Have you seen the abstract?  Oftentimes, the lending bank will require the 
contract vendor to sign an agreement that the vendor's lien will be 
subordinate to the lender's in order for the buyer to get the mortgage loan.

-----Original Message----- 
From: realestate@iabar.org
Sent: Thursday, May 25, 2017 5:31 PM
To: realestate@iabar.org
Subject: [ISBA RealEstate] Foreclosure on Contract Vendee


For what they're worth, here are what I believe to be the relevant rights of 
your respective parties.
Bottom Line Up Front: Bank (assuming it seeks foreclosure) must satisfy 
Grandson/mortgagor's debt to Grandpa/vendor in order to obtain clear title 
to the mortgaged property.

1) Being earlier and securing purchase money, vendor's lien holds position 
superior to bank's mortgage.

*Churchill v. Morse, 23 Iowa 229 92 Am.Dec. 422 (1867):
"[I]t is a maxim of equity that where the equities are in other respects 
equal, qui prior est tempore, prior est jure, who is first in time, is first 
in right, or as it is liberally translated, “he has the better title who was 
first in point of time.” 1 Story's Eq. Jur. § 64 (d); Broom's Legal Maxims, 
329."
*Fuller, Williams & Co. v. Lamar, 53 Iowa 477, 5 N.W. 606 (1880):
"The evidence shows that when the mortgage in question was executed to the 
plaintiffs Olkjer showed them his contract with Price, and advised them that 
the purchase price of the land was unpaid. The plaintiff's mortgage is, 
therefore, junior and inferior to the mortgage subsequently executed to 
Price to secure the purchase money."
*Snow v. Winslow, 54 Iowa 200, 6 N.W. 191 (1880):
"The plaintiff can maintain his action to enforce his lien. Whether his lien 
is to be deemed paramount to that of the appellee is a question of more 
difficulty. The general rule is that he who is first in time is first in 
right."

2) Vendor may sue, as senior creditor, to either foreclose or (if allowed by 
contract) forfeit the vendee's contract interest; he must name the mortgagor 
as junior creditor.

*654.11 Foreclosure of title bond.
In cases where the vendor of real estate has given a bond or other writing 
to convey the same on payment of the purchase money, and such money or any 
part thereof remains unpaid after the day fixed for payment, whether time is 
or is not of the essence of the contract, the vendor may file a petition 
asking the court to require the purchaser to perform the purchaser's 
contract, or to foreclose and sell the purchaser's interest in the property.
*654.12 Vendee deemed mortgageor.
The vendee shall in such cases, for the purpose of the foreclosure, be 
treated as a mortgagor of the property purchased, and the vendee's rights 
may be foreclosed in a similar manner.
*654.12B Priority of recorded purchase money mortgage lien.
1. The lien created by a recorded purchase money mortgage shall have 
priority over and is senior to...any other right, title, interest, or lien 
arising either directly or indirectly by, through, or under the purchaser. 
...
*656.1 Conditions prescribed.
A contract which provides for the sale of real estate located in this state, 
and for the forfeiture of the vendee's rights in such contract...shall...not 
be forfeited or cancelled except as provided in this chapter.
*656.2 Notice.
1. The forfeiture shall be initiated by the vendor by serving on the vendee 
a written notice...
2. a. The vendor shall also serve a copy of the notice required in 
subsection 1 on...all the vendee's mortgagees of record...

3) Junior mortgagor may sue to foreclose his mortgage against the senior 
lienholder; either may redeem from the other's execution sale.
Satisfaction or redemption must be made of any creditor's interest, in order 
to remove his lienhold upon the land.

*628.5 Redemption by creditors.
If no redemption is made by the debtor as above provided, thereafter, and at 
any time within nine 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 time allowed for such redemption.
*618.14 By junior from senior creditor.
When a senior redeems from a junior creditor, the latter may, in return, 
redeem from the former, and so on, as often as the land is taken from the 
creditor by virtue of a paramount lien.
*628.18 Mode of redemption.
The mode of redemption by a lienholder shall be by paying into the clerk's 
office the amount necessary to effect the same...
*Fortune v. Barnhart, 199 Iowa 329, 200 N.W. 610 (1924)(finding valid 
redemption by junior mortgagee from sale under senior mortgagee foreclosure; 
discussion of the operation and effect of section 628.18, citing cases)

*Jensen v. Murphy, 199 Iowa 524, 202 N.W. 232 (1925):
"The trial court held that this defendant [junior encumbrancer holding 
sheriff's sale certificate] was entitled to relief in one of three forms at 
his option. This was expressed by the trial court in the following words:
     “The decree should provide that Mr. Guiher may redeem by paying the 
amount bid by plaintiff, less the amount which the judgment as entered 
exceeded the amount in fact due; in this event the deficiency judgment will 
stand, as Lundy is asking no relief, and the funds collected by the receiver 
will be applied on it; or at Mr. Guiher's option the deficiency judgment may 
be canceled, in which event the receiver should be discharged, and the 
amount necessary to redeem will be the amount of the bid less the amount of 
excess of the judgment, plus the amount of the deficiency judgment so 
canceled; or at another option for Mr. Guiher, the sale will be set aside, 
and a new sale ordered, in which event the receivership will continue 
pending the result of the sale.”
...
"We reach the conclusion that the defendant was not entitled to the form of 
relief claimed by him and that the relief extended by the court was the 
relief to which he was equitably entitled. ..."

*Equitable Life Assurance Soc. v. Kramer, 218 Iowa 80, 253 N.W. 809 
(1934)(dispute between junior and senior encumbrancers; junior sued first 
and obtained sheriff's deed but was held to hold an interest junior to the 
senior creditor)

*Stephens v. Mitchell, 103 Iowa 65, 72 N.W. 434 (1897):
"The provisions of the statute providing for and regulating redemptions by 
creditors have no application to a redemption made by the defendant. If the 
defendant had, in this case, sought to make redemption at the time of his 
conveyance to Sloane and Wynkoop, he would have been obliged to redeem from 
both sales in order to give validity to the redemption."

David Hanson
Hofmeyer & Hanson PC
Fayette, Iowa



----- Original Message -----
From: "Brad Nelson" <realestate@iabar.org>
To: realestate@iabar.org
Sent: Thursday, May 25, 2017 9:02:27 AM
Subject: [ISBA RealEstate]  Foreclosure on Contract Vendee

I am curious about the status of a contract vendor if and when a mortgagee 
forecloses on the contract vendee.  Here are the facts I am contemplating:

Owner sells real estate on installment contract to grandson.  Grandson later 
mortgages the real estate to bank.  Grandson defaults on mortgage to bank 
but not in default on installment contract.
What are the respective rights of the parties if bank forecloses its 
mortgage?
At first blush this looked straightforward to me, but the more I think about 
it the more confused I become!  I think that is an admission against 
interest.

Bradley J. Nelson
Norelius [leaf 2]  Nelson Law Firm
1317 Broadway P.O. Box 278
Denison, IA 51442
Ph. 1-712-263-4245
Fax 1-712-263-8773
bnelson@denisonlawyers.com<mailto:bnelson@denisonlawyers.com>