Sanborn Savings Bank v. Connie R. Freed

United States Court of Appeals
For the Eighth Circuit
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No. 21-2816
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Sanborn Savings Bank
Plaintiff - Appellee
v.
Connie R. Freed
Defendant - Appellant
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Appeal from United States District Court
for the Northern District of Iowa - Western
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Submitted: March 15, 2022
Filed: June 24, 2022
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Before GRUENDER, BENTON, and ERICKSON, Circuit Judges.
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ERICKSON, Circuit Judge.
Connie Freed seeks to retain the proceeds from the sale of a condominium
despite her ex-husband’s bankruptcy and an outstanding balance owed to Sanborn
Savings Bank on a business loan. The trial court1 found Sanborn Savings Bank was
1 The Honorable Mark A. Roberts, United States Magistrate Judge for the
Northern District of Iowa, to whom the case was referred for final disposition by
consent of the parties pursuant to 28 U.S.C. § 636(c).

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entitled to the proceeds. We have jurisdiction pursuant to 28 U.S.C. § 1332(a) and
28 U.S.C. § 1291, and we affirm.
I. BACKGROUND
Connie Freed (“Connie”) and her then-husband, Dean Freed (“Dean”),
purchased a condominium in Sioux Falls, South Dakota for $525,000. At the time
of the purchase, they intended to make the condo their primary residence. To finance
the couple’s purchase, on September 15, 2014, Dean executed a consumer loan note
for $384,777.13 (the “Original Note”) from Sanborn Savings Bank (“Sanborn”).
Connie consented to Dean’s execution of the Original Note, but she was not a
signatory. The same day, Connie and Dean jointly granted Sanborn a mortgage on
the condominium to secure the Original Note (the “Mortgage”). Both Dean and
Connie initialed the pages of the Mortgage and signed the final page.
The Mortgage included three key provisions: (1) a choice-of-law provision
specifying that the Mortgage was governed by Iowa law; (2) a homestead waiver, in
which Connie and Dean “waive[d] all appraisement and homestead exemption rights
relating to” the condominium, except as prohibited by law; and (3) a future advances
clause or “dragnet clause.” See Decorah State Bank v. Zidlicky, 426 N.W.2d 388,
390 (Iowa 1988) (recognizing a future advances clause is also called a dragnet
clause). The future advances clause and related clauses granted Sanborn a security
interest in the Mortgage covering future funds Dean might borrow:
SECURED DEBTS AND FUTURE ADVANCES. The term
“Secured Debts” includes and this Security Instrument will secure each
of the following:
A. Specific Debts. The following debts and all extensions, renewals,
refinancings, modifications and replacements. A promissory note or
other agreement, dated September 15, 2014, from DEAN E. FREED
(Borrower) to [Sanborn], with a loan amount of $384,777.13.

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B. Future Advances. All future advances from [Sanborn] to DEAN E.
FREED under the Specific Debts executed by DEAN E. FREED in
favor of [Sanborn] after this Security Instrument. If more than one
person signs this Security Instrument, each agrees that this Security
Instrument will secure all future advances that are given to DEAN E.
FREED either individually or with others who may not sign this
Security Instrument. All future advances are secured by this Security
Instrument even though all or part may not yet be advanced. All future
advances are secured as if made on the date of this Security Instrument.
Nothing in this Security Instrument shall constitute a commitment to
make additional or future advances in any amount. Any such
commitment must be agreed to in a separate writing. In the event that
[Sanborn] fails to provide any required notice of the right of recission,
[Sanborn] waives any subsequent security interest in the Mortgagor’s
principal dwelling that is created by this Security Instrument. This
Security Instrument will not secure any other debt if [Sanborn] fails,
with respect to that other debt, to fulfill any necessary requirements or
conform to any limitations of Regulations Z and X that are required for
loans secured by the [condominium].
C. All Debts. All present and future debts from DEAN E. FREED to
[Sanborn], even if this Security Instrument is not specifically
referenced, or if the future debt is unrelated to or of a different type than
this debt. If more than one person signs this Security Instrument, each
agrees that it will secure debts incurred either individually or with
others who may not sign this Security Instrument. . . .
Approximately four years later, Dean borrowed $693,986.82 from Sanborn
under three notes to keep his business running (the “Business Notes”). Connie was
not a party to the Business Notes. A few months after taking out the Business Notes,
Dean filed a petition for relief under Chapter 7 of the Bankruptcy Code. Connie did
not declare bankruptcy. Around this same time, the condominium was sold for
$650,000, the couple initiated divorce proceedings, and Connie moved to a different
state.
After the condominium was sold and related expenses were paid (including
the Original Note), $249,117.65 of the sale proceeds were deposited in escrow. In

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the bankruptcy proceedings, Dean argued that his half of the sale proceeds was
exempt from paying down his Business Notes because the condominium was a
homestead, notwithstanding the Mortgage’s future advances clause, homestead
waiver, or other provisions. Dean also waived his right to discharge the Business
Notes in bankruptcy. Sanborn resisted Dean’s claim that the sale proceeds were
exempt. The bankruptcy court concluded Dean’s portion of the escrowed sale
proceeds must pay down his Business Notes pursuant to the Mortgage’s future
advances clause and that Dean could not claim a homestead exemption for those
proceeds.2
Sanborn then commenced an action in diversity against Connie in the United
States District Court for the Northern District of Iowa, seeking a declaratory
judgment that (1) Connie’s portion of the escrowed sale proceeds was subject to the
Mortgage’s future advances clause, and (2) Sanborn could apply the proceeds to
Dean’s Business Notes. Sanborn successfully moved for summary judgment, and
Connie appeals. Connie requests that we certify several questions to the Iowa
Supreme Court. In her reply brief, Connie raised a new argument and Sanborn has
filed a motion to strike it. We deny both motions and affirm.
II. DISCUSSION
Connie raises a number of issues on appeal, each of which attacks the district
court’s finding that Sanborn is entitled to the escrowed condominium sale proceeds
under the terms of the Mortgage’s future advances clause and Dean’s Business
Notes. We “review de novo the district court’s grant of summary judgment,”
Hallmark Specialty Ins. v. Phoenix C & D Recycling, Inc., 999 F.3d 563, 567 (8th
Cir. 2021) (quoting Van Dorn v. Hunter, 919 F.3d 541, 544 (8th Cir. 2019)), viewing
the “record in the light most favorable to the nonmoving party and draw[ing] all
reasonable inferences in that party’s favor,” Kohlbeck v. Wyndham Vacation
2 In re Freed, Bankr. No. 18-01211, slip op. at 1, 6, 2020 WL 1987805 (Bankr.
N.D. Iowa Apr. 24, 2020).

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Resorts, Inc., 7 F.4th 729, 737 (8th Cir. 2021) (quoting Richardson v. Omaha Sch.
Dist., 957 F.3d 869, 876 (8th Cir. 2020)). We will affirm only when “there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a).
We apply state substantive law in diversity actions. See Martin v. Wal-Mart
Stores, Inc., 183 F.3d 770, 772 (8th Cir. 1999). The parties agree the Mortgage is
governed by Iowa law.
1. The Future Advances Clause Encompasses the Business Notes
Connie contends the district court erred when it found the Mortgage’s future
advances clause secures the Business Notes. While Iowa recognizes the validity of
future advances clauses, it does so with a “definite lack of enthusiasm.” Zidlicky,
426 N.W.2d at 390; see Blue Grass Sav. Bank v. Cmty. Bank & Tr. Co., 941 N.W.2d
20, 25 (Iowa 2020) (noting that even if disfavored, mortgages with dragnet clauses
are enforceable). “Iowa courts have enforced future advances mortgage clauses
against joint mortgagors for the individual, secret debts of a mortgagor.” Poweshiek
Cnty. Sav. Bank v. Hendrickson, 699 N.W.2d 684, 2005 WL 1224745, at *3 (Iowa
Ct. App. May 25, 2005) (unpublished table decision) (citing Corn Belt Sav. Bank v.
Kriz, 219 N.W. 503, 504 (Iowa 1928)). When determining whether a future
advances clause encompasses a particular debt, Iowa courts apply the following
standard:
In the absence of clear, supportive evidence of a contrary intention, a
mortgage containing a dragnet type clause will not be extended to cover
future advances unless the advances are of the same kind and quality or
relate to the same transaction or series of transactions as the principal
obligation secured or unless the document evidencing the subsequent
advance refers to the mortgage as providing security therefor.
Freese Leasing, Inc. v. Union Tr. & Sav. Bank, 253 N.W.2d 921, 927 (Iowa 1977)
(cleaned up).

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Connie notes the Business Notes are of a “completely different character” than
the Original Note, which was a purchase-finance note for the condominium. Under
Iowa law, the distinct nature of the debt is material only when there is no “clear,
supportive evidence of a contrary intention” that the mortgage may secure other,
unrelated debt. Id. (citation omitted). Here, the Mortgage makes plain that it may
secure “[a]ll present and future debts from [Dean] to [Sanborn],” regardless of
whether the Mortgage is mentioned in the future debt instrument, the “future debt is
unrelated to or of a different type than this debt,” or if Dean “incur[s] [debts] either
individually or with others who may not sign this [Mortgage].” The clause is both
broad in scope and conspicuously printed in bold under the header “SECURED
DEBTS AND FUTURE ADVANCES” on the second page of the Mortgage. See
Wells Fargo Bank, N.A. v. Valley Bank & Tr., 839 N.W.2d 675, 2013 WL 4767889,
at *2 (Iowa Ct. App. Sept. 5, 2013) (unpublished table decision) (concluding the
parties intended the future advances clause to cover the notes when, in part, the
clause was written broadly and had an obvious presence). Given the clause’s
unambiguous language, its bold presence, and Connie’s initials on the page
containing the clause as well as her signature at the end of the document, the
indisputable evidence demonstrates that the Mortgage secured the Business Notes.
2. Other Arguments
A. Contract Formation
Connie asserts various contractual formation problems render portions of the
Mortgage unenforceable. For instance, she claims there was no “meeting of the
minds” because she did not understand or discuss the future advances provision prior
to signing the contract. Iowa law makes plain that a party’s failure to read fully and
consider the terms of a contract is not a permissible defense to enforcement. Bryant
v. Am. Express Fin. Advisors, Inc., 595 N.W.2d 482, 486 (Iowa 1999). Iowa courts
have recognized and enforced similar future advances clauses, see, e.g., Kriz, 219
N.W. at 504, 506; Libertyville Sav. Bank v. McKee, 820 N.W.2d 159, 2012 WL

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2411187, at *6–7 (Iowa Ct. App. June 27, 2012) (unpublished table decision);
Hendrickson, 2005 WL 1224745, at *1, *3–4.
When, as is this case here, there is no evidence of duress, incapacity, coercion,
or other formation problems, and the party accepted the terms by signing the
contract, as Connie did here, she is bound by the terms of the contract. See Gosiger,
823 F.3d at 502 (noting contracting parties are bound to the terms of the contract if
there is offer and acceptance that conforms to the offer’s terms).
B. Meaning of Signature
While Connie contends her initials and signature on the Mortgage do not
equate to her agreeing to be bound by the Mortgage’s terms and implications, she
has not presented any evidence of fraud, coercion, or other circumstance that might
call into question her execution of the Mortgage. See Bryant, 595 N.W.2d at 487
(noting that unless there is “fraud or circumstances savoring of fraud,” a contracting
party is bound by the terms in the contract).
C. The Maximum Obligations Clause
Connie argues for the first time on appeal that Sanborn failed to make a prima
facie case that it was entitled to the condominium sale proceeds because it did not
prove the proceeds comported with the Mortgage’s Maximum Obligation Limit
clause (the “MAX Clause”). The MAX Clause ensures that Sanborn cannot claim
the Mortgage secures the principal amount of its loans to Connie and Dean at any
one time beyond the value of the Original Note ($384,777.13). Connie waived this
argument because she failed to raise it below, and we find no miscarriage of justice
in declining to analyze her claim. See Oglesby v. Lesan, 929 F.3d 526, 534 (8th Cir.
2019) (quoting Cole v. UAW, 533 F.3d 932, 936 (8th Cir. 2008)).3
3 The bankruptcy court addressed this issue with respect to Dean’s portions of
the condominium sale proceeds and the MAX Clause, finding Sanborn was entitled
to the funds. In re Freed, 2020 WL 1987805, at *5–6.

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D. Public Policy
Connie contends the Mortgage forces her to waive her homestead rights in
contravention of public policy, which is codified in the unfair credit practices
regulations at 16 C.F.R. § 444.2. Section 444.2 is a Federal Trade Commission
(“FTC”) regulation that, by its terms, does not apply to “banks.” See 15 U.S.C.
§ 45(a)(2) (exempting banks, savings, and loan institutions, as defined in 15 U.S.C.
§ 57a(f), from regulation by the FTC with limited exceptions). Since Sanborn is
indisputably a bank, the regulation she relies on is inapplicable and cannot void her
obligations under the Mortgage.
E. Unconscionability
Future advances clauses in mortgages are contracts of adhesion under Iowa
law. See Nat’l Loan Invs., L.P. v. Martin, 488 N.W.2d 163, 166 (Iowa 1992). But
in order “to complete the case for unconscionability,” Iowa law requires more than
adhesion. Home Fed. Sav. & Loan Ass’n of Algona v. Campney, 357 N.W.2d 613,
619 (Iowa 1984). A contract or one of its clauses is unconscionable if, at the time
the parties entered into the agreement, it is a contract that “no person in his or her
senses and not under delusion would make on the one hand, and no honest and fair
person would accept on the other.” R & J Enterprizes v. Gen. Cas. Co. of Wis., 627
F.3d 723, 729 (8th Cir. 2010) (quoting Campney, 357 N.W.2d at 619–20). In this
analysis, the court examines factors of “assent, unfair surprise, notice, disparity of
bargaining power, and substantive unfairness.” Bartlett Grain Co., LP v. Sheeder,
829 N.W.2d 18, 27 (Iowa 2013) (quoting C & J Vantage Leasing Co., 795 N.W.2d
at 80). “[T]he doctrine of unconscionability does not exist to rescue parties from
bad bargains.” C & J Vantage Leasing Co., 795 N.W.2d at 80.
Connie’s claim is essentially that the Mortgage was a bad bargain. She cannot
meet the standard for establishing unconscionability under Iowa law.

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F. Disclosure Required by Iowa Code § 535.17(3)
On appeal, Connie raises for the first time an argument that the Mortgage is
not a credit agreement because it did not contain the disclosure required by
§ 535.17(3). By not raising this argument below, Connie has waived it. See
Ridenour v. Boehringer Ingelheim Pharms., Inc., 679 F.3d 1062, 1067 (8th Cir.
2012). Even if it had been properly raised, the argument is without merit. Section
535.17(3) mandates that a credit agreement include “in boldface, ten point type” a
notice that complies with the following language:
IMPORTANT: READ BEFORE SIGNING. The terms of this
agreement should be read carefully because only those terms in writing
are enforceable. No other terms or oral promises not contained in this
written contract may be legally enforced. You may change the terms of
this agreement only by another written agreement.
Iowa Code § 535.17(3). Even if the language is not included in the Mortgage, Iowa
law allows the notice to be “included on a separate form or together with other
disclosures that are provided when the agreement is made, or can be given wholly
apart from the agreement and at any time after the agreement has been made.”
Id. § 535.17(2). It is indisputable that the required notice was included with other
disclosures provided to Connie.
G. Equitable Arguments
Connie’s equitable arguments are foreclosed by Iowa law because the
Mortgage is a “credit agreement” under Iowa Code § 535.17(5)(c).
A “credit agreement” is “any contract made or acquired by a lender to loan
money, finance any transaction, or otherwise extend credit for any purpose, and
includes all of the terms of the contract,” subject to certain exclusions inapplicable
here. Id. Connie contends a mortgage is not a “credit agreement” for purposes of
the statute of frauds, relying on (1) the failure of § 535.17 to specifically mention or

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define “mortgage,” and (2) the lack of a specific case that defines a mortgage as a
“credit agreement.” Contrary to Connie’s assertions, a mortgage must necessarily
be a “credit agreement” under Iowa Code § 535.17(5)(c). A mortgage is a “an
interest in land created by a written instrument providing security for the
performance of a duty or the payment of a debt.” Mortgage, Black’s Law Dictionary
(6th ed. 1990). A mortgage fits precisely within Iowa’s definition of a “credit
agreement.” It is a contract whereby a lender acquires a security interest in property
to lend money, finance the transaction, or otherwise extend credit. See Iowa Code
§ 535.17(5)(c). Nothing in Iowa law requires the use of the term “extend[ing]
money” to be a “credit agreement,” as Connie argues. See id.
Because the Mortgage is a credit agreement, Connie’s equitable arguments
are untenable. See id. § 535.17(7) (“This section entirely displaces principles of
common law and equity that would make or recognize exceptions to or otherwise
limit or dilute the force and effect of its provisions concerning the enforcement in
contract law of credit agreements or modifications of credit agreements.”).
H. Remaining Arguments
Connie’s remaining arguments are wholly devoid of merit and/or frivolous.
III. CONCLUSION
We affirm the judgment of the district court. We deny Connie’s motion to
certify questions to the Iowa Supreme Court and we also deny Sanborn’s motion to
strike a portion of Connie’s reply brief as moot.
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