Luana Savings Bank v. Pro-Build Holdings, Inc. and United Building Centers
856 N.W.2d 892
Iowa2014Background
- Bank Luana Savings Bank financed RO-KA/Amereeka’s apartment project and acquired the property via a Deed in Lieu of Foreclosure after default; mold discovered in two multiplexes due to improper installation and ventilation; Wahls contracted with United Building Centers (UBC)/Pro-Build, with Wahls acting as developer; Pro-Build allegedly constructed defectively; district court granted partial summary judgment on implied warranty claim; court of appeals reversed on third-party-beneficiary issue but affirmed dismissal of implied warranty; Iowa Supreme Court granted review to decide extension to foreclosing lenders; majority held no extension to lender and affirmed dismissal; dissent argued for extending warranty to banks.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bank may recover under the implied warranty of workmanlike construction. | Luana Bank fits Speight’s later-purchaser rationale. | Pro-Build is not a builder-vendor; bank is not an innocent homeowner. | Bank cannot recover under implied warranty. |
| Whether Pro-Build qualifies as a builder-vendor under Kirk and Flom. | Bank seeks extension beyond traditional builder-vendor. | UBC/Pro-Build did not own land or build to sell; not a builder-vendor. | Pro-Build not a builder-vendor; warranty not extendable. |
| Whether caselaw from other jurisdictions supports extending the warranty to a foreclosing lender. | Some jurisdictions extend to investors or lenders. | No jurisdiction extends to foreclosing lenders; policy concerns. | No external caselaw supports extension to foreclosing lender. |
| Whether policy considerations support extending the warranty to financial institutions. | Protection for lenders against shoddy construction aligns with consumer-protection goals. | Lenders are sophisticated, can contractually protect themselves; homeowner-focused policy misapplied. | Policy does not support extension to lenders. |
Key Cases Cited
- Speight v. Walters Dev. Co., 744 N.W.2d 108 (Iowa 2008) (extends warranty to subsequent homeowners; protects consumer purchaser)
- Kirk v. Ridgway, 373 N.W.2d 491 (Iowa 1985) (defines builder-vendor; sets elements of implied warranty)
- Flom v. Stahly, 569 N.W.2d 135 (Iowa 1997) (reaffirms Kirk builder-vendor definition; limits extension)
- Rosauer Corp. v. Sapp Development, 856 N.W.2d 906 (Iowa 2014) (discusses rationale, declines sale-of-lot extension; rejects broader scope)
- Tusch Enters. v. Coffin, 740 P.2d 1022 (Idaho 1987) ( Idaho majority extended to investors; cited by majority; dissent noted)
- Hopkins v. Hartman, 101 Ill.App.3d 260, 56 Ill.Dec. 791, 427 N.E.2d 1337 (Ill.App. 1981) (investor in income property not protected by warranty)
- Korte Constr. Co. v. Deaconess Manor Ass’n, 927 S.W.2d 395 (Mo.Ct.App.1996) (implied warranty applies to certain residential housing; policy limits)