Iowa Sup Ct Rules Foreclosing Lender Cannot Sue Builder for Claims Based on Implied Warranty

Iowa Supreme Court decision (December 12, 2014).

In this case, a bank acquired title to an apartment complex by accepting a deed in lieu of foreclosure. The bank subsequently discovered that the property was mold-infested and filed suit against the builder of the complex alleging claims based on the implied warranty of workmanlike construction, a doctrine that was originally implemented to protect innocent home buyers by holding experienced builders accountable for the quality of their construction. Subsequent case decisions extended the doctrine to allow subsequent purchasers of single family residents to sue builders for latent defects. The bank that brought suit in this case argued that it should be afforded the same protections as the subsequent homeowner.

The district court, the court of appeals, and the Supreme Court all disagreed with the lender In holding that it could not assert claims against the builder based on the implied warranty of workmanlike construction. The courts found that the doctrine of implied warranty of workmanlike construction was created to redress the disparity in bargaining power and expertise between homeowners and professional builders, and to provide a remedy for consumers living in defectively constructed homes. The courts stated that there was no valid policy reason to extend the implied warranty doctrine to a sophisticated financial institution.

See case decision: Luana_Sav._Bank_v._Pro-Build