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Residential Real Estate Transactions in Iowa

1. Role of the Attorney. In most cases, both the buyer and the seller are represented by counsel, and the lending institution relies on the buyer's attorney to assure that marketable title is obtained. Some lending institutions engage separate counsel, and buyers often choose to rely on the lender's counsel in order to keep legal fees at a minimum.

2. Real Estate Contracts. In the vast majority of residential transactions, the real estate broker prepares an offer to purchase form, obtains both parties' signatures, and deposits earnest money in an escrow account before the transaction reaches a lawyer's office. The brokers use relatively similar offer to purchase forms, but there are variances. Most require the seller to provide a certificate that the property is free of wood-destroying insects or to provide treatment if necessary, require the seller to prorate real estate taxes to the day of closing, and specify that the closing will be held on or before a certain date.

If no broker is involved, the attorney for either the buyer or seller usually prepares an Iowa State Bar Association form of offer to purchase or short form real estate contract.

3. Title Opinion. The seller is required to provide an abstract of title which has been continued to a recent date. The abstract continuation is done by a local abstract company. The buyer and the lender usually rely on a written title opinion issued by the buyer's attorney. The attorney's examination of the abstract of title is based on a 40-year marketable title act and Iowa Land Title Examination Standards promulgated by the Iowa State Bar Association. Title objections are resolved by the attorneys before the closing.

Following the closing of the transaction and recording of the documents, the abstract of title is continued again, and the buyer's attorney issues a certificate of title to the lender.

4. Title Insurance. Iowa law has for many years prohibited the sale of title insurance in the state. This position is the result of a strong lobby by the Iowa State Bar Association based on Iowa's long-standing interest in clear title to its land and on studies which show title insurance increases the cost to the consumer without any measurable benefit.

The Iowa Finance Authority in recent years has developed a title guaranty system in which local attorneys may issue title commitments and guarantee certificates to the owner and lender. These guarantees are backed by the Iowa Title Guaranty Fund.

5. Seller's Obligations. In addition to providing an abstract of title and a warranty deed, the seller has these obligations:

6. Real Estate Taxes. Iowa operates on a fiscal year of July 1 to June 30. Real estate taxes which accrue during one fiscal year are due and payable in the following fiscal year. For example, taxes for the 1998-1999 fiscal year become a lien on the property on July 1, 1999, and are due and payable in the 1999-2000 fiscal year. The first half is delinquent if not paid before October 1, and the second half is delinquent if not paid before April 1.

Since taxes due and payable in the fiscal year are a lien against the property, they must be paid in full in order to provide marketable title to the buyer. Since most contracts require taxes to be prorated to the date of closing, the seller usually is required to pay a prorata portion of taxes which will be due and payable in the following fiscal year. Proration requires calculating the number of days from July 1 through the day before the closing and prorating the estimated taxes which will be due and payable in the following fiscal year. Those taxes will not actually be determined until July or August of the following fiscal year, so the proration is typically based on an estimate and paid or credited to the buyer at the closing.

Personal taxes which are due and payable in the current fiscal year are also a lien against the property and must be paid in full in order to provide marketable title to the buyer.

7. Closing. Closings are normally scheduled on or before a certain date, and time is of the essence in virtually all the contracts. If a lending institution is involved, the closing usually occurs at the institution. If no lender is involved, the most common practice is to schedule the closing at the seller's attorney's office.

Practices vary from county to county as to whether the attorneys for the buyer and seller attend the closing. In some counties, the lawyers do not attend the closing at all, and brokers and lenders handle the closings.

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