Callen applied to allow rescission after two years from decree date

In Bank One, N.A. v. Daniels, No. 15-1271 (August 17, 2016), the Iowa Court of Appeals issued its first opinion applying the Iowa Supreme Court’s ruling in U.S. Bank, N.A. v. Callen, 874 N.W. 2d 112 (Iowa 2016). (The author reported on the Callen ruling in Iowa Supreme Court affirms that Iowa Code section 615.1(1) does not bar lender from pursuing a second foreclosure decree. The case was previously identified as U.S. Bank v. Lamb, but was renamed on April 8, 2016, by the Iowa Supreme Court’s non-substantive amendment to the decision.)  

Although Bank One had obtained a default decree on April 8, 2003, no sheriff’s deed issued. A bankruptcy stayed the execution for a period, but the bankruptcy was dismissed in 2007. On June 3, 2015, Bank One filed a notice to rescind and set aside the foreclosure based on Iowa Code section 654.17(1). After the district court ruled that a notice of rescission had to be filed within two years of the date of entry of the judgment, based on an interpretation of Iowa Code sections 654.17 and 615.1(1), the Iowa Supreme Court in Callen ruled that the two-year limitation in 615.1(1) applied only to enforcing a foreclosure judgment, not to rescission under 654.17(1). Although a judgment lien is “null and void” after two years from the date of judgment under section 615.1(1), “the mortgage indebtedness survives.” Thus, the Court of Appeals reversed the district court.

However, the Court of Appeals noted that an issue remained after Callen: whether the statute of limitations was ten years, the period to enforce a written contract, or twenty years, the period to enforce a real estate mortgage. The Court of Appeals remanded to allow the district court to determine which period applied.

Daniels highlights that even though Callen laid to rest the argument that a mortgagee must rescind a decree of foreclosure within two years of the decree’s entry, the Iowa Supreme Court has not decided whether the mortgagee has ten or twenty years to rescind a decree. In fact, the Court specifically left that issue open in Bank of America v. Schulte. Daniels was remanded for the parties to brief the issue. Depending upon how the suit proceeds, the case could again find itself on appeal, which may provide Iowa practitioners with guidance to resolve the issue. For questions regarding Bank One, N.A. v. Daniels or mortgage foreclosure from the mortgagee perspective, please contact Mollie Pawlosky.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.