Iowa Law Blog : Iowa Lawyer & Attorney : Sullivan & Ward Law Firm : Iowa Law Blog

In an opinion released by the Iowa Supreme Court today, the Court found that a suit for breach on a covenant of title requires that the coventor be giving notice of the underlying claim before they are obligated to pay.  In this case, Gaede's purchased land from Stansberry.  After the sale was completed and the Gaede's took possession, the city approached the new owners, Gaede, and claimed that part of the property they purchased was actually a city street and they needed to "get off" the city property.  A "quiet title" action ensued (quiet title is where a party attempts to establish the true owner of the land) and the Gaedes lost the battle.  Unfortuantely, the Gaedes spent nearly $24,000 for a property valued at about one-half that figure.

After their loss, the Gaedes went to the seller, Stansberry, and asserted that as Stansberry had given them a warranty deed, they should stand behind their warranty and make the Gaedes whole and compensate them for their damages.  Stansberry was not given notice of the proceedings by the city.  As  a result of that failure to be given notice of those prior proceedings and to defend title in that trial, the Iowa Supreme Court ruled that before a party is liable for the cost, they must be given notice of the challenge and have the opportunity to defend the title.

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The Iowa Court of Appeals recently issued a ruling that should be a reminder to those trying to sell a house in Iowa. The evidence presented at trial indicated that the seller of a home had previous history of water standing on the lawn after rains. The seller had provided a seller's disclosure statement, pursuant to Iowa law, which requires a potential seller to list and disclose any potential problems, including "physical problems such as: settling, flooding, drainage, or grading problems" but failed to indicate the standing water problem. The Court indicated that the standard is not whether the seller believes that a characteristic is a problem, but whether the grading/drainage is a condition and important characteristic of the property. Accordingly, the Court found that the seller improperly failed to disclose the condition of the property to the buyer. For anyone looking to sell their property on their own, this is a reinforced reminder to disclose anything and everything to a potential buyer. Whether the seller believes that it is a problem does not matter. My advice to any of my clients selling property is to do disclose everything. Being subject to a lawsuit from a disgruntled purchaser is not a pleasant experience to go through. The safer course of action is to disclose any potential important conditions of the property so that a buyer is put on notice.

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Greg Herman-Kiddens at the North Carolina Estate Planning Blog has a good reminder article about using a limited liability company to own your investment real estate.  A limited liability company, as the name implies, gives you the capability to limit your liability exposure if you have any investment properties.  Insurance is the first level of protection, but there can be exceptions and limitations to insurance coverage.  That's where a LLC can come into play for the extra layer of protection.  If there is a gap in insurance coverage, individually-owned property exposes the owner and the owner's assets to liability.  However, placing that property in an LLC and only the LLC's asset are exposed.  But what if you have several investment properties?

Iowa is currently one of a few (7) states that permit series LLC's.  Basically, a series LLC allows the owner to have multiple properties/business ventures under one company structure, but treated as separate entities for tax purposes and liability purposes.  In fact, Marc Ward believes that there may be an argument that a series LLC could provide even better protection than a separate LLC. 

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Mechanic's Liens are a valuable tool used by contractors to help insure that they are fully compensated for the materials they supply and the improvements that they make to buildings or land.  However, if you are a contractor providing materials or making improvements to an "owner-occupied" dwelling, essentially a residential remodeling contractor, then the mechanic's lien that you file may not be worth much more than the paper that it is printed if you neglect one crucial step.

Under Iowa's Mechanic's Lien law, Chapter 572, a contractor who enters into a contract with a home owner to provide labor or  furnish materials for a owner-occupied dwelling and who has or will hire sub-contractors for the job must provide in the written contract with the home owner the following notice: 

"Persons or companies furnishing labor of materials for the improvement of real property may enforce a lien upon the improved property if they are not paid for their contributions, even if the parties have no direct contractual relationship with the owner."

In the alternative a contractor who does not enter into a written contract with the home owner must, within ten (10) days of beginning work on the property, provide the owner with written notice stating the name and address of all subcontractors that the contractor intends to use for the construction and, that the subcontractors or suppliers may have lien rights if they are not compensated for the labor or material that they provided in completion of the project.

If written notice required under Chapter 572 is not provided to the owner in a timely manner then the contractor is only entitled to a lien for the work or materials that it actually performed or the materials that it actually provided and would not be entitled to a lien as it pertained to any labor performed or materials furnished by a subcontractor.

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With the tough real estate market now, home sellers are looking for any advantage to maximize their equity from their real estate.  One option that many are pursuing is trying to sell the home on their own without the services of a Realtor.  Typically, Realtor fees for residential sales are around 6% to 7%.  By attempting to sell on your own, with your own hard work, you can avoid that expense as that fee is normally charged to the seller.

A Realtor does provide several benefits.  A Realtor can help determine what a fair price to ask.  Entry on the all-important multiple listing service (MLS) brings the largest set of eyes to your house, which can only be achieved through a Realtor that subscribes to the MLS.  Also, a Realtor can take care of arrangements for interested buyers to view the home.  A Realtor can also walk you along the selling process from beginning to end.

But, if you already have a buyer or think you are capable of selling your house without a Realtor, it isn't necessary that you get a Realtor to help you out.  A real estate attorney can help you out on the key steps in selling your house for a fee typically much less than the 6% fee.

Some of the critical points that a seller needs to be aware of in selling their home include: proper disclosure information to potential purchasers, binding purchase agreement, updating abstract, and the conveyance documents (deed, groundwater hazard statement and declaration of value).

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Home builders in Iowa recently received a ruling from the Iowa Supreme Court that significantly expands their liability.  The Court ruled in the case of Speight v. Walters Development Company, Ltd. that a home builder can be held responsible under a theory of implied warranty of workmanship construction to third party purchasers.

What does that mean?  It used to be the law in Iowa of caveat emptor, or "buyer beware".  That meant that a home buyer should thoroughly inspect the house they were buying and find any defects, because after they bought it, it was too bad if there was something wrong with it.  Eventually, in 1985, the Iowa Supreme Court expanded builder liability by requiring that a building be constructed in a reasonably good workmanlike manner and reasonably fit for the intended purpose.  This "implied warranty" was only applied to the first owner of the house.  Thus, if a house was defectively built, only the person buying it from the builder could bring a lawsuit against the builder.

This February 1, 2008 ruling takes the next step and holds a builder responsible to subsequent owners for defective conditions.  In Speight, the house was built in 1995 by Walters Development and sold to Roche, who then sold it Rogers, who then sold it to the Speights on August 1, 2000.  After purchasing the house, the Speights noticed water damage and mold that were a result of a defectively constructed roof and defective rain gutters.  Speights brought suit against Walters, lost at the trial court level and lost on appeal to the Iowa Court of Appeals until the Iowa Supreme Court reversed the ruling and changed Iowa law.

The Court noted that pubic policy justifications support further erosion of the doctrine of caveat emptor.  The purpose of the rule is to ensure that innocent home buyers are protected from latent defects.  Subsequent purchasers are in no better position to discover those defects than the original purchaser.  "Builders should be accountable for their work" quoted the court.

While whether this will crowd the courthouse with lawsuits on defective houses is yet to be seen, it certainly expands a builder's liability for the houses they build.

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