House Study Bill 208 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON JUDICIARY BILL BY CHAIRPERSON BALTIMORE) A BILL FOR An Act to establish requirements relating to the transfer 1 of an interest in real estate by or on behalf of certain 2 entities formed or organized on a profit, cooperative, 3 or not-for-profit basis, and including warranties and a 4 limitation on actions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 2473YC (5) 85 da/rj

H.F. _____ DIVISION I 1 STATEMENT OF AUTHORITY 2 Section 1. Section 486A.303, subsection 7, Code 2013, is 3 amended to read as follows: 4 7. Unless earlier canceled, a filed A statement of 5 partnership authority is canceled by operation of law five 6 years after the date on which the statement, or the most 7 recent amendment, was filed with by the secretary of state 8 is effective until amended or canceled, unless an earlier 9 cancellation date is specified in the statement . 10 Sec. 2. Section 489.302, subsection 10, Code 2013, is 11 amended to read as follows: 12 10. Unless earlier canceled, an effective A statement of 13 authority is canceled by operation of law five years after the 14 date on which the statement, or its most recent amendment, 15 becomes effective filed by the secretary of state under section 16 489.205, subsection 1, is effective until amended or canceled 17 as provided in subsection 2, unless an earlier cancellation 18 date is specified in the statement . This cancellation operates 19 without need for any recording under subsection 6 or 7 . 20 Sec. 3. Section 501B.7, subsection 7, Code 2013, is amended 21 to read as follows: 22 7. Unless canceled earlier, a filed A statement of authority 23 and its most recent amendment expire five years after the 24 date of the most recent filing filed by the county recorder 25 as provided in subsection 2 is effective until amended or 26 canceled, unless an earlier cancellation date is specified in 27 the statement . 28 DIVISION II 29 LIMITED LIABILITY COMPANIES 30 Sec. 4. NEW SECTION . 489.407A Real estate interest 31 transferred by limited liability company or foreign limited 32 liability company. 33 1. A transfer of an interest in real estate situated in this 34 state held by a limited liability company or a foreign limited 35 -1- LSB 2473YC (5) 85 da/rj 1/ 8

H.F. _____ liability company authorized to transact business in this state 1 is subject to the provisions of this section. 2 2. a. In a member-managed company, a transfer of an 3 interest in real estate held by the company may be undertaken 4 by any of the following: 5 (1) As provided in the operating agreement, or if the 6 operating agreement does not so provide, only with the consent 7 of all members. 8 (2) As provided in a statement of authority filed by the 9 company with the secretary of state and the recorder of the 10 county where the real estate is situated pursuant to section 11 489.302. 12 b. A requirement of paragraph “a” is applicable to every 13 transfer of an interest in real estate situated in this state 14 held by a member-managed company, whether or not the transfer 15 is in the ordinary course of the company’s business. 16 3. a. In a manager-managed company, a transfer of an 17 interest in real estate held by the company may be undertaken 18 by any of the following: 19 (1) As provided in the operating agreement, or if the 20 operating agreement does not so provide, only with the consent 21 of a majority of all managers. 22 (2) As provided in a statement of authority filed by the 23 company with the secretary of state and the recorder of the 24 county where the real estate is situated pursuant to section 25 489.302. 26 b. A requirement in paragraph “a” is applicable to every 27 transfer of an interest in real estate situated in this state 28 held by a manager-managed limited liability company, whether 29 or not the transfer is in the ordinary course of the company’s 30 business. 31 DIVISION III 32 TRANSFERS BY ENTITIES —— WARRANTY AND STATUTE OF LIMITATIONS 33 Sec. 5. NEW SECTION . 558.72 Real estate transfers by 34 certain entities. 35 -2- LSB 2473YC (5) 85 da/rj 2/ 8

H.F. _____ 1. As used in this section, unless the context otherwise 1 requires: 2 a. “Entity” means any of the following: 3 (1) A partnership, limited liability partnership, or 4 foreign limited liability partnership as provided in chapter 5 486A. 6 (2) A limited partnership, foreign limited partnership, 7 limited liability limited partnership, or foreign limited 8 liability limited partnership as provided in chapter 488. 9 (3) A limited liability company or foreign limited 10 liability company as provided in chapter 489. 11 (4) A corporation or foreign corporation as provided in 12 chapter 490 or a nonprofit corporation or foreign nonprofit 13 corporation as provided in chapter 504. 14 (5) A cooperative association as provided in chapter 497 15 or 498; an association, corporation, or foreign corporation 16 as provided in chapter 499; a cooperative as provided in 17 chapter 499A; a cooperative as provided in chapter 501; or a 18 cooperative or foreign cooperative as provided in chapter 501A. 19 (6) An unincorporated nonprofit association as provided in 20 chapter 501B. 21 b. “Instrument transferring an interest in real estate” means 22 a deed, real estate contract, lease, easement, mortgage, deed 23 of trust, or any other instrument used to effect the transfer 24 of an interest in real estate situated in this state by any act 25 to sell, transfer, convey, assign, lease, mortgage, or encumber 26 the interest in the real estate. 27 2. An instrument transferring an interest in real estate 28 situated in this state by an entity, unless clearly and 29 conspicuously provided to the contrary in the instrument, 30 includes a warranty to the transferee by the person executing 31 the instrument of all of the following: 32 a. That the transferor entity is in existence at the time of 33 the transfer. 34 b. That the person executing the instrument has been duly 35 -3- LSB 2473YC (5) 85 da/rj 3/ 8

H.F. _____ authorized by the transferor entity to execute the instrument 1 on behalf of the entity. 2 c. That the person executing the instrument has the legal 3 capacity to execute the instrument. 4 d. That the person knows of no facts or legal claims that 5 might impair the validity of the transfer, including whether 6 the instrument was given in the ordinary course of business. 7 3. An action to invalidate a transfer of real estate by deed 8 or real estate contract by an entity shall be subject to the 9 time limitations set forth in section 614.14A. 10 Sec. 6. NEW SECTION . 614.14A Real estate interests 11 transferred by entities. 12 1. As used in this section, unless the context otherwise 13 requires: 14 a. (1) “Adverse claim” means a claim that the transfer 15 of an interest in real estate to a transferee is invalid and 16 should be set aside based on an allegation that the execution 17 and delivery of a deed or real estate contract was not 18 authorized by the entity. 19 (2) “Adverse claim” does not include a claim that a deed or 20 real estate contract purports to transfer a greater interest 21 than the entity legally could transfer. 22 b. “Entity” means the same as defined in section 558.72. 23 2. A transfer of an interest in real estate situated in this 24 state by an entity by a deed or real estate contract is subject 25 to the provisions of this section. 26 3. a. With regard to any deed or real estate contract 27 executed by an entity and filed of record with the recorder 28 of the county in which the real estate is situated, which is 29 recorded prior to the effective date of this Act, the holder of 30 an adverse claim shall not file an action, at law or in equity, 31 to enforce the adverse claim or to invalidate such transfer two 32 years after the effective date of this Act. 33 b. With regard to any deed or real estate contract executed 34 by an entity and filed of record with the recorder of the 35 -4- LSB 2473YC (5) 85 da/rj 4/ 8

H.F. _____ county in which the real estate is situated, which is recorded 1 on or after the effective date of this Act, the holder of an 2 adverse claim shall not file an action, at law or in equity, to 3 enforce the adverse claim or to invalidate such transfer more 4 than two years after the date of recording of the instrument. 5 4. This section shall not be construed to limit any personal 6 action against a person who executed an instrument purportedly 7 transferring an interest in real estate on behalf of an entity 8 for damages based on a claim arising out of an allegation that 9 the execution and delivery of the instrument was not authorized 10 by the entity or that a warranty required in section 558.72 was 11 false. 12 EXPLANATION 13 GENERAL. This bill addresses issues involving the execution 14 of instruments conveying an interest in real estate by certain 15 entities, including by providing for filing statements of 16 authority, creating a general warranty, and creating a statute 17 of limitations. 18 BACKGROUND. The bill amends provisions which relate to 19 business entities (referred to as “entities”) that are formed 20 under the laws of this state or organized under the laws of 21 a different state, and allowed to do business in this state, 22 by filing certain documents with the secretary of state and 23 conducting operations in a manner consistent with those laws. 24 In the case of a domestic entity, the secretary of state 25 recognizes its existence and in the case of a foreign entity, 26 the secretary of state authorizes its right to do business in 27 this state. Each of the various types of business entities 28 is governed by a separate Code chapter, often derived from 29 legislation proposed by national organizations such as uniform 30 acts by the national conference of commissioners on uniform 31 state laws including the revised uniform partnership Act herein 32 referred to as “UPA” (Code chapter 486A), the uniform limited 33 partnership Act referred to as “ULPA” (Code chapter 488), 34 the revised uniform limited liability company Act referred 35 -5- LSB 2473YC (5) 85 da/rj 5/ 8

H.F. _____ to as “RULLCA” (Code chapter 489), and the revised uniform 1 unincorporated nonprofit associations Act referred to as 2 “RUUNAA” (Code chapter 501B). Alternatively, several Code 3 chapters derive from model legislation proposed by the American 4 bar association including the Iowa business corporation Act 5 referred to as “IBCA” (Code chapter 490) and the revised 6 Iowa nonprofit corporation Act referred to as “RINCA” (Code 7 chapter 504). Iowa uniquely includes a number of Code chapters 8 governing cooperative associations, sometimes simply known 9 as cooperatives, including several types of cooperatives 10 originally chartered before July 1, 1935 (Code chapters 497 11 and 498), and those sometimes referred to as traditional 12 cooperatives (Code chapter 499) or closed cooperatives (Code 13 chapter 501). Iowa also recognizes a type of cooperative, 14 a cooperative-corporation, under the Iowa cooperative 15 associations Act referred to as “ICAA” which in some form has 16 been enacted in other states (Code chapter 501A). A special 17 chapter governs multiple housing organizations organized on 18 a cooperative basis (Code chapter 499A). Notwithstanding 19 that these chapters originate from different sources, their 20 provisions are often very similar. 21 TRANSFER OF REAL ESTATE —— STATEMENT OF AUTHORITY. The 22 bill amends provisions in the UPA, RULLCA, and RUUNAA, that 23 allow an entity to file a statement of authority with the 24 secretary of state or in the case of RUUNAA a county recorder. 25 The statement serves to establish a person who has authority 26 to execute a deed or other instrument conveying an interest 27 in real estate on behalf of the entity. The bill changes 28 the effective time period of a filed statement of authority. 29 Currently, the statement is canceled by five years after the 30 date the statement became effective. The bill provides that 31 the statement is effective indefinitely until amended or 32 canceled, unless an earlier cancellation date is specified in 33 the statement. 34 TRANSFER OF REAL ESTATE BY LIMITED LIABILITY COMPANIES. 35 -6- LSB 2473YC (5) 85 da/rj 6/ 8

H.F. _____ The bill amends provisions in the RULLCA by providing that a 1 member-managed or manager-managed limited liability company 2 may provide for the transfer of an interest in real estate 3 as provided in the company’s operating agreement, or with 4 the consent of all the company’s members or majority of all 5 managers, or as provided in a statement of authority. 6 TRANSFER OF REAL ESTATE BY ENTITIES —— WARRANTY. The bill 7 provides that unless clearly and conspicuously disclaimed in 8 an instrument transferring an interest in real estate situated 9 in this state by an entity, the instrument (e.g., deed, real 10 estate contract, lease, easement, mortgage, or deed of trust), 11 includes a warranty that the entity is in existence at the time 12 of the transfer, the person executing the transfer instrument 13 has been duly authorized by the entity to execute the transfer 14 instrument on behalf of the entity, the person executing the 15 transfer instrument has the legal capacity to execute the 16 transfer instrument, and the person knows of no facts or legal 17 claims that might impair the validity of the transfer. 18 TRANSFER OF REAL ESTATE BY ENTITIES —— STATUTE OF 19 LIMITATIONS. A statute of limitations establishes a length 20 of time during which a person may pursue a legal remedy for a 21 wrong, often measured from the date that the wrong occurs. One 22 feature of a statute of limitations applied against real estate 23 claims is that it affects marketability of title. 24 The bill addresses a claim alleging that a transfer of real 25 estate by an entity was invalid and should be set aside. Under 26 current law, after 1992, certain claims involving real estate 27 must be brought within 10 years after the claims first arose 28 (Code section 614.17A), but the time period is not applicable 29 in some cases to minors or persons suffering from mental 30 illness (Code section 619.19) or to spousal dower rights (Code 31 section 614.20). The statute of limitations is one year for a 32 transfer involving a trustee (Code section 614.14). 33 The bill establishes a two-year statute of limitations by a 34 person for challenging the authority of a person who executes 35 -7- LSB 2473YC (5) 85 da/rj 7/ 8

H.F. _____ a deed or real estate contract on behalf of an entity. The 1 holder of an adverse claim for a deed or real estate contract 2 executed and recorded prior to the effective date of the bill, 3 must file an action within two years after the effective 4 date. Otherwise, the holder must file an action two years 5 after the recording of the instrument. The bill affects the 6 real estate’s marketable title. The bill does not affect an 7 entity’s claim for damages against a person who did not have 8 the authority to transfer an interest in the entity’s real 9 estate. 10 -8- LSB 2473YC (5) 85 da/rj 8/ 8