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

ARC# 2456B

REAL 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.

These 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.

View amendments filed Emergency