975 N.W.2d 690
Iowa2022Background
- Dostal Developers (owner-builder/general contractor) developed five residential lots and obtained five construction loans from Finance of America Commercial (FAC) secured by mortgages recorded Nov–Dec 2017; Dostal defaulted in early 2018.
- Subcontractors Borst Brothers (sewer, water, grading; work July–Dec 2017) and Kelly Concrete (concrete; work Sept 2017–Jan 2018) were not fully paid and filed notices/ liens in Feb 2018; Dostal Developers never posted the statutory notice of commencement within ten days of starting work.
- Kelly posted notices of commencement, preliminary notices, and mechanics’ liens on Feb 1, 2018 (four lots); Borst posted a notice of commencement and mechanics’ lien on Feb 2, 2018.
- FAC sought foreclosure of its mortgages and argued the subcontractors’ filings were untimely/invalid or, if valid, subordinate to FAC’s earlier-recorded mortgages; Borst sued to foreclose its mechanics’ lien.
- The district court held the subcontractors’ liens valid and superior to FAC’s mortgages (and found Randy Dostal not personally liable); the court of appeals affirmed lien priority but reversed on guaranty liability; the Iowa Supreme Court granted further review on lien validity/priority and admissibility of loan payoff statements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of mechanics’ liens (notice of commencement timing) | FAC: §572.13A requires a notice of commencement be posted within 10 days; subcontractors failed to meet that deadline so liens invalid or limited. | Borst/Kelly: 10‑day rule applies only to general contractors/owner‑builders; subcontractors may post the missing notice in conjunction with the preliminary notice later. | Court: 10‑day deadline applies to general contractors/owner‑builders only; subcontractors may post a missing notice of commencement when filing a preliminary notice, so liens valid. |
| Priority of mechanics’ liens vs. previously recorded construction mortgages | FAC: Its mortgages were recorded before subcontractors posted notices; therefore mortgages have priority. | Borst/Kelly: Mechanics’ liens arise when work is furnished; because subcontractors commenced work before FAC recorded mortgages and timely filed liens within 90 days after completion, their liens have priority. | Court: Subcontractors began work before FAC recorded mortgages and filed liens within 90 days; their liens are superior to FAC’s mortgages. |
| Admissibility of FAC’s loan payoff statements (hearsay/business records) | FAC: Payoff statements from its sub‑servicer are admissible as business records (Iowa R. Evid. 5.803(6)). | Dostals: Statements were prepared for litigation, not in ordinary course, so inadmissible hearsay. | Court: Admitted under business‑records exception—statements were routine practice of sub‑servicer; admission proper. |
| Personal guaranty liability of Randy Dostal | FAC: Randy signed guaranties in personal capacity; he is personally liable. | Dostals: Signatures and documents show corporate capacity; no personal liability. | Court: Agreed with court of appeals—Randy intended to be personal guarantor; district court’s contrary finding reversed. |
Key Cases Cited
- Mlady v. Dougan, 967 N.W.2d 328 (Iowa 2021) (equitable proceedings reviewed de novo; statutory interpretation is error‑of‑law review)
- Calcaterra v. Iowa Bd. of Med., 965 N.W.2d 899 (Iowa 2021) (begin statutory interpretation with the statute's text)
- Blue Grass Sav. Bank v. Cmty. Bank & Tr. Co., 941 N.W.2d 20 (Iowa 2020) (a mortgage's priority can extend to advances made after recording)
- U.S. Bank Tr., N.A. v. Jones, 925 F.3d 534 (1st Cir. 2019) (payoff/account printouts can fall within the business‑records exception)
- Nw. Nat’l Bank of Sioux City v. Metro Ctr., Inc., 303 N.W.2d 395 (Iowa 1981) (mechanic’s lien arises on furnishing of labor/material, not on filing)
- Iowa Ins. Inst. v. Core Grp. of the Iowa Ass’n for Just., 867 N.W.2d 58 (Iowa 2015) (avoid interpretations that produce absurd results)