Commission Adopted to file Emergency: April 3, 2003
Filed Emergency: April 4, 2003
Published as: ARC#
2456B April 30, 2003
Effective Date: Effective date April 4, 2003
ESTATE COMMISSION [193E]
Adopted and Filed Emergency
Pursuant to the authority of Iowa Code sections
543B.9, 543B.18, and 543B.46, the Real Estate Commission hereby amends
Chapter 13, "Trust
Accounts and Closings," Iowa Administrative Code.
amendments are intended to brin 193E IAC Chapter 13 into accordance
withBrown et al v. Legal Foundation of Washington et al Certiorari
to the United States Court of Appeals for the Ninth Circuit, No
01-1325, and clarify that the client is free to request that interest
on their funds be paid to a third party.
Item 1 amends subrule 13.1(2) to clarify that the client is free
to request that interest on the client’s funds be paid to
a third party. Items 2 and 3 clarify that the parties to the transaction
do have control of the interest.
Under the terms of the program, lawyers and nonlawyers who were authorized
to conduct certain real estate closings were required to place a client’s
funds in pooled interest-bearing trust accounts if the funds could not earn
net interest for the client. Interest earned in the IOLTA program served a
variety of public purposes.
The United States Supreme Court upheld the IOLTA program in the face of constitutional
challenge because the Washington Supreme Court’s rules “unambiguously
require lawyers to deposit client funds in non-IOLTA accounts whenever those
funds could generate net earnings for the client.” ld. Lawyers were only
permitted to deposit client funds into an IOLTA account if the funds would
not generate net interest for clients. Given the transitory nature of many
trust deposits, along with the costs associated with non-IOLTA accounts, clients
commonly could not earn net interest on the trust funds.
Under Iowa law, real estate brokers are generally
required to deposit a client’s funds in pooled interest-bearing trust
accounts, but are allowed to pay interest to the buyer or seller
upon agreement of the parties. See Iowa Code section 543B.46(1)
(2003); 193E IAC 13.1(2). Brokers typically have entered into agreements
with clients to pay interest to buyers or sellers when funds are
sufficiently large or will be held long enough to earn net interest.
These amendments will make it unambiguous that a broker must enter
into such an agreement whenever net interest will be earned for
the client. In the absence of such an agreement, brokers will continue
to deposit a client’s funds in pooled interest-bearing accounts
where interest can be collectively earned for a public purpose.
In compliance with Iowa Code section 17A.4(2), the Commission
finds that notice and public participation are impracticable because
of the immediate need for rule changes to address concerns expressed
by the Assistant Attorney General Assigned to Real Estate, and
the changes are necessary to comply with the Brown v. Legal Foundation
of Washington United States Supreme Court decision.
The Real Estate Commission also finds, pursuant
to Iowa Code section 17A.5(2)"b"(2), that the normal effective date
of these amendments should be waived and these amendments should
be made effective upon filing on April 4, 2003 because the U. S.
Supreme Court’s decision was issued March 26, 2003, and these
amendments bring current rules into compliance with the decision.
These amendments are also published herin under Notice of Intended
Action as ARC 2429B to allow public comment.
These amendments became effective April 4, 2003.
These amendments are intended to implement Iowa Code sections
543B.9, 543B.18, and 543B.46.