Important New Iowa Tax Sale Law

On April 8, 2008, House File 2642 was enacted by the Iowa Legislature to amend the Iowa Code to significantly enhance the marketability of tax sale deeds in Iowa. This amendment is intended to substantially eliminate the adverse impact on tax titles that resulted from the recent decision by the Iowa Supreme Court in Dohrn v. Mooring Tax Asset Group, 743 N.W.2d 857 (filed January 25, 2008). In Dohrn, the Court determined that a tax deed is subject to invalidation, even years after it was recorded, if it is challenged by a person who shows that notices were not served on persons with unrecorded possessory rights, such as (a) a tenant under an unrecorded lease, (b) a person who had parked a truck on the premises, and (c) a person who stored personal items in a building on the premises, (d) a person who maintained a pile of lumber behind an uninhabited home, (e) a neighbor who went every other day to the house in an attempt to exterminate vermin, (f) a person who periodically cut weeds and hauled dirt from the premises, or (g) a person who removed timber from an uncultivated wood lot. Under their title standards, Iowa attorneys examining abstracts of title for a potential buyer or lender rely on matters of record in rendering opinions as to the marketability of title. Under the Dohrn decision, a tax deed is subject to invalidation for reasons that are not disclosed by an abstract. The abstract can furnish no notice to the examiner of the existence of persons with insignificant, unrecorded possessory interests of the types discussed in Dohrn.

The HF2642 amendment addresses the problem of tax deed marketability by adding a new unnumbered paragraph to Iowa Code Section 448.3, which provides that a tax deed is not subject to invalidation if notice was not served on a person entitled to service. Instead, the interest of the person not served with notice simply survives the issuance of the tax deed. The only exception is that a tax deed remains subject to invalidation in the case of failure to serve the owner of record or the person in whose name the parcel is taxed. By protecting the interest of any person not served with notice by allowing his or her interest to survive the issuance of the tax deed, while at the same time upholding the validity of the deed, HF2642 effectively reduces the problem of marketability of tax titles that exists under the prior law. The amendment takes effect immediately upon its enactment on April 8, 2008, and applies to all tax sale deeds issued on or after that date.