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If you own agricultural property in Iowa and are face with a foreclosure, there are still some options for you. Agricultural property has different laws than typical residential property. In this article, we discuss what happens with agricultural foreclosures including:
- What is agricultural property?
- What rights do agricultural borrowers have if they fail to make mortgage payments?
- What happens if the borrower doesn’t cure the default?
- Are there any other steps the bank must take before filing a foreclosure case?
- What happens if the bank files a foreclosure lawsuit?
- What happens if a default judgment is entered?
- How does a receivership work in an agricultural foreclosure?
- What happens if the bank sells the property?
- Is it possible to ask for a stay of the foreclosure sale in Iowa?
- Can a borrower avoid the court process in Iowa?
What is agricultural property?
Agricultural property is land that is mainly used for farming . It can also include personal property that is used to secure funding for a farm operation. Other items that are used as part of a farm operation may also include equipment, crops, livestock, and proceeds of the security. In Iowa, the process for foreclosing on an agricultural property is similar to other real estate However, it does have some important differences.
What rights do agricultural borrowers have if they fail to make mortgage payments?
The bank must give the borrower notice of the default. The bank’s notice must inform the borrower of the nature of the default, the borrower’s right to cure that default, and an itemization of any late fees or deferral charges.
A borrower can cure a default in mortgage payments by paying the amount due. The creditor must normally give the borrower notice of the right to cure default, The borrower generally has 45 days of receiving the notice to cure the default. Curing a default restores the borrower’s rights under the mortgage.
Within the 45-day period, the borrower may cure the default by catching up the unpaid mortgage payments due at the time. If the defaulat is based on something besides missed payments, then the bank may allow the borrower to perform some other action to cure the default.
If the creditor has already sent two default notices to the borrower, or if the borrower has surrendered the property to the bank to satisfy the debt, then the borrower no longer has a right to cure. The borrower also loses the right to cure if the bank has given the borrower notice of a right to cure due to a default in the last 12 months.
Once the 45-day cure period ends, the bank can demand payment of the full value of the loan. This is known as acceleration of the loan.
What happens if the borrower doesn’t cure the default?
Iowa foreclosure law requires the bank to request mediation in some situations. Agricultural properties where the borrower owes $20,000.00 or more, then the creditor must request mediation. If the bank doesn’t request mediation, then it cannot file a foreclosure lawsuit. This what is known as a “jurisdictional barrier.” Even if the bank files a foreclosure lawsuit, its failure to comply with Iowa law should be an absolute defense to the suit itself.
Learn about non-judicial foreclosures in Iowa here.
Are there any other steps the bank must take before filing a foreclosure case?
Yes. If the bank wants to try and recover its attorney’s fees and costs, then it must give the borrower 14 days to pay the accelerated balance. If there is a one or two-family house on the property, then the bank must also provide notice that the borrower can seek credit counseling and mediation. If the notice isn’t provided, then the borrower may ask for an extension of time to seek either remedy.
What happens if the bank files a foreclosure lawsuit?
Once the bank files its lawsuit, it must serve the borrower with a summons and a copy of the complaint. Once the borrower has been served, they have 20 days to file their answer to the complaint. The borrower must also file an appearance. An appearance notifies the bank and the court that the borrower is involved in the case. Simply filing an appearance is not enough. The borrower will still have to respond to the complaint to avoid a default judgment. A default judgment is generally entered when the borrower does not respond to the complaint.
The borrower may admit in the answer that they owe the debt, breaking the terms of the agreement. The borrower may request a continuance of the foreclosure action if the default is mainly due to, or brought about by reason of drought, flood, heat, hail, storm, other climatic conditions, or pest infestation that effects the agricultural land. This request must be in writing and made before the final judgment. Iowa’s governor can also issue a moratorium on foreclosures during an economic emergency.
What happens if a default judgment is entered?
If the borrower doesn’t answer the complaint, then the creditor will receive a default judgment. Once the judgment is entered, the property will be sold to satisfy the judgment, which includes interest, attorney’s fees, and costs. Prior to the property’s sale, the borrower can pay off the entire loan balance during the redemption period. This is not a reality for most borrowers.
If the sale of the property doesn’t pay off the entire amount due, then the court can award a deficiency judgment to the bank. A deficiency judgment is the difference between the debt owed and the sale price of the property. The bank can waive its rights to a deficiency judgment in exchange for a shortened redemption period, bringing the redemption period to six months.
How does a receivership work in an agricultural foreclosure?
The court may appoint a receiver in the foreclosure action. The receiver’s job is to manage the property. The borrower, or a person living on the property, will be given preference by the court— if all parties agree. The property’s rental income is used to pay the costs of receivership, taxes, insurance on buildings and premises, and other expenses as determined by the court.
If the owner of the agricultural property, or the person in possession of the agricultural land, is not given the opportunity to be a receiver, then they have a cause of action against the receiver. They can receive actual damages, or an amount of $1,000 plus costs and attorneys’ fees. Among other things, actual damages are out-of-pocket expenses suffered by the borrower.
What happens if the bank sells the property?
The borrower has a right of first refusal. to repurchase the property after the foreclosure. The purchase price is determined based on sale price the bank would seek at auction. If the creditor wishes to sell the land at a public auction, then the borrower must receive 60 days notice of the date, time, place, and procedures of the auction. The creditor is not required to give the borrower additional financing. After sale, the borrower has no right to redeem the property.
Is it possible to ask for a stay of the foreclosure sale in Iowa?
Before the court enters a judgment, the borrower may file a demand for delay of sale. The demand delays the sale for two months. If the is a one or two-family dwelling, then the sale is held after six months—three months if the complaint includes a waiver of deficiency judgment. If the amount claimed in the petition is paid during this time, then the foreclosure action will be dismissed.
Can a borrower avoid the court process in Iowa?
Yes. Iowa allows borrowers to agree to a foreclosure without using the courts. The borrower can simply deed the property back to the bank. The bank agrees to waive any rights to a deficiency judgment. This process gives the bank immediate access to the property so that it can maintain and protect it. The bank cannot report to a credit bureau that the borrower was late on their payments. However, the creditor may report that the foreclosure process was used.
For agricultural properties, the creditor and borrower may agree that the borrower will transfer land to the creditor in satisfaction of all or part of the mortgage. The agreement may grant the borrower the right to purchase the agricultural land for a period of five years or less, and may entitle the borrower to lease the land.
The federal eviction moratorium protected many individuals from foreclosure and evictions. The eviction has since been lifted. Learn what that means about your foreclosure or evictions moving forward: The Eviction Moratorium Turns 1 Year Old, What Does This Mean For Landlords.
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For information on commercial leases in Iowa, click here.