HF 2234 (LSB 5056HV (1) 87)

HOUSE FILE 2234

BY  COMMITTEE ON COMMERCE

(SUCCESSOR TO HSB 531)

A BILL FOR

An Act relating to shortening the periods of time for redeeming real property from foreclosure and delaying sale of foreclosed property. 
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 535.8, subsection 4, paragraph e, subparagraph (1), Code 2018, is amended to read as follows:
   (1)  Notwithstanding section 628.3 when a foreclosure of a mortgage on real property results from the enforcement of a due-on-sale clause, the mortgagor may redeem the real property at any time within three years eighteen months from the day of sale under the levy, and the mortgagor shall, in the meantime, be entitled to the possession thereof; and for the first thirty fifteen months thereafter such right of redemption is exclusive. Any real property redeemed by the debtor shall thereafter be free and clear from any liability for any unpaid portion of the judgment under which the real property was sold. The right of redemption established by this paragraph is not subject to waiver by the mortgagor and the period of redemption established by this paragraph shall not be reduced. The times for redemption by creditors provided in sections 628.5, 628.15, and 628.16 shall be extended to thirty-three sixteen months in any case in which the mortgagor’s period for redemption is extended by this paragraph. This paragraph does not apply to foreclosure of a mortgage if for any reason other than enforcement of a due-on-sale clause. As used in this paragraph, “due-on-sale clause” means any type of covenant which gives the mortgagee the right to demand payment of the outstanding balance or a major part thereof upon a transfer by the mortgagor to a third party of an interest of the mortgagor in property covered by the mortgage. This paragraph applies to any foreclosure occurring on or after May 10, 1980. However, this paragraph does not apply if the lender establishes, based on reasonable criteria which are not more restrictive than those used to evaluate new mortgage-loan applications, that the security interest or the likelihood of repayment is impaired as a result of the transfer of interest.
    Sec. 2.  Section 628.3, Code 2018, is amended to read as follows:
   628.3  Redemption by debtor.
   The debtor may redeem real property at any time within one year six months from the day of sale, and will, in the meantime, be entitled to the possession thereof; and for the first six three months thereafter such right of redemption is exclusive. Any real property redeemed by the debtor shall thereafter be free and clear from any liability for any unpaid portion of the judgment under which said real property was sold.
    Sec. 3.  Section 628.5, Code 2018, is amended to read as follows:
   628.5  Redemption by creditors.
   If no redemption is made by the debtor as above provided, thereafter, and at any time within nine four months from the day of sale, said redemption may be made by a mortgagee before or after the debt secured by the mortgage falls due, or by any creditor whose claim becomes a lien prior to the expiration of the time allowed for such redemption.
    Sec. 4.  Section 628.15, Code 2018, is amended to read as follows:
   628.15  After nine Creditors after four months.
   After the expiration of nine four months from the day of sale, the creditors can no longer redeem from each other, except as hereinafter provided.
    Sec. 5.  Section 628.16, Code 2018, is amended to read as follows:
   628.16  Who gets property.
   Unless the defendant redeems, the purchaser, or the creditor who has last redeemed prior to the expiration of the nine within four months aforesaid from the day of sale, will hold the property absolutely.
    Sec. 6.  Section 628.26, Code 2018, is amended to read as follows:
   628.26  Agreement to reduce period of redemption.
   The mortgagor and the mortgagee of real property consisting of less than ten acres in size may agree and provide in the mortgage instrument that the period of redemption after sale on foreclosure of said mortgage as set forth in section 628.3 be reduced to six three months, provided the mortgagee waives in the foreclosure action any rights to a deficiency judgment against the mortgagor which might arise out of the foreclosure proceedings. In such event the debtor will, in the meantime, be entitled to the possession of said real property; and if such redemption period is so reduced, for the first three months month after sale such right of redemption shall be exclusive to the debtor, and the time periods in sections 628.5, 628.15, and 628.16, shall be reduced to four two months.
    Sec. 7.  Section 654.20, subsection 1, Code 2018, is amended to read as follows:
   1.  If the mortgaged property is not used for an agricultural purpose as defined in section 535.13, the plaintiff in an action to foreclose a real estate mortgage may include in the petition an election for foreclosure without redemption. The election is effective only if the first page of the petition contains the following notice in capital letters of the same type or print size as the rest of the petition:
NOTICE
  THE PLAINTIFF HAS ELECTED FORECLOSURE WITHOUT REDEMPTION. THIS MEANS THAT THE SALE OF THE MORTGAGED PROPERTY WILL OCCUR PROMPTLY AFTER ENTRY OF JUDGMENT UNLESS YOU FILE WITH THE COURT A WRITTEN DEMAND TO DELAY THE SALE. IF YOU FILE A WRITTEN DEMAND, THE SALE WILL BE DELAYED UNTIL TWELVE SIX MONTHS (or SIX THREE MONTHS if the petition includes a waiver of deficiency judgment) FROM ENTRY OF JUDGMENT IF THE MORTGAGED PROPERTY IS YOUR RESIDENCE AND IS A ONE-FAMILY OR TWO-FAMILY DWELLING OR UNTIL TWO MONTHS FROM ENTRY OF JUDGMENT IF THE MORTGAGED PROPERTY IS NOT YOUR RESIDENCE OR IS YOUR RESIDENCE BUT NOT A ONE-FAMILY OR TWO-FAMILY DWELLING. YOU WILL HAVE NO RIGHT OF REDEMPTION AFTER THE SALE. THE PURCHASER AT THE SALE WILL BE ENTITLED TO IMMEDIATE POSSESSION OF THE MORTGAGED PROPERTY. YOU MAY PURCHASE AT THE SALE.
    Sec. 8.  Section 654.21, Code 2018, is amended to read as follows:
   654.21  Demand for delay of sale.
   At any time prior to entry of judgment, the mortgagor may file a demand for delay of sale. If the demand is filed, the sale shall be held promptly after the expiration of two months from entry of judgment. However, if the demand is filed and the mortgaged property is the residence of the mortgagor and is a one-family or two-family dwelling, the sale shall be held promptly after the expiration of twelve six months, or six three months if the petition includes a waiver of deficiency judgment, from entry of judgment. If the demand is filed, the mortgagor and mortgagee subsequently may file a stipulation that the sale may be held promptly after the stipulation is filed and that the mortgagee waives the right to entry of a deficiency judgment. If the stipulation is filed, the sale shall be held promptly after the filing. At any time prior to judgment, the mortgagor may pay the plaintiff the amount claimed in the petition and, if paid, the foreclosure action shall be dismissed. At any time after judgment and before the sale, the mortgagor may pay the plaintiff the amount of the judgment and, if paid, the judgment shall be satisfied of record and the sale shall not be held.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill shortens the periods of time associated with redemption of real property from foreclosure in Code chapter 628. It changes the period of time that a defendant-debtor may redeem real property from within one year of sale to within six months of sale. It also changes the period in which the defendant-debtor has the exclusive right of redemption from six months after sale to three months after sale. The period of redemption by creditors is reduced from nine months after sale to four months after sale. After those four months, creditors cannot redeem from each other. Unless the defendant-debtor redeems, the purchaser, or the creditor who last redeemed within four months of the day of sale, will hold the property absolutely.
   Under current law, a mortgagor and mortgagee can agree to reduce the period of redemption from foreclosure as described in the mortgage instrument to a period of six months. The bill would allow the mortgagor and mortgagee to agree to reduce the period of redemption by the debtor to three months. The debtor’s right of redemption would be exclusive the first month, as opposed to three months. Under the bill, the time for redemption by creditors would be shortened from four months to two months. 
   The bill also alters Code chapter 654. The bill changes the notice requirement and rule for foreclosure without redemption by changing the length of time a sale can be delayed when a defendant-mortgagor makes a written demand to a plaintiff-mortgagee to delay sale. The bill delays the sale by six months from entry of judgment as opposed to the current 12 months. If a plaintiff-mortgagee’s petition includes a waiver of deficiency judgment, a defendant-mortgagor’s written demand will only result in a three-month rather than a six-month delay of sale following entry of judgment.
   Notwithstanding Code section 628.3 when a foreclosure of a mortgage on real property results from enforcement of a due-on-sale clause, the bill amends Code section 535.8(4)(e)(1) to shorten the period that a mortgagor may redeem the real property from any time within three years to anytime within 18 months from the day of sale under the levy. The bill also shortens the period during which the mortgagor’s right of redemption is exclusive from the first 30 months to the first 15 months and the period during which creditors may redeem under Code sections 628.5, 628.15, and 628.16 from 33 months to 16 months.