              IN THE SUPREME COURT OF IOWA
                              No. 13–0060

                        Filed December 12, 2014

                      Amended February 23, 2015


LUANA SAVINGS BANK,

      Appellant,

vs.

PRO-BUILD HOLDINGS, INC. and UNITED BUILDING CENTERS,

      Appellees.



      On review from the Iowa Court of Appeals.



      Appeal from the Iowa District Court for Allamakee County, John J.

Bauercamper, Judge.



      Lender acquiring apartment buildings by deed in lieu of foreclosure

seeks further review of court of appeals decision affirming summary

judgment that dismissed claim against builder under implied warranty of

workmanlike construction.      DECISION OF COURT OF APPEALS

AFFIRMED; DISTRICT COURT JUDGMENT AFFIRMED IN PART,

REVERSED IN PART, AND CASE REMANDED.



      Dale L. Putnam of Putnam Law Office, Decorah, for appellant.



      Samuel C. Anderson of Swisher & Cohrt, P.L.C., Waterloo, for

appellees.
                                          2

WATERMAN, Justice.

        In this interlocutory appeal, we must decide whether to extend the

implied warranty of workmanlike construction to protect a bank that

acquired a mold-infested apartment complex by deed in lieu of

foreclosure.    The bank sued the builder under that theory, alleging

shoddy construction.         This 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.” Speight

v. Walters Dev. Co., 744 N.W.2d 108, 110 (Iowa 2008). In Speight, we

extended the doctrine to allow a subsequent purchaser of a single-family

residence to sue the builder for latent defects.             Id. at 113–14. 1     The

plaintiff bank argues it is in a position analogous to a subsequent

homeowner.       The district court disagreed and granted the builder’s

motion for summary judgment dismissing that theory.                    The court of

appeals affirmed, appropriately deferring to our court to decide whether

to further extend this implied warranty.

        We hold the bank may not recover under the implied warranty of

workmanlike construction.         No other court has extended the theory to

allow claims by foreclosing lenders.           Additionally, a clear majority of
courts decline to allow recovery by for-profit owners of apartment

buildings. The doctrine’s rationale does not support extending it to the

bank.     We created the doctrine 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


        1InRosauer Corp. v. Sapp Development, L.L.C., decided today, we further explore
the history and rationales for the implied warranty of workmanlike construction and
decline to extend the doctrine to the sale of lots between developers. 856 N.W.2d 906
(Iowa 2014).
                                    3

homes.   We see no valid policy reason to extend the implied warranty

doctrine to a sophisticated financial institution that can protect itself

through other measures. Accordingly, we affirm the summary judgment

dismissing the bank’s implied warranty theory.

      I. Background Facts and Proceedings.

      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. The borrowers, Ronald Wahls

and Karen Wahls, acting as officers of RO-KA Acres, Inc. (RO-KA),

purchased farmland to develop into the RO-KA Heights First Addition in

2002. The bank financed their purchase through a line of credit secured

by an open-ended mortgage. RO-KA subdivided the land into twenty-one

lots and sold nine lots to various buyers over the next several years. In

May of 2006, the bank filed a foreclosure action against RO-KA for

amounts due on promissory notes.

      On July 1, RO-KA entered into a real estate contract with

Amereeka Properties, LLC (Amereeka) conveying its remaining interest in

the RO-KA Heights Addition in exchange for a purchase price of

$1,231,000. This land included lots 15 and 16, at issue in this case.

The agreement between Amereeka and RO-KA contained provisions

assigning all payments on the purchase price to the bank until RO-KA’s

indebtedness to the bank was satisfied. In exchange, the bank agreed to

dismiss the foreclosure action.     Amereeka’s president was Shalom

Rubashkin, an owner of Agriprocessors Inc., a kosher meatpacking plant.

The bank’s chief financial officer, Collin Cook, testified he understood

Amereeka was formed to avoid the perception that Rubashkin owned the

apartment buildings where many employees of Agriprocessors lived.
                                    4

        RO-KA and Amereeka entered into a separate management

agreement. RO-KA agreed to manage the existing apartment complexes

on lots 12 and 13 of RO-KA Heights, as well as any other apartments to

be built on the land. At this time, lots 15 and 16 were undeveloped. On

July 28, Ronald Wahls entered into a written contract for materials and

labor with United Building Centers (UBC), the predecessor of Pro-Build

Holdings, Inc. (Pro-Build), to construct two twelve-plex apartment

buildings on lots 15 and 16. Wahls signed the contract in his own name

instead of as an agent for RO-KA or Amereeka.                The plans for

construction were based on the floor plans of the existing apartment

complexes.    Construction began in 2006 and was completed in 2007.

RO-KA managed the new buildings under its existing management

agreement. Amereeka executed an open-ended mortgage on the property

it had purchased from RO-KA in favor of the bank.            Amereeka also

executed a commercial security agreement securing a commercial real

estate loan made by the bank to Nevel Properties, Inc., Amereeka’s

parent company.     The proceeds of that loan were used to pay for the

construction of the apartment buildings on lots 15 and 16.

        On May 12, 2008, federal immigration and customs enforcement

(ICE)    agents   raided   Agriprocessors   and   arrested     nearly   400

undocumented workers who were charged with a variety of immigration-

related criminal offenses. United States v. Rubashkin, 718 F. Supp. 2d

953, 964 (N.D. Iowa 2010).       On November 4, Agriprocessors filed a

bankruptcy petition, and its assets ultimately were sold. Id. at 966–67.

Rubashkin was indicted for bank fraud and other financial and

immigration crimes, convicted, and sentenced to prison. United States v.

Rubashkin, 655 F.3d 849, 854–55 (8th Cir. 2011).
                                           5

       In 2009, both RO-KA and Amereeka defaulted on their obligations

to the bank. RO-KA quitclaimed its interest in the properties at RO-KA

Heights to the bank in February of 2009 in exchange for a release of its

remaining obligations to the bank. On June 26, Amereeka gave the bank

a “Deed in Lieu of Foreclosure” signed by Rubashkin conveying all of the

property it owned in RO-KA Heights to the bank as a release from

liability under the mortgage, including lots 15 and 16. After acquiring

ownership in the apartment complexes, the bank discovered substantial

black mold in the units. Investigation revealed that the mold resulted

from improper installation of windows and air-conditioning units, and

inadequate attic ventilation.

       The bank commenced this action by filing a petition against Pro-

Build in Allamakee County. Count I of the petition alleged negligence in

the construction of apartments for Amereeka. Count II alleged that Pro-

Build breached the implied warranty of workmanlike construction.

Count III alleged that Pro-Build breached an oral contract with Amereeka

for the construction of the apartments. The bank sought recovery of its

holding costs as well as the cost of repairs to remediate the mold. Pro-

Build moved for summary judgment on all three counts.                    The district

court granted summary judgment in favor of Pro-Build on counts I 2 and

II, but denied summary judgment on count III to determine if the bank

was a third-party beneficiary of Wahls’ contract with UBC.                  The bank

applied for an interlocutory appeal of the summary judgment on count II.

Pro-Build     resisted   the    application     and    conditionally     applied    for

interlocutory appeal of the order denying summary judgment on count


       2The bank does not challenge the order dismissing count I, its negligence theory.

Accordingly, the economic loss doctrine is not at issue in this appeal.
                                     6

III. We granted both applications and transferred the case to the court of

appeals.      The court of appeals affirmed the summary judgment

dismissing the implied warranty claim, reversed the order denying

summary judgment on the third-party beneficiary theory, and remanded

the case for entry of judgment of dismissal against the bank. We granted

further review to decide whether to extend the implied warranty of

workmanlike construction to a lender acquiring multiplex apartment

buildings by deed in lieu of foreclosure.

      II. Scope of Review.

      We review rulings that grant summary judgment for correction of

errors at law.    Parish v. Jumpking, Inc., 719 N.W.2d 540, 542 (Iowa

2006).     Summary judgment is appropriate when there is no genuine

issue of material fact and the moving party is entitled to judgment as a

matter of law. Iowa R. Civ. P. 1.981(3). We view the evidence in the light

most favorable to the nonmoving party. Parish, 719 N.W.2d at 543.

      On further review, we have discretion to choose which issues to

address.    Hills Bank & Trust Co. v. Converse, 772 N.W.2d 764, 770 (Iowa

2009).     We exercise our discretion to limit our review to the implied

warranty of workmanlike construction. The court of appeals decision on
the third-party-beneficiary claim shall stand as the final appellate

decision on that issue. See id.

      III. Analysis.

      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. This is a

question of first impression in Iowa.       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
                                          7

protect. Second, Pro-Build is not the type of builder-vendor subject to

the implied warranty.        Third, the requested extension to a foreclosing

lender is not supported by caselaw in other jurisdictions. Finally, the

policy reasons underlying the implied warranty do not support its

extension to a foreclosing lender.

       The implied warranty of workmanlike construction adopted for the

protection of homeowners in our state was an extension of Mease v. Fox,

200 N.W.2d 791, 796 (Iowa 1972), 3 which adopted an implied warranty

of habitability for a tenant leasing a home.           See Kirk v. Ridgway, 373

N.W.2d 491, 496 (Iowa 1985) (describing the adoption of the implied

warranty for homeowners as a “logical extension” of Mease). In Kirk, we

required proof “the house was constructed to be occupied by the

[plaintiff] warrantee as a home.”          Id.   We extended the warranty to

subsequent home purchasers in Speight, 744 N.W.2d at 113–14.                        In

Rosauer Corp. v. Sapp Development, decided today, we explore in more

depth the history of the implied warranty of workmanlike construction in

Iowa and the policy reasons supporting the doctrine. 856 N.W.2d 906,

908 (Iowa 2014) (declining to extend the doctrine to the sale of a lot

without a dwelling). We reiterated that the primary policy behind these

warranties is the protection of innocent homeowners as consumers. Id.

We adopted the warranty to address the disparity in bargaining power

and expertise between the consumer and the sophisticated builder-

vendor.       Id.   The bank’s effort to recover from Pro-Build under this




       3The  common law implied warranty of habitability judicially adopted in Mease to
protect tenants has been legislatively codified by the Uniform Residential Landlord and
Tenant Act, Iowa Code chapter 562A. See Crawford v. Yotty, 828 N.W.2d 295, 299
(Iowa 2013).
                                       8

implied warranty as a foreclosing lender is akin to trying to pound a

square peg into a round hole.

         A. The Elements of the Implied Warranty Theory in Iowa. In

Kirk, we adopted the following “generally recognized” elements for the

implied warranty of workmanlike construction:

               (1) That the house was constructed to be occupied by
         the warrantee as a home;
              (2) that the house was purchased from a builder-
         vendor, who had constructed it for the purpose of sale;
                (3) that when sold, the house was not reasonably fit for
         its intended purpose or had not been constructed in a good
         and workmanlike manner;
               (4) that, at the time of purchase, the buyer was
         unaware of the defect and had no reasonable means of
         discovering it; and
               (5) that by reason of the defective condition the buyer
         suffered damages.

Kirk, 373 N.W.2d at 496; see also Rosauer, 856 N.W.2d at 909–10

(applying same elements to reject extension of implied warranty to

developer’s purchase of lot without dwelling).        The bank asks us to

eliminate or modify the first and second elements of the implied warranty

of workmanlike construction currently recognized in Iowa. We decline to

do so.

         1. The house was constructed to be occupied by the plaintiff-

warrantee as a home.        The first element limits the potential class of

plaintiffs to innocent home buyers for whose benefit we created the

warranty.     See Kirk, 373 N.W.2d at 496.       The bank does not occupy

either building as its home or office. The bank instead argues that the

apartment complex is comprised of multiple residences for the tenants

who live there. The bank, however, does not purport to bring implied

warranty claims on behalf of the tenants.          Nor does the bank seek
                                      9

recovery based on any assignment of an implied warranty claim of the

occupants or purchaser.       We have never allowed an implied warranty

claim to be brought by a lender that has succeeded to ownership. We

are not persuaded to abandon the first element of the Kirk test to allow

recovery by the bank.       See Rosauer, 856 N.W.2d at 910 (declining to

extend the implied warranty beyond innocent home buyers who live in

the defective structure).

      2. The defendant must be a builder-vendor constructing homes on

land it owns for resale.     Just as the first element limits the class of

potential plaintiffs, the second element of the Kirk test limits the class of

potential defendants to builder-vendors who own the structures they

build to sell on land they own.        In Kirk, we adopted the following

definition for the term “builder-vendor”:

      “[A] person who is in the business of building or assembling
      homes designed for dwelling purposes upon land owned by
      him, and who then sells the houses, either after they are
      completed or during the course of their construction,
      together with the tracts of land upon which they are
      situated, to members of the buying public.
            The term ‘builder’ denotes a general building
      contractor who controls and directs the construction of a
      building, has ultimate responsibility for a completion of the
      whole contract and for putting the structure into permanent
      form thus, necessarily excluding merchants, material men,
      artisans, laborers, subcontractors, and employees of a
      general contractor.”

Kirk, 373 N.W.2d at 496 (quoting Jeanguneat v. Jackie Hames Constr.

Co., 576 P.2d 761, 762 n.1 (Okla. 1978)).         Other jurisdictions have

adopted essentially the same definition. See Elderkin v. Gaster, 288 A.2d

771, 774 n.10 (Pa. 1972) (“A builder-vendor . . . refers to one who buys

land and builds homes upon that land for purposes of sale to the general

public.”); Frickel v. Sunnyside Enters., Inc., 725 P.2d 422, 424–25 (Wash.
                                   10

1986) (en banc); Bagnowski v. Preway, Inc., 405 N.W.2d 746, 750 (Wis.

Ct. App. 1987).

      We reaffirmed Kirk’s definition of builder-vendor in Flom v. Stahly,

569 N.W.2d 135 (Iowa 1997). In Flom, a defendant physician and his

wife began construction of a home on land they owned, intending to live

in it. Id. at 137. Before completing construction, the Stahlys moved out

of state and sold the uncompleted home to the Floms. Id. at 137–38.

When wood in the home began to rot, the Floms sued for breach of the

implied warranty of workmanlike construction, among other claims. Id.

at 138–39. We rejected this extension of Kirk because the Stahlys did

not meet the second element of the Kirk test—they were not builder-

vendors building a home for the purpose of sale to the public. Id. at 142.

Because they intended to live in the house themselves and had never

built a home before, the Stahlys did not have the same unequal

relationship with the Floms that a professional builder-vendor would

have with a purchaser.

      The bank argues our extension of the implied warranty to

subsequent purchasers in Speight supports a further extension in this

case. Although Speight expanded the class of plaintiffs permitted to sue

for breach of implied warranty to encompass later home buyers, it did

not expand the permissible defendants beyond traditional builder-

vendors. As an Illinois appellate court recognized, precedent relaxing the

privity requirement to allow a subsequent homeowner to bring the

implied warranty claim did not support expanding the types of

defendants liable under the doctrine. Wash. Courte Condo. Ass’n-Four v.

Wash.-Golf Corp., 501 N.E.2d 1290, 1296 (Ill. App. Ct. 1986) (holding as

matter   of   law   owners’   implied   warranty   claim   failed   against

subcontractors when general contractor was solvent).
                                       11

      Pro-Build argues that it is not a builder-vendor under Kirk and

Flom and, therefore, cannot be a defendant in an implied warranty case.

We agree. Ronald Wahls approached Pro-Build’s predecessor UBC with a

set of plans modeled after the existing apartments on lots 11 and 12.

The contract between UBC and Wahls was entitled “Contract Agreement

for Materials & Labor” and never referred to UBC as a general contractor.

Neither UBC nor Pro-Build owned the land on which the construction

took place, nor did either build the multiplexes to sell to the public.

Rather, UBC was paid directly for its work by Wahls, who acted as the

developer on behalf of Amereeka to construct the apartments and

exercised control over the course of construction. Missing from this case

is the disparity in bargaining power and expertise between the parties

that motivated us in Kirk and Speight to allow recovery under the implied

warranty theory.      See Rosauer, 856 N.W.2d at 910.     We decline the

bank’s invitation to eliminate or modify the second element of the Kirk

test. The bank’s implied warranty claim fails because Pro-Build was not

a builder-vendor as defined in Kirk.

      B. Caselaw from Other Jurisdictions. In Kirk, we examined the

caselaw of other jurisdictions to decide whether to adopt the implied

warranty of workmanlike construction in the sale of single-family

residences.    373 N.W.2d at 495.       In Speight, we again surveyed the

caselaw of other jurisdictions to decide whether to extend the implied

warranty to subsequent purchasers of a single-family home. 744 N.W.2d

at 111–14. Similarly, we will now survey the cases from other states that

adjudicate whether to recognize the implied warranty in the sale of

multiunit apartment complexes when the plaintiff is not purchasing the

property to live in it.
                                          12

       The bank cites no decision from any jurisdiction extending the

implied warranty of workmanlike construction to a lender acquiring

property by deed in lieu of foreclosure.            Nor have we found such a

decision in our independent research. 4 Moreover, courts in other states

are divided on whether to extend the implied warranty to investment

property or multiunit apartment complexes.

       Most jurisdictions that have considered the issue have limited the

implied warranty remedy to purchasers who actually live on the

premises.    See, e.g., Hopkins v. Hartman, 427 N.E.2d 1337, 1339 (Ill.

App. Ct. 1981) (concluding that an investor in income-producing

property has different pressures than a home buyer and should not be

protected by an implied warranty); Korte Constr. Co. v. Deaconess Manor

Ass’n, 927 S.W.2d 395, 405 n.4 (Mo. Ct. App. 1996) (noting the “implied

warranty of habitability applies only to newly-constructed houses [and

that t]he development in this case is more akin to an apartment complex

than a house” (citation omitted)); Sedona Condo. Homeowners Ass’n, Inc.

v. Camden Dev., Inc., No. 57052, 2012 WL 6681941, at *2 n.2 (Nev. 2012)

(declining to extend implied warranty to builder-vendors of apartment

complexes); Hays v. Gilliam, 655 S.W.2d 158, 160–61 (Tenn. Ct. App.

1983) (“[T]he purchaser of an apartment house is not a ‘naive home

buyer’, but an investor in a commercial enterprise.”); Frickel, 725 P.2d at

425 (declining to extend implied warranty to an investor in an apartment




        4In Amsterdam Savings Bank, FSB v. Marine Midland Bank, N.A., a bank, as

mortgagee, acquired an apartment complex by foreclosure and sued the builder under
several theories including breach of implied warranty. 504 N.Y.S.2d 563, 565 (App. Div.
1986). However, New York law at that time did not recognize the implied warranty of
workmanlike construction, and the action was dismissed because the sale of a
mortgage was not a “sale of goods” under New York law. Id.
                                    13

complex because an investor has an opportunity to inspect and

investigate).

      Some jurisdictions have allowed owners of condominiums who

reside in the units to bring suit either as an association or individually.

See, e.g., Lofts at Fillmore Condo. Ass’n v. Reliance Commercial Constr.,

Inc., 190 P.3d 733, 736–37 (Ariz. 2008) (en banc) (allowing a

condominium association to serve as a plaintiff on behalf of purchasers

of condominiums); Herlihy v. Dunbar Builders Corp., 415 N.E.2d 1224,

1225 (Ill. App. Ct. 1980) (allowing the owner of one condominium to

bring suit on behalf of all similarly situated unit owners). These cases

are distinguishable because the bank is not a purchaser living in the

property.

      The Hopkins court elaborated on the distinction between buying a

home to live in and purchasing a multiunit dwelling for profit:

      The motivations upon those seeking income-producing
      property, as well as the pressures upon them, are
      considerably different from those of the vendee described in
      Petersen [v. Hubschman Construction Co., 389 N.E.2d 1154
      (1979)].   The income-seeker, whether he be purchasing
      common stocks, chattels, real estate, or any other form of
      investment, has ample opportunity to investigate, study,
      appraise and assess the relative merits and demerits of the
      subject matter and then to make a calculated judgment as to
      how profitable it will be. In contrast, the Petersen vendee is
      seeking shelter for himself and his family, oftentimes under
      considerable pressure brought about by job transfer,
      increase in family, deterioration of his former neighborhood,
      or other circumstance over which he has no control. If the
      Petersen warranty is to be extended to an investor in real
      estate, by extension of logic the Board of Governors of the
      New York Stock Exchange should warrant that no common
      stock traded there will ever decrease in value. The relaxation
      of the rules of caveat emptor and merger by the supreme
      court was intended to protect a consumer, not an investor.

427 N.E.2d at 1339.      We are persuaded by this distinction between

purchasers of income-producing properties and home buyers who live in
                                          14

the property.      The bank does not purport to bring implied warranty

claims by or through the residents of the multiplexes.                      Under the

majority rule, the bank cannot recover under the implied warranty

theory.

       Several courts have extended the implied warranty of workmanlike

construction to buyers of commercial property.               See Pollard v. Saxe &

Yolles Dev. Co., 525 P.2d 88, 91 (Cal. 1974) (extending implied warranty

for new construction to purchasers of an apartment complex); Tusch

Enters. v. Coffin, 740 P.2d 1022, 1031–32 (Idaho 1987) (extending an

implied warranty of habitability to residential dwellings purchased for

income-producing purposes but never occupied by the buyers); Hodgson

v. Chin, 403 A.2d 942, 945 (N.J. Super. Ct. App. Div. 1979) (extending

implied warranty of fitness for intended purpose to a buyer of a small

building when the building was in part a residential space and in part a

commercial space); cf. Davidow v. Inwood N. Prof’l Grp.—Phase I, 747

S.W.2d 373, 376–77 (Tex. 1988) (extending an implied warranty of

suitability in commercial leases analogous to implied warranty of

habitability in a residential lease).

       Tusch Enterprises, decided by a divided Idaho Supreme Court,

explicitly extended the implied warranty to investors buying apartment

buildings for income-producing purposes.                740 P.2d at 1031. 5          The

       5In Speight, we quoted a commentator who in turn quoted Tusch Enterprises for
an entirely different proposition, as follows:
       Further, the purpose of the implied warranty of workmanlike
       construction is to ensure the home “ ‘will be fit for habitation,’ a matter
       that ‘depends upon the quality of the dwelling delivered’ not the status of
       the buyer.” [Mary Dee] Pridgen, [Consumer Protection and the Law,]
       § 18:19 [(2006)] (quoting Tusch Enters. v. Coffin, 113 Idaho 37, 740 P.2d
       1022 (1987)).
Speight, 744 N.W.2d at 113. In Speight, we extended the implied warranty to a
subsequent purchaser who lived in the home. Id. at 114. We noted other jurisdictions
                                        15

majority in Tusch Enterprises cited no caselaw supporting that extension,

instead reasoning by analogy to the Uniform Commercial Code’s use of

implied warranties on the sale of goods between merchants.                Id.   The

dissent would have declined to extend the warranty to investors

purchasing income-producing commercial properties.                   Id. at 1039

(Shepard, C.J., dissenting). The dissent criticized the majority for taking

an “enormous step . . . which will resound through the construction and

real estate business in Idaho.” Id. at 1037. For the dissent, the relative

sophistication of the parties was a crucial distinction. Id. at 1038 (“The

plaintiffs in this case . . . are not unknowing buyers of a residence built

by an unscrupulous builder/developer.                Rather, plaintiffs are a

sophisticated and knowledgeable group of investors in real estate.”). The

dissent described investors in income-producing property as a “far cry”

from the ordinary buyer of a new house that the implied warranty was

adopted to protect. See id. at 1038–39. We agree with that distinction.

Since Tusch Enterprises was decided in 1987, no other court has followed

it to extend the protection of the implied warranty of habitability to

investors    purchasing      apartment       buildings   for   income-producing

purposes, much less to foreclosing lenders. Even the Tusch Enterprises

majority opinion did not extend the implied warranty to a bank acquiring

apartment buildings by a deed in lieu of foreclosure, as the bank asks us

to do today.

      There are several reasons not to extend the implied warranty to

lenders. For one thing, as far as the lender is concerned, the property is

______________________
extended the implied warranty to subsequent purchasers. Id. at 112 n.2 (citing
numerous cases including Tusch Enterprises). But, we extended the protection of the
implied warranty to home buyers living in the defectively built house, not investors
purchasing apartment buildings as income-producing property.
                                          16

not the lender’s return on the transaction; it serves only as the collateral

securing repayment of a loan.            A defective dwelling is not the same

problem for the lender that it is for the homeowner living in it so long as

the borrower can repay the loan.                 Moreover, lenders can protect

themselves in a variety of ways.           For example, in this case, the bank

could have stated in the loan documents that, upon default, all claims of

Wahls against other parties (such as Pro-Build) would be assigned to the

bank. See Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 533 (Iowa 1995)

(recognizing assignability of causes of action).              A lender presumably

could obtain a default judgment against its borrower and proceed to levy

on his cause of action. See Steffens v. Am. Standard Ins. Co. of Wis., 181

N.W.2d 174, 176 (Iowa 1970) (“Iowa has adopted the broad form of

statutory execution authorizing levy on choses in action.”).                    At oral

argument, the bank’s counsel explained that Wahls filed for bankruptcy,

but did not explain why the bank did not attempt to obtain Wahls’ cause

of action against Pro-Build in that bankruptcy proceeding, either by

purchasing the asset for a nominal amount or by convincing the trustee

to abandon it.         See 11 U.S.C. § 554 (2012).              A lender financing

construction could arrange inspections 6 or purchase warranties. In this

       6In    oral argument, counsel for the bank suggested that a lender that inspected
construction work or approved plans could open itself up to liability to future
purchasers. This concern is overblown. Under Kirk, only a builder-vendor is liable for
implied warranty of workmanlike construction. 373 N.W.2d at 496. A lender merely
conducting inspections or approving plans does not become a builder-vendor. See id. at
496 (defining builder-vendor as a person who builds a home on land he owns, then sells
the home and land together to the buying public). Further, lenders can disclaim
implied warranties. Henry v. First Fed. Sav. & Loan Ass’n of Greene Cnty., 459 A.2d
772, 775 (Pa. Super. Ct. 1983) (holding lender that contracted to inspect “for its own
protection” and stipulated it assumed “no responsibility for completion of said building”
could not be sued on a breach of warranty of quality). Finally, courts have rejected
liability for lenders that do not take over the actual construction:
       The bank cannot be said to have warranted the construction because it
       did not do the construction work. The status of the bank is not changed
                                           17

case, it is entirely unclear that the bank is less sophisticated than Pro-

Build, a labor and materials supplier. If anything, it appears the bank

may be more sophisticated.

       C. The Policy of the Implied Warranty in Iowa.                     We conclude

the policies underlying the implied warranty of workmanlike construction

in Iowa do not support its extension to a foreclosing lender. We adopted

the implied warranty in Kirk and extended it in Speight for the protection

of innocent home buyers to address their disparity in expertise and

bargaining power with sophisticated builder-vendors. See Speight, 744

N.W.2d at 110 (The implied warranty “is a judicially created doctrine
______________________
       by the fact that its officers reviewed and approved the original plans and
       specifications. Such actions by the bank are for the protection of its
       security and not for the benefit of future buyers.
Smith v. Cont’l Bank, 636 P.2d 98, 100 (Ariz. 1981); see also Rice v. First Fed. Sav. &
Loan Ass’n of Lake Cnty., 207 So. 2d 22, 23 (Fla. Dist. Ct. App. 1968) (concluding that a
lender is under no duty to inspect the progress of construction for the benefit of anyone
but itself).
        Courts have recognized lender liability for construction defects only under
limited circumstances not present in this case. South Carolina, for example, has
allowed claims against a lender if it is also a developer, is aware of defects but conceals
them, or “when the lender becomes highly involved with construction in a manner that
is not normal commercial practice [because] it is so amalgamated with the developer or
builder so as to blur its legal distinction.” Kennedy v. Columbia Lumber & Mfg. Co., 384
S.E.2d 730, 734 (S.C. 1989). The lender’s liability is limited to defects in the work
performed by the lender:
       In both Kirkman [v. Parex, Inc., 632 S.E.2d 854 (S.C. 2006),] and
       Roundtree [Villas Ass’n, Inc. v. 4701 Kings Corp., 321 S.E.2d 46 (S.C.
       1984),] the lender actually assumed some degree of control of the
       property, made improvements thereon, and/or was partner in efforts to
       sell the same. In fact, in Roundtree, even though a duty of care was
       found, it was expressly limited to the repairs the lender actually
       performed.    Likewise, in Kirkman, whether or not the lender had
       impliedly warranted the house turned on whether or not it was
       “substantially involved in completing the house.”
Regions Bank v. Coll. Ave. Dev., LLC, Civil Action No. 8:09-1095-RBH, BHH, 2010 WL
985298, at *7 (D.S.C. Jan. 22, 2010) (citations omitted), report and recommendation
adopted as modified, 2010 WL 973480 (D.S.C. Mar. 10, 2010). These cases make clear
that a lender may inspect and monitor construction to protect its interest in the
security for its loan without assuming liability for construction defects.
                                    18

implemented to protect an innocent home buyer by holding the

experienced builder accountable for the quality of construction.”); Kirk,

373   N.W.2d    at   493–94   (noting    increased   interest   in   consumer

protection); see also Rosauer, 856 N.W.2d at 912 (discussing policies

underlying implied warranty and declining to extend it to a developer

purchasing a lot). We will not equate financial institutions with home

buyers.    See Frickel, 725 P.2d at 425 (describing the purchase of an

apartment complex as an “arm’s length transaction” and contrasting that

with the unequal bargaining position of the average home buyer). As we

discuss above, before extending credit a lender generally can protect

itself against defects in the construction it finances through its own due

diligence and by express contractual provisions with its borrowers

(including assignments of claims against the builder).          Cf. Hays, 655

S.W.2d at 161 (noting that investor-purchaser of apartment building can

protect itself through inspections and express warranties).          The Hays

court aptly observed: “If the courts undertake to establish implied

warranties on used buildings, especially multi-family buildings bought

for investment, they will enter a morass of controversy and uncertainty

through which no clear, reliable road may be charted.”          Id. We share

these concerns. Financial institutions, like professional investors in real

estate, do not need the protection of judicially created implied

warranties. The bank simply is not the type of innocent consumer the

implied warranty of workmanlike construction was judicially adopted to

protect.

      IV. Disposition.

      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. We affirm the decision of the court of
                                  19

appeals and affirm the district court judgment dismissing the bank’s

implied warranty claim.   The district court’s ruling denying summary

judgment on the bank’s contract claim is reversed, and this case is

remanded for entry of a judgment of dismissal.

      DECISION OF COURT OF APPEALS AFFIRMED; DISTRICT

COURT JUDGMENT AFFIRMED IN PART, REVERSED IN PART, AND

CASE REMANDED.

      All justices concur except Wiggins, Hecht, and Appel, JJ., who

dissent.
                                       20

                           #13–0060, Luana Sav. Bank v. Pro-Build Holdings

WIGGINS, Justice (dissenting).

      When deciding whether to extend the common law, we do not

choose a rule merely because a majority of those jurisdictions has or has

not decided to extend the common law. Instead, we look at the policy

behind the rule and decide if the policy behind the rule is sound.

      A   few   years   back,    we    extended    the   implied   warranty    of

workmanlike     construction     to   subsequent    purchasers of     improved

property. Speight v. Walters Dev. Co., 744 N.W.2d 108, 116 (Iowa 2008).

Our reason for doing so was that the rationale behind the implied

warranty of workmanlike construction is to ensure a dwelling “will be fit

for habitation.” Id. at 113 (internal quotation marks omitted). In Speight

we said, the status of the buyer or owner of the building does not vitiate

the   implied   warranty    of   workmanlike       construction    because    the

fulfillment of the warranty depends on the quality of building delivered,

not the buyer. Id.

      We agreed with the rationale of the Idaho Supreme Court when

extending the warranty in Speight. Id. The Idaho case from which we

borrowed the rationale used the same rationale to extend the warranty to

“residential dwellings purchased for income-producing purposes which

have never been occupied by the buyers.” Tusch Enters. v. Coffin, 740

P.2d 1022, 1032 (Idaho 1987).

      Here, a genuine issue of material fact exists as to whether the

builder breached the implied warranty of workmanlike construction.

This breach affected the habitability of the building.             This breach

occurred no matter who owned or resided in the dwelling units.

Therefore, I would find the warranty applies to the bank and let the jury
                                       21

decide the fact issues as to whether the defendant was a builder, and if

so, did the builder breach the warranty?

      Appel, J., joins this dissent.
                                     22

                        #13–0060, Luana Sav. Bank v. Pro-Build Holdings

HECHT, Justice (dissenting).

      The majority rejects Luana Savings Bank’s request for implied

warranty protection, concluding only a narrow category of those suffering

economic loss resulting from poor workmanship of residential structures

built by a particular category of builders are worthy of legal protection

under implied warranty law.       But “[d]isparity in the law should be

founded upon just reason and not the result of adherence to stale

principles . . . .” Lane v. Trenholm Bldg. Co., 229 S.E.2d 728, 730 (S.C.

1976); see also Kennedy v. Columbia Lumber & Mfg. Co., 384 S.E.2d 730,

734–35 (S.C. 1989) (suggesting it is “repugnant” to deny implied

warranty relief due to “traditional and technical legal distinctions”).

Because I find the majority’s reasons for refusing to extend the protection

of implied warranty to Luana Savings Bank unconvincing, I respectfully

dissent.

      A primary principle of the majority opinion is that purchasers of

single-family residences are worthy of protection because of their

“innocence” or lack of sophistication in buying residential real estate.

Although I concede banks are often populated by persons with greater

knowledge about commercial transactions than ordinary consumers, I

believe this distinction is wholly inadequate as a justification for denying

banks a remedy based on implied warranty for shoddily constructed

buildings intended for habitation.

      The business of constructing modern residential structures is a

complex business that requires expert knowledge in a plethora of areas.

See Speight v. Walters Dev. Co., 744 N.W.2d 108, 111 (Iowa 2008) (noting

constructed homes “are increasingly complex”); Kirk v. Ridgway, 373

N.W.2d 491, 494 (Iowa 1985) (similar).         Developers, builders, and
                                        23

contractors of such structures are sophisticated in the sense that they

commonly have a “high degree of specialized knowledge and expertise

with regard to residential construction.” Smith v. Frandsen, 94 P.3d 919,

925 (Utah 2004).         Their work is complex and regulated by many

governmental regulations and industry codes.             Richards v. Powercraft

Homes, Inc., 678 P.2d 427, 430 (Ariz. 1984). Their sophistication derived

from knowledge and experience equips them to detect latent defects in

construction materials and workmanship.           But arms-length mortgage

lenders lack such knowledge and experience and, like ordinary

consumers purchasing residential property, are not equipped with the

kind of sophistication that should count in deciding whether an implied

warranty remedy should be available to them.               Their knowledge of

balance   sheets,     income   statements,    interest    rates,   and       security

instruments does not equip them with the same type of sophistication

required for perceiving defects in construction materials or latent defects

in the quality of workmanship.

      In Speight, we extended the implied warranty of workmanlike

construction owed by construction contractor-builders to subsequent

purchasers of residential real estate. Speight, 744 N.W.2d at 114. Our

rationale in that case for extending the warranty beyond the initial

purchasers     to    subsequent      purchasers   was    based     on    a    simple

proposition:   The knowledge gap between the construction contractor-

builders and initial residential property purchasers is coterminous with

the knowledge and sophistication gap between contractor-builders and

subsequent purchasers.         Id.    Accordingly, we rejected the notion of

“buyer beware” for both initial and subsequent purchasers of residential

real estate.        See id.    In my view, the knowledge and relevant

sophistication gap noted in Speight is equally vast between contractors
                                    24

and mortgage lenders financing the construction of buildings intended

for residential purposes. Just as we rejected for compelling reasons the

notion of “buyer beware” in Speight, we should quickly dispatch the

notion of “lender beware” under the circumstances presented here.

      I also find unpersuasive the majority’s assertion that banks are

less worthy of protection offered by the law of implied warranty than

consumer-purchasers of residential property because banks possess

financial resources enabling them to inspect construction projects, detect

workmanship defects, and avoid losses of the type claimed by Luana

Savings Bank.    Conceding for the sake of discussion that banks often

have greater financial resources at their disposal than consumer-

purchasers of residential real estate, I find this distinction unsatisfying

as a justification for denying Luana Savings Bank a remedy based on the

law of implied warranty. The purpose of the implied warranty of good

workmanship is to allocate, when possible, the economic losses resulting

from poor construction workmanship to parties that provide poor

workmanship causing damage to others. See Speight, 744 N.W.2d at 110

(noting the implied warranty operates by “holding the experienced

builder accountable for the quality of construction”); see also Tusch

Enters. v. Coffin, 740 P.2d 1022, 1032 (Idaho 1987) (“[I]t is the builder or

builder-developer whose conduct has created the latent defect, and it is

the builder or builder-developer who is in the better position to guard

against   and   remedy    such   defects.”).    Those     providing   shoddy

workmanship in residential construction should bear the resulting losses

whether they are suffered by consumer-purchasers or commercial

interests like Luana Savings Bank. The law of implied warranty should

be available in either instance to allocate the cost of the shoddy

workmanship to the person or entity responsible for it.
                                   25

      Unlike my colleagues in the majority, I believe Tusch Enterprises

was   correctly   decided.   In   extending   the   implied   warranty   of

workmanship to provide a remedy for investors who bought apartment

buildings for investment purposes (rather than for their own residential

use), the court recognized that the compelling reasons for protecting

consumer-purchasers of residential property from losses resulting from

defective workmanship also justified protection of purchasers who were

motivated by a profit motive rather than a need for shelter. See Tusch,

740 P.2d at 1031.

      My colleagues in the majority who reject Luana Savings Bank’s

claim prefer the reasoning advanced by the dissent in Tusch. The dissent

there viewed “investors in real estate” as standing “a far cry” from the

ordinary buyer of a new house.          Id. at 1038–39 (Shepard, C.J.,

dissenting).   But the difference between investors and ordinary buyers

perceived by the Tusch Enterprises dissent is specious for the reason

(knowledge and relevant sophistication gap) I have explained above.       I

simply cannot accept that investors who suffer loss as a consequence of

shoddily constructed buildings designed for residential use should be

denied the same remedy as ordinary consumers who purchase the same

type of property for their own occupancy.

      Extending the implied warranty of workmanlike construction to

protect commercial interests like Luana Savings Bank from shoddy

construction workmanship imposes no new burden on contractor-

builders. We addressed this issue head-on in Speight:

            Walters contends that allowing the recovery the
      Speights seek would lead to increased costs for builders,
      increased claims, and increased home prices. However,
      builder-vendors are currently required to build a home in a
      good and workmanlike manner. The implied warranty of
      workmanlike construction reasonably puts the risk of
                                    26
      shoddy construction on the builder-vendor. The builder-
      vendor’s risk is not increased by allowing subsequent
      purchasers to recover for the same latent defects for which
      an original purchaser could recover.

Speight, 744 N.W.2d at 114.      As the Mississippi Supreme Court has

observed:

      The builder already owes a duty to construct the home in a
      workmanlike manner . . . . If we extend potential liability of
      the builder to subsequent purchasers, the builder still is
      burdened only with the duty to construct the home in a
      workmanlike manner, etc. In other words, no greater effort
      will be imposed on the builder to protect himself.

Keyes v. Guy Bailey Homes, Inc., 439 So. 2d 670, 673 (Miss. 1983).
Extending the warranty to Luana Savings Bank here would not increase

the contractor-builder’s burden.   Moreover, a blameless builder would

remain able to avoid liability for defects he did not cause by showing

“that the defects are not attributable to him, that they are the result of

age or ordinary wear and tear, or that previous owners have made

substantial changes.”   Richards, 678 P.2d at 430; see also Moxley v.
Laramie Builders, Inc., 600 P.2d 733, 736 (Wyo. 1979) (“The builder

always has available the defense that the defects are not attributable to

him.”).

      My colleagues in the majority suggest the extension of implied

warranty I propose will create unlimited liability for builders, stretching

indefinitely into the future, and create “a morass of controversy and

uncertainty through which no clear, reliable road may be charted.” Hays

v. Gilliam, 655 S.W.2d 158, 161 (Tenn. Ct. App. 1983). This fear is vastly

overblown.    The road I propose to chart is clear and unobstructed.

Construction contractors who build shoddy buildings intended for

residential purposes will be accountable under the law of implied

warranty.    The road ahead under the principle I suggest here is also
                                         27

reliable. Iowa courts stand ready and able to apply the familiar doctrine

of implied warranty in matters such as this.

        I also find no reason to believe that, as the majority intimates,

extending the implied warranty of workmanlike construction to protect

commercial interests like Luana Savings Bank will create unlimited

liability for builders stretching indefinitely into the future. The duration

of builders’ exposure for breaches of implied warranty is already limited

by the applicable statute of repose, as we noted in Speight:

              Walters argues that allowing subsequent purchasers
        to recover for a breach of the implied warranty of
        workmanlike construction would subject builder-vendors to
        unlimited liability; however, we are not persuaded. Iowa
        Code section 614.1(11) provides a safety net—a statute of
        repose for potential plaintiffs seeking to recover for breach of
        an implied warranty on an improvement to real property. . . .

              . . . In cases involving the construction of a building,
        such as this home, that period begins upon completion of
        the construction of the building. As a result, builder-
        vendors are not liable on an implied-warranty claim after the
        statute of repose has run, regardless of who owns the home.

Speight, 744 N.W.2d at 115 (citations omitted). Regardless of how many

subsequent purchasers take ownership of the house, and regardless of

who those subsequent purchasers are (with some narrow exceptions), the

extent of builders’ liability for unworkmanlike construction remains the

same.

        For these reasons, I would reverse the summary judgment and

remand for trial.

        Appel, J., joins this dissent.
