Heidi E. Koll v. Wells Fargo Bank, N.A.
20-1227
| Iowa Ct. App. | Aug 4, 2021Background
- Christopher Koll obtained a construction mortgage (2000) and a non‑purchase‑money second mortgage/home equity line of credit (2003) from Wells Fargo; the 2003 agreement included a waiver of homestead rights and Christopher remained sole borrower.
- Christopher later married Heidi; they lived on the property as joint tenants, but Heidi did not sign the HELOC promissory note.
- The Kolls filed Chapter 7 in May 2018, claimed the homestead exemption, Wells Fargo received notice but did not object or reaffirm its security interest, and the bankruptcy court granted discharge.
- After discharge Wells Fargo sent default/cure notices and later a payoff statement; Wells Fargo stated its lien remained valid and enforceable despite the discharge.
- Heidi sued in state court for declaratory judgment seeking to void the second mortgage lien, arguing she had not consented, the debt was discharged, and the lien impaired her homestead; the district court denied Heidi’s summary judgment and granted summary judgment to Wells Fargo.
- The narrow legal question on appeal: whether a mortgage lien’s enforceability after a bankruptcy discharge is governed by federal bankruptcy principles (lien-survival) or by Iowa property law such that discharge extinguishes the lien.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does a bankruptcy discharge extinguish a prepetition mortgage lien so the lien is unenforceable against the property? | Koll: Discharge eliminates the underlying debt under Iowa law, so the lien (a mere incident to the debt) cannot survive. | Wells Fargo: Discharge removes personal liability only; a prepetition in rem mortgage lien survives and can be foreclosed post‑bankruptcy. | Court: Lien survived; discharge extinguishes in personam remedies only, not in rem lien enforcement. |
| Which law governs lien enforceability post‑discharge: federal bankruptcy law or state property law? | Koll: State law should control after the bankruptcy case is closed; federal lien‑survival principles do not bind post‑bankruptcy enforcement. | Wells Fargo: Federal bankruptcy principles about lien survival apply and are controlling; state law does not negate the in rem claim. | Court: Federal bankruptcy doctrine (distinguishing in personam and in rem) controls and is consistent with Iowa precedent; lien enforceability determined under those principles. |
| Does Heidi’s homestead interest permit avoidance of the lien because she did not consent and the lien impairs homestead? | Koll: She did not sign the HELOC and her homestead rights were impaired by the mortgage. | Wells Fargo: Lien predated Heidi’s homestead interest; waiver and timing make homestead rights subject to the existing lien. | Court: Heidi is not entitled to homestead protection against this preexisting lien; the lien did not impair a homestead interest that did not exist at encumbrance. |
Key Cases Cited
- Johnson v. Home State Bank, 501 U.S. 78 (1991) (discharge extinguishes personal liability but in rem liens survive)
- In re Lane, 959 F.3d 1226 (9th Cir. 2020) (creditor may enforce lien in foreclosure outside bankruptcy despite discharge)
- Conklin v. Iowa Dist. Ct., 482 N.W.2d 444 (Iowa 1992) (collecting authorities recognizing lien survival post‑discharge)
- Moad v. Neill, 451 N.W.2d 4 (Iowa Ct. App. 1989) (discharge does not prevent enforcement of valid prepetition liens)
- Burns v. Burns, 11 N.W.2d 461 (Iowa 1943) (historical discussion of mortgages as incident to debt, discussed and distinguished)
- Webber v. King, 218 N.W. 282 (Iowa 1928) (timing of lien’s existence controls whether lien survives intervening events)