarly favored, “there can be no operative conveyance or
an effectual release of the exemption unless the mode pointed out by [section
561.13] is pursued with reasonable strictness.” Pagel v. Tietje, 193 Iowa 467,
469, 186 N.W. 938, 939 (1922). “While it may be tempting for trial judges to
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fashion remedies viewed to be fair . . . it is not for courts to overlook the language
of a statue to reach a particular result.” Martin, 720 N.W.2d at 738. Applying
these principles in the context of the facts detailed below, we conclude U.S.
Bank’s negligently-conducted 2004 loan process cannot equitably overcome the
“peculiarly-favored” homestead rights of Sherry Battle.
We note the 2003 mortgage was not contemporaneously cancelled by the
filing of the 2004 mortgage. Rather, U.S. Bank recorded satisfaction of the 2003
mortgage as if it had been paid off by a third-party creditor in a separate
transaction and without regard to whether or not a new mortgage had been
recorded. Satisfaction of the 2003 mortgage occurred on October 18, 2004, a
week before the 2004 mortgage was recorded on October 25, 2004.
As a business engaged in the process of making loans secured by
residential mortgages, U.S. Bank has total and complete control over the entire
loan process.
We conclude U.S. Bank negligently conducted the 2004 loan
process. First, U.S. Bank failed to follow its standard operating procedure of
obtaining a written loan application from Battle for the 2004 loan. Further, even
when it followed the standard procedure for the 2003 loan and obtained a loan
application, Battle’s application contained no information in the marital status
section and in numerous other sections.
Battle’s personal banker has no
recollection of asking him if he was married. Clearly, this local branch did not
make competent efforts to obtain the information necessary to fully complete loan
application forms for either the 2003 or the 2004 loan.
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Second, U.S. Bank required Battle to provide two years of tax returns and
then failed to review the returns. A cursory review of only the first page of the
2003 return (filed in June 2004) reveals Battle was married.
Third, despite these errors on its part, U.S. Bank had another opportunity
to correctly follow the requirements of the homestead statute and failed—it failed
to follow the instructions from First American, its title insurance company, of
preparing the mortgage using the information from the loan application or
borrower’s affidavit. U.S. Bank has neither a loan application nor a borrower’s
affidavit.
“Homestead rights are jealously guarded by the law.” Iowa State Bank &
Trust Co. v. Michel, 683 N.W.2d 95, 101 (Iowa 2004).
U.S. Bank’s flawed
business processes resulted in it presenting Battle at closing with a mortgage
stating Battle was unmarried.
The record contains no evidence Battle
misrepresented his marital status to U.S. Bank—there was no fraud or mistake.
Rather, Battle simply signed the numerous loan documents presented to him by
his personal banker.
U.S. Bank failed to comply with the statute, its 2004
mortgage is void, and courts of equity cannot expand jurisdiction to completely
override statutes or ignore established doctrines. See Martin, 720 N.W.2d at
738. Our conclusion “preserves 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.
Reinstating the 2003
mortgage would render section 516.13 “meaningless, and noncompliance with
the statute of no moment.” Id.
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REVERSED.
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