Thanks to all who supported and pressed this with the legislature.
Mike Gabor
From: realestate-owner@iabar.org [mailto:realestate-owner@iabar.org]
On Behalf Of Jim Nervig
Sent: Monday, April 16, 2018 2:44 PM
To: realestate@iabar.org
Subject: [ISBA RealEstate] New Partition Law (Chapter 651)
On April 11, 2018, the Governor signed into law SF2175 relating to partition of real estate. Prior to the bill enactment, Iowa Code chapter 651 purported to govern Iowa partitions.
However, chapter 651 previously contained very few provisions, and most of the substantive procedures for
partitions were contained within Division XII of the Iowa Rules of Civil Procedure, containing Rules 1.1201 through 1.1228 inclusive. The new bill places all the partition procedures in chapter 651.
The sections in chapter 651 are entirely reorganized and renumbered. Division XII of the Rules is repealed in its entirety.
The new bill divides chapter 651 procedures into three divisions. Division I (sections 651.1) provides definitions. Division II (sections 651.2 through 651.26) provides general provisions applicable to all
partitions. Division III (sections 651.27 through 651.32) provides special provisions that apply only in situations where real estate defined as “heirs property,” is partitioned.
New section 651.12 provides that the court shall file an initial decree addressing the following matters:
1. The shares and interests of the owners in the property must be established.
2. One referee is required to be appointed, unless all the owners of the property agree upon a larger number. This amendment would change prior law. Prior Rule 1.1210 provides that, for a partition in kind,
for court must appoint three referees, unless the parties agree upon a smaller number; and that, for a partition by sale, the court must appoint one or more referees. There appears to be no reasonable basis for appointment of more than one referee, unless
the parties agree to appointment of more than one referee.
3. An appraisal is required to be ordered. Prior Rule 1.1210 does not require the court to order an appraisal in a partition in kind. In case of a partition by sale, prior Rule 1.1210 provides that the appraisal
must be conducted by three “disinterested freeholders.” The bill changes current law by requiring the court to order an appraisal in all partitions, whether in kind or by sale. The bill also allows the court the discretion to direct the manner of appraisal,
so that the appraisal could be conducted by three appointed “disinterested persons with knowledge of property valuation,” or by “a different method for conducting the appraisal or estimating the valuation of the property,” pursuant to agreement of all the
owners of the property.
4. The decree is required to direct the referee to file a report setting forth the referee’s recommendations for completing the partition. Prior Rule 1.1210 does not set forth this specific requirement.
Partition in Kind Procedures
The bill adds new section 651.16 setting forth the procedures specifically applicable to partitions in kind. The provisions of the prior Rules governing partitions in kind were presented in an uncoordinated
manner. Placing the related procedures in one section promotes efficiency and reduces confusion.
Subsection 4 of section 651.16 requires the referee to file a report with the court detailing the referee’s proposed division of the property. Subsection 4 specifically authorizes the referee to “recommend
owelty payments as part of the referee’s recommendation for the partition in kind.” (The term “owelty” is defined in new subsection 6 of section 651.1 to mean “an equitable remedy in a partition action used to equalize the value of the property a party receives
through the payment of a sum of money from a recipient of a higher value property to the recipient of a lower value property.") In
Newhall v. Roll, 888 N.W.2d 636 (Iowa 2016), the Supreme Court discussed owelty as a possible remedy in partition cases. The Court declined to rule on the issue of whether owelty is available as a remedy under current law and left the issue for future
resolution. To avoid the uncertainty after Newhall, the new bill specifically authorizes owelty as an acceptable remedy that may be imposed by a court under appropriate circumstances.
Subsections 5 and 6 of section 651.16 provide for a court hearing on the report of the referee and a decree approving the report. Included are provisions relating to any plan for use of owelty equalization
payments authorized by subsection 4.
Partition by Sale Procedures
The bill adds new section 651.18 setting forth the procedures specifically applicable to partitions by sale. The provisions of the former Rules governing partitions by sale are presented in an uncoordinated
manner. Placing the related procedures in one section promotes efficiency and reduces confusion.
Attorney Fees Taxed as Costs
The bill adds new section 651.23 providing for attorney fees taxed as costs. Former Rule 1.1225 provides that attorney fees in real estate partition cases are to be fixed by the court in a reasonable and taxed
as part of the court costs. New section 651.23 modifies this requirement by providing, in new subsection 2: “If the plaintiff is the losing contestant in a contest arising from any partition, any of the plaintiff’s attorney fees relating to such contest shall
not be taxed as costs.”
Heirs Property – Division III
The bill adds Division III, sections 651.27 through 651.31, providing special procedures relating to partition of “heirs property,” as defined in section 651.1, subsection 6. The provisions of Division III
are required to control in the event of any conflict with any provisions of Division II, sections 651.1 through 651.26.
Subsection 6 of section 651.1 defines “heirs property” to mean “real property held in tenancy in common that satisfies all of the following requirements as of the date of the filing of a partition action:
a. There is not a recorded agreement that binds all of the cotenants that governs the partition of the property.
b. One or more of the cotenants acquired title from a living or deceased relative.
c. Any of the following applies:
(1) Twenty percent or more of the interests are held by cotenants who are relatives.
(2) Twenty percent or more of the interests are held by an individual who acquired title from a living or deceased relative.
(3) Twenty percent or more of the cotenants are relatives.”
Pursuant to new section 651.27, the special heirs property procedures are applicable only where “if a cotenant requests a partition in kind in an action to partition heirs property.” If all cotenants agree
to partition by sale, none of the provisions of Division III are applicable to the partition.
New section 651.28 requires the court to file an initial decree appointing a referee and ordering an appraisal. Upon receipt of the appraisal, the court is required to hold a hearing and make a determination
of the fair market value of the property.
New section 651.29 provides that, in cases where a cotenant requests partition sale, the cotenants that did not seek a sale have the right to buy out the petitioning cotenant at a price that represents the
value of the petitioning cotenant’s fractional ownership interest.
After the conclusion of the buyout under section 651.29, new section 651.30 requires the court to make a determination whether to order partition in kind or partition by sale. The court is required to order
a partition in kind, unless the court determines that partition in kind would result in “great prejudice to the cotenants as a group.” In making this determination, the court is required to first give consideration to all of the numerous factors listed in
subsection 1 of new section 651.31. Under subsection 2 of section 651.31. “The court shall weigh the totality of all relevant factors and circumstances and not consider any one factor in subsection 1 to be dispositive.”
Impact of Bill on Family Farms
In Newhall v. Roll, the Iowa Supreme Court addressed the partition of an Iowa family farm. One of the family heirs desired a partition in kind, and another family heir desired a partition by sale. The
Court ordered partition by sale. The Court declared that partition by sale is favored by Iowa law, that partition in kind is not appropriate where separate parcels depreciate the aggregate value.
The Iowa law upon which the
Newhall opinion was based completely failed to recognize the very special value attached by many farm family members to farms that have been family owned and operated for many, many years. Throughout Iowa’s history, family farms have been the social and
economic backbone of Iowa’s rural communities. Today, persons over 65 years of age own more than half of Iowa farmland, which will result in many ownership changes in the near future. The economic-based standard used by the Court in
Newhall assigns little or no value or significance to intangible characteristics, such as family history or emotional attachment to a farm that has belonged to a particular family for generations.
In its enactment of SF 2175, the Iowa Legislature recognized that family farms often present special circumstances where non-economic factors should be given fair consideration in addition to simply ordering
a procedure most likely to yield the highest sale price. Family farms may have unusual sentimental, cultural or historic value. A partition by sale may have the effect of forcing family members off land that has special value to them. The new bill requires
that the trial court must apply a multi-factored test that requires overall evaluation of non-economic factors, and not just economic factors, in making the determination to order a partition in kind or a partition by sale. The positive impact of this bill
will be tremendous for rural Iowa.
Jim Nervig
Brick Gentry P.C.
6701 Westown Parkway, Suite 100
West Des Moines, Iowa 50266
Phone: 515-274-1450
Fax: 515-274-1488
jim.nervig@brickgentrylaw.com
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