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Keywords

contractlawsuitnegligenceappealsummary judgmentforeclosure

litigationdiscoveryforeclosure

Related Cases

Luana Sav. Bank v. Pro-Build Holdings, Inc., 856 N.W.2d 892

Facts

Luana Savings Bank financed the construction of two apartment buildings that later became infested with black mold due to improper construction practices. After the original developers defaulted, the bank acquired the properties through a deed in lieu of foreclosure. The bank then filed a lawsuit against Pro-Build Holdings, the builder, alleging negligence, breach of implied warranty of workmanlike construction, and breach of an oral contract. The district court granted summary judgment in favor of Pro-Build on the negligence and implied warranty claims but denied it on the contract claim.

This litigation arose from the discovery of black mold infesting two apartment buildings in Postville, Iowa. Luana Savings Bank (bank) financed the construction of the buildings.

Issue

Whether the implied warranty of workmanlike construction extends to a lender acquiring apartment buildings by deed in lieu of foreclosure.

We must decide whether to extend the implied warranty of workmanlike construction to a lender that acquires a multiunit residential apartment complex by a deed in lieu of foreclosure.

Rule

The implied warranty of workmanlike construction is a judicially created doctrine designed to protect innocent home buyers from builders' negligence, and it applies only to builder-vendors constructing homes for sale.

The implied warranty “is a judicially created doctrine implemented to protect an innocent home buyer by holding the experienced builder accountable for the quality of construction.”

Analysis

The court determined that the bank did not qualify for the protection of the implied warranty because it was not an innocent homeowner and Pro-Build was not a builder-vendor as defined by Iowa law. The court emphasized that the rationale for the implied warranty was to address the disparity in bargaining power between consumers and builders, which did not apply to a sophisticated financial institution like the bank.

We conclude the bank's implied warranty claim fails for several reasons. First, the bank is not the type of innocent homeowner the implied warranty was adopted in Iowa to protect.

Conclusion

The Iowa Supreme Court affirmed the court of appeals' decision, holding that the implied warranty of workmanlike construction does not extend to lenders acquiring properties through foreclosure. The court reversed the lower court's ruling on the breach of oral contract claim and remanded the case for further proceedings.

For these reasons, we hold the implied warranty of workmanlike construction does not extend to a lender acquiring apartment buildings by a deed in lieu of foreclosure.

Who won?

Pro-Build Holdings prevailed in the case because the court found that the implied warranty of workmanlike construction did not apply to the bank, which was not the type of innocent consumer the warranty was designed to protect.

Pro-Build is not the type of builder-vendor subject to the implied warranty.

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