Iowa Supreme Court overturns foreclosure after lender failed to notify a co-owner of the default

Owning a home jointly does not always mean both owners sign the same loan documents. But when a lender moves to foreclose on a property, the distinction can become crucial, particularly when one co-owner is not given an opportunity to prevent the foreclosure.

In Iowa, a woman who jointly owned and lived in a house but had never signed its promissory note challenged a foreclosure after the lender failed to send her a notice giving her an opportunity to catch up on missed payments. The Iowa Supreme Court ruled in her favour on November 6, 2026, in Newrez LLC, d/b/a Shellpoint Mortgage Servicing v. Lynae D McMillen Dickey Tesdall. The decision, available on Justia, reversed the district court's foreclosure judgment and vacated an earlier appeals court decision. The justices held that the woman qualified as a borrower under the mortgage and was therefore entitled to a separate notice of her right to cure the default before foreclosure proceedings could move forward.

Woman co-owned the house but did not sign the loan note

The dispute began in 2019, when Lynae D McMillen Dickey Tesdall and Donald S Aegerter purchased a house in Mason City, Iowa, as joint tenants with rights of survivorship. Wells Fargo Bank provided $260,775 in secured financing for the purchase. Although both were listed as borrowers on the mortgage document, only Aegerter signed the promissory note. Tesdall did not sign the note and was not personally responsible for repaying the loan. However, the mortgage identified both individuals as borrowers and required them to make payments when due. It also clarified that someone who signed the mortgage but not the note was not personally obligated to repay the secured debt. The distinction became important when their circumstances changed. Aegerter moved out of the house in November 2021 and relocated to Waterloo, while Tesdall continued living at the Mason City property. In June 2022, the mortgage went into default. Wells Fargo subsequently sent notices of the right to cure to Aegerter at both the Mason City property and his new address in Waterloo. No notice was sent to Tesdall.

Lender refused to provide her with loan information

Between July and December 2022, Tesdall repeatedly attempted to contact Wells Fargo to obtain information about the outstanding payments. However, representatives reportedly refused to provide her with details, saying they were not authorised to do so. The notice sent to Aegerter in August 2022 stated that the overdue amount was $6,110.54. Tesdall maintained that she could have arranged sufficient funds to clear the overdue payments if she had received the same notice and been given the opportunity. In February 2023, Wells Fargo filed a foreclosure lawsuit against both co-owners. The bank argued that payments had not been made since May 2022 and sought to foreclose on the property. The amount claimed, including principal, interest and fees, exceeded $247,000. Tesdall challenged the action, arguing that she had not received the legally required notice of her right to cure the default. In August 2024, while the foreclosure case was pending, Wells Fargo assigned the mortgage to Newrez LLC, doing business as Shellpoint Mortgage Servicing, which was then substituted as the plaintiff. The district court nevertheless granted summary judgment in favour of the lender. It reasoned that Tesdall was not entitled to the notice because she had not signed the promissory note and was not personally liable for repayment. It also relied on a mortgage provision stating that notice to one borrower would count as notice to all borrowers. The Iowa Court of Appeals upheld that decision, prompting Tesdall to seek further review before the state Supreme Court.

Why the Iowa Supreme Court reversed the foreclosure ruling

The Supreme Court examined Iowa Code Section 654.2D, which requires lenders seeking to foreclose on a homestead to provide borrowers with a notice of the right to cure a default. The law gives borrowers 30 days from the date the creditor gives the notice to pay overdue instalments or otherwise correct the default before the creditor can proceed with foreclosure. The justices disagreed with the lower courts' interpretation of the term borrower. They explained that the relevant question was whether Tesdall was a borrower on the mortgage, not whether she had personally signed the underlying promissory note. The court pointed out that Wells Fargo's own mortgage document identified her as a borrower. She also owned 50% of the property, lived there and had pledged her ownership interest as security for the financing. The justices further explained that Iowa's homestead laws are intended to protect homeowners and must be interpreted broadly in their favour. They rejected the lender's argument that notifying one borrower was sufficient. Under the applicable law, each borrower entitled to protection had to receive the required notice. The court also noted that Aegerter no longer lived at the property, while Tesdall continued to occupy it as her home.

Case sent back for further proceedings

The Supreme Court concluded that Tesdall was a borrower under the mortgage and was entitled to receive a notice of her right to cure the default. It reversed the district court's judgment, vacated the Court of Appeals' decision and remanded the case for further proceedings. The justices left it to the lower court on remand to consider whether the statutory requirement to prove substantial prejudice applies when a lender fails to provide a notice altogether, rather than providing a notice with defects. Her affidavit stated that she could have obtained enough money to clear the overdue amount if she had been notified. The ruling does not permanently prevent foreclosure or erase the outstanding mortgage debt. Instead, it establishes that a co-owner identified as a borrower on a mortgage cannot be denied statutory homestead protections simply because they did not sign the promissory note.