A time for action

The Iowa Common Interest Ownership Act, Senate File 493, is stuck in the Iowa House of Representatives. The bill is languishing on the unfinished business calendar. (The bill history is here.)

This bill is a good, balanced bill that protects both homeowner associations and provides owners with appropriate access to meetings and records of common interest communities. The amended bill came out of the House Judiciary Committee with a recommendation for passage.

Although the SF 493 has been on the House debate calendar several times, the Republican caucus, which, of course, holds the majority in the Iowa House of Representatives, unfortunately has been unable to develop a consensus to bring the bill to the floor. It sounds to me as though the bill is likely to remain in its current purgatory.

Oddly, the legislature seems to have a tin ear on this. I noted at least five bills in the 84th session (SF 297, SF 336, HF 213, HF 350, HF 440) to address the governance of condominium, cooperative, and other forms of homeowner associations. Legislators have been getting an earful from unhappy constituents who cannot seem to get their HOA boards to act responsibly. The main issues seem to be along the lines of open meetings and open records. The time is right. Hopefully, legislators will hear more from constituents about this and, finally, get this bill to the floor where it will, without doubt, pass easily.

HF 2370 “Civil Actions Relating to Real Estate”

House File 2370 passed the Iowa House of Representatives on March 12 by a vote of 98-0 and the Iowa Senate on March 21 by a vote of 49-0. This is the Iowa State Bar Association Real Estate Section’s “Civil Actions Relating to Real Estate” bill. The bill will be enrolled and sent to the Governor.

Update on 2012/04/16 14:25: Signed by the Governor on April 4.

House Judiciary Committee approves common interest bill

On March 15, the House Judiciary Committee reported the Iowa State Bar Association’s common interest ownership bill, Senate File 493, to the House with a recommendation for approval. The bill would be significantly amended. It does, however, retain its essential character as a consumer’s/owner’s rights bill, guaranteeing access to meetings and records of common interest communities. If approved in the House of Representatives, the bill would go back to the Senate for concurrence in the amendment.

The amendment primarily strips the bill down to bare essentials for open meetings and open records. The Uniform Common Interest Ownership Act on which the bill is based is an expansive proposal that regulates the formation and operation of common interest communities. Common interest communities include condominiums, cooperative housing, town home associations, and homeowner and other types of associations where groups of owners are required to contribute to the upkeep and maintenance of common facilities.

Real Estate Section Legislative Update

Fellow attorneys Walter Conlon, Jim Nervig, Ron Fadness, and I are scheduled to present the Real Estate Section’s legislative update at the Iowa State Bar Association’s Annual Meeting. This is a part of the Commercial & Bankruptcy/Real Estate Track on Wednesday June 22. I am planning to present on HF 243 “Relating To Instruments Used To Update The County Transfer Books And Index Maintained By The County Auditor” and SF 493 “An act relating to the operations of certain common interest communities.”

As the legislative session has gone into a stall, so has the progress on what remains of the affirmative agenda for the real estate section. Here is a quick recap of the affirmative agenda of the real estate section of the Iowa State Bar Association:

SF 244 Judgment Lien Release Bill — Approved; effective July 1. (1) Amends Iowa Code § 624.23(2)(c) to allow alternatives to filing a bond with the clerk; (2) amends Iowa Code § 624.37 to specify a motion procedure in a case reduced to judgment to obtain a satisfaction, allows for remittance to State Treasurer for missing creditors, and increases penalty for wrongfully withholding satisfaction; and (3) amends Iowa Code § 631.1 to provide small claim jurisdiction to accomplish certain releases.

HF 565 Service on Foreign Corporations in in rem Actions; Revised LLC Act Corrections — Approved; effective July 1. (1) Amends Iowa Code § 490.1510 to allow serving process on a foreign corporation of an in rem action if it does not have a certificate of authority, and (2) amends Iowa Code § 489.1103 to allow a professional LLC to use “professional limited company” or “P.L.C.” as under the previous law.

HF 243 Change of Title Bill — Approved; effective July 1. Rewrites section 558.66, Code of Iowa, to provide update of county auditor’s records on filing of an affidavit or articles of merger, consolidation, or name change with specified information and legal description.

SF 493 Common Interest Ownership — Passed Senate 50-0; Alive, but stalled in House. (1) repeals 2010 G.A. ch 1080 (SF 2224), now paragraph 2 of Iowa Code section 499B.15 (2011); (2) adds new open meetings, open records, and notice requirements for all types of property owner associations; (3) adds a new provision for “as built” certificates for buildings constructed after the filing of a declaration in horizontal property regimes. This bill (or whatever may be left of it) is still stuck in the Iowa House of Representatives. Certain special interests believe that the bill adds costs to their process and are unconvinced that it will provide the relief to property owners that they want, especially when the project is still under construction.

HF 539 Mineral Rights Bill — Dead for 2011 session. Generally would allow dormant mineral rights to be extinguished in favor of the fee owner of the surface unless preserved by recording a notice of claim.

SF 494 Foreclosure of Real Estate Mortgages (“White Knight”) Bill — Dead for 2011 session. Would amend Iowa Code § 654.5 to allow a successful bidder at a sale to elect to receive, in lieu of sheriff’s deed or certificate of purchase, an assignment of the judgment creditor’s interest in the judgment, and any policies of title, property and similar insurance or guaranty owned by the judgment creditor in respect of the property. This bill passed the Senate 50-0, but the House Judiciary Committee did not act.

Is Iowa’s Mechanics Lien Law Broken?

I think the honest answer to the question of whether Iowa’s mechanics lien law is broken is “yes.” Reading chapter 572 of the Iowa Code is (at best) an adventure or (at worst) a nightmare. If experienced, practicing lawyers have a difficult time explaining or applying it, good luck to the general public.

Iowa Title Guaranty has been a lead sponsor for two or three legislative sessions of a bill to modify how mechanics liens are created and indexed. Presently, that legislation is embodied in HF 633.

Iowa Title Guaranty, which is a division of the Iowa Finance Authority, is a quasi-governmental agency that issues a form of insurance on the title to real estate. As an insurer, therefore, it has plenty of skin in the game. Under Iowa’s title system, Title Guaranty has recourse to the attorneys and settlement agents who examine title and “field issue” these policies for Title Guaranty, so plenty of attorneys and settlement agents have skin in the game, too.

For the uninitiated and in the simplest terms, a “mechanics lien” is the lien that a the laborers and materials suppliers get on real estate that is being modified by some kind of construction. The law currently provides that these “mechanics” get their liens established through filings in the offices of the clerk of court in the county where the real estate sits.

The legislative subcommittee of the Iowa State Bar Association’s Real Estate Section has looked this legislation over several times and generally has been supportive. The reasons that this subcommittee has been supportive are many. Some, but not necessarily all, of these reasons are summarized as follows:

• The existing law is difficult to understand and apply. The lag times and the required notices are difficult to deal with.
• The Real Estate Section has been an ally of Title Guaranty and their needs. Without speaking for Title Guaranty, it is clear that they think that the system needs to be improved. While their claim experience apparently has been relatively low (the “real estate bubble” notwithstanding), these liens and potential liens are problematic.
• Mechanics liens can present a real difficulty for closing agents as well. When a closing agent settles a real estate transaction, he or she has no clue who is actually out there doing the work. While they may do their best to collect lien waivers before closing, it is nearly impossible to know from whom a waiver must be collected. The bill proposed would create a system that would allow closing agents (at least in theory) easily to check for liens from their desks right before closing a loan.
• It has been our understanding that the clerks of court generally would rather not have to deal with and index legal descriptions for real estate.
• The county recorders probably could easily assume the current filings required under chapter 572, but they are currently have no mechanism that is similar to that in this particular bill.

The legislative proposals have evolved over the past couple of years. Title Guaranty was originally to be the administrator of the database. On evaluating the potential liability issues and the necessity for litigation reserves, Title Guaranty thought it better to put the responsibility in the Secretary of State’s office. The Iowa Secretary of State already administers a number of electronic databases.

The construction industry had been lukewarm to downright sour on the idea for the first couple of iterations. After meeting with the Bar and Title Guaranty representatives, Title Guaranty came up with the current bill. Title Guaranty has been responsive to construction industry concerns and done a fair job at proposing a system that would be relatively user-friendly. Since then, the construction and materials folks came around to being lukewarm to almost supportive.

This has been kind of a hot issue among real estate attorneys for a couple of weeks now. Some attorneys are also abstractors or have an interest in abstracting companies, which perform searches on real estate. These folks are concerned about whether and how they are going to have to certify searches on a centralized state database. Many attorneys are simply concerned about centralization, which, they worry, makes it difficult or impossible to deal with these records in the same way attorneys have dealt with their local clerks of court. Others worry about the actual “mechanics” of filing and searching. Some have noted that real estate records have always been local, and the existence of a lien through a state registry is unprecedented.

On the other hand, some attorneys noted that this system would be good for certain contractors. In particular, flooring and landscaping folks are the last ones on the job. Several attorneys mentioned that these late contractors are missed (or worse) when the general contractor gets paid.

To the worries, I guess my thought is that, frankly, things change. The system proposed in HF 633 may not be perfect. In this world, few things are perfect. Anyone who has ever closed a real estate transaction knows that you can run into the craziest problems before, during, and after a closing. Iowa lawyers are resourceful, and the problems almost always get solved. The benefits of this type of centralized reporting and indexing system, it seems to me, outweigh the costs.

As a Ways and Means Committee bill, HF 633 remains alive in this legislative session. Whether it will survive the session is difficult to say, but it has evoked an interesting discussion about local control, use of technology, and a pretty arcane part of Iowa law.

Judgment release bill becomes law

Iowa Governor Terry Branstad signed Senate File 244 on March 30. This changes section 624.23 and section 624.37 of the Iowa Code, part of the judgments law.

This was affirmative legislation offered by the Iowa State Bar Association’s Real Estate Section. Read a bit more about it here.

Homestead bill becomes law

Iowa Governor Terry Brandstad signed Senate File 400 on March 30. This changes section 561.13 of the Iowa Code, the homestead law.

With an amendment offered by the Iowa State Bar Association’s Real Estate Section, this bill preserved the presumption that a deed or mortgage for homestead property is void if not signed by both spouses. The bill also codifies a purchase money mortgage exception. The exceptions presented by the Bar will help close a “loophole” much in the news with the Hawkins and Danielson decisions. See the other posts on homestead. The bill has no special effective date, so it will be applicable on July 1, 2011.

House Judiciary Kills White Knight Bill for 2011

SF 494 died for the session in committee yesterday. SF 494 is one of the Iowa State Bar Association Real Estate Section’s legislative priorities. The “white knight” bill would allow for an assignment of the mortgage at the sheriff’s sale in a foreclosure.

This was the bar’s attempt to “think outside the box” on ways to keep Iowans in their homes amidst the foreclosure crisis. This basically would allow a private work-out on the loan while taking out the foreclosing third party lender. (Let’s face it, the white knight in these situations would be grandma or some other well-to-do relative.)

The bill will be alive for the 2012 session. Legislators apparently fretted over potential for bad actors to sneak in and do more injury to borrowers. The Real Estate Section felt that these concerns had all been adequately addressed. In the mean time, this new approach remains unavailable for another year.

Judgment release bill passes

Another Iowa State Bar Association Real Estate Section priority, Senate File 244, cleared the legislature. The Senate approved the bill 49-0, and the House approved the bill 97-0.

This bill responds to the problem that clerks of court do not want to hold cash bonds necessary for the immediate release of a judgment lien. The bill also raises the penalty for a failure to release a judgment from $100 to $400 and simplifies the process for court action against such creditors. The bill also allows a procedure to pay the State Treasurer if the creditor cannot be found.

Optional Assignment in Mortgage Foreclosure bill

The Iowa Senate amended and passed the Iowa State Bar Association Real Estate Section’s Optional Assignment in Mortgage Foreclosure bill (SF 494) late this afternoon on a 50-0 vote. Attorney Walter Conlon was the primary drafter of the bill.

The bill allows a “white knight” bidder to become the new lender. The lending company would get the cash paid by the white knight at the sheriff’s sale in respect of its winning bid. In most cases (where deficiency is waived, which occurs in 99% of residential foreclosures) the old lender would be out of the picture, presumably to the great relief of the homeowners.