## Facts

- Daniel and Linda McFarland owned real property encumbered by a senior mortgage held by American Federal Savings & Loan Association (AFS) and a junior mortgage held by Farmers Production Credit Association (PCA).
- PCA filed a foreclosure action on its junior mortgage on June 9, 1983.
- AFS later filed a separate foreclosure on its senior mortgage, naming PCA as a junior lienholder; the foreclosure decree recognized PCA’s valid second lien.
- After the sheriff’s sale (January 10, 1984), Iowa’s statutory redemption period applied: six months total, with an exclusive three-month period for the mortgagors.
- During the mortgagors’ exclusive period, Daniel and Linda assigned their redemption rights to Daniel’s mother, Dorothy L. McFarland, who tendered payment to redeem from the AFS sale on April 6, 1984.
- PCA tendered its own redemption payment on May 3, 1984; Dorothy claimed her earlier redemption extinguished PCA’s lien and barred further redemption.
- In PCA’s foreclosure case, Dorothy intervened asserting PCA’s lien was extinguished; the mortgagors also argued the PCA “collateral” mortgage stated an amount of $40,000 and thus limited the secured debt.
- On stipulated facts, the trial court entered judgment for PCA on the notes and held PCA could redeem from Dorothy; the McFarlands and Dorothy appealed.

## Issues

1. Whether a mortgagor’s assignee’s redemption from a senior mortgage foreclosure extinguishes a junior mortgagee’s lien and bars the junior mortgagee from redeeming.
2. Whether a mortgage described as a collateral mortgage “in the amount of $40,000” limits the secured indebtedness to that amount.

## Decision

- The Iowa Supreme Court affirmed.
- Redemption by the mortgagors’ assignee did not extinguish PCA’s junior lien and did not preclude PCA from redeeming.
- Dorothy, as assignee of the mortgagors’ redemption rights, acquired no greater rights than the mortgagors and took the property subject to existing junior liens.
- The court upheld judgment for PCA on the underlying indebtedness and rejected the contention that the mortgage language imposed an absolute $40,000 cap.

## Legal Principles

- A mortgagor’s redemption from a senior foreclosure sale, whether by the mortgagor or an assignee, does not eliminate junior mortgage liens; junior lienholders retain statutory redemption rights and foreclosure remedies.
- An assignee of redemption rights stands in the mortgagor’s position and cannot use redemption to defeat junior encumbrances recognized in the foreclosure decree.
- The scope of indebtedness secured by a collateral (including “dragnet”) mortgage depends on the instrument’s language and the debts it is intended to secure; a stated collateral amount is not, by itself, a clear limitation on total secured debt.

## Conclusion

The court held that a mortgagor’s assignee who redeems from a senior foreclosure takes subject to junior liens and cannot block a junior mortgagee’s redemption, and it affirmed enforcement of the junior creditor’s secured indebtedness notwithstanding an asserted $40,000 limitation.


Farmers Prod. Credit Ass’n v. McFarland, 374 N.W.2d 654 (Iowa 1985)