Iowa Homestead Foreclosure

On June 25, 2020, Iowa Governor Reynolds signed SF458 into law, giving additional protection to residential contractors in the state of Iowa. Under this new legislation, Iowa lien claimants who successfully foreclose their mechanics lien claims may be awarded attorney’s fees for residential homestead projects.

Foreclosing a lien on residential projects in Iowa

Mechanics liens are incredibly effective was to ensure you get paid what you’ve earned on a project. And, sometimes the dispute can lead to a foreclosure of the property to be sold to pay off the debts. This can be a costly process, as attorneys come with pretty hefty price tags.

Under Iowa Code §572.32, “In an action to enforce a mechanic’s lien, a prevailing plaintiff may be awarded reasonable attorney fees.” However, this may not apply in all cases, particularly homestead residential properties. Earlier this year the Iowa Supreme Court in Standard Water Control Sys., Inc. v. Jones, determined that although attorney fees are typically recoverable under a mechanics lien claim, these fees aren’t awardable under the homestead exemption.

Legislation allows attorney fees for Iowa homestead properties

This issue has been on the Iowa legislature’s radar as early as last year. SF458 was introduced as a bill with the help of the Iowa Home Builder’s Association. Interestingly enough, this bill was first introduced 2 days before the Appeals Court affirmed the district court decision that attorney fees were not recoverable for a homestead foreclosure.

The current law regarding debts for which a homestead can be liable for is found under Iowa Code §561.21(3). This statute provides that a homestead may be foreclosed to satisfy the debts incurred exclusively for labor or materials furnished for the improvement of the property. This doesn’t include any attorney fees, court costs, or any potential interest that had accrued. Now that the governor has enacted this into law, that will no longer be the case.

These new changes are set to go into effect immediately. Under the amended statute, the §561.21(3) will now read that the homestead may be sold to satisfy the debts of each of the following classes:

(a) Those secured by a mechanic’s lien under chapter 572, including reasonable attorney fees as provided under section 572.32, subsection 1.

(b) Those incurred for work done or material furnished, including principal and interest on any note securing the purchase of such material, exclusively for the improvement of the homestead.

Law is a win for Iowa residential contractors

This is big news for contractors working on residential projects in Iowa. This new legislation tips the leverage scales back towards contractors when it comes to lien rights.

Enforcing a mechanics lien claim can be challenging, time-consuming, and expensive. Previously, contractors on residential projects would often avoid going through the enforcement process. The costs of hiring an attorney and filing the lawsuit may end up being too much. Depending on the amount due under the mechanics lien. Therefore, foreclosing on the claim may not even be worth it.

Now, if the property is foreclosed, the amount that will be paid from the proceeds of the sale can include the lien amount, attorney fees, court costs, and interest.

Regardless of how impactful this change is, this still won’t affect the actual mechanics lien process in Iowa. Residential contractors in Iowa will still need to actively secure their mechanics lien rights by sending preliminary notices and meeting their filing deadlines and requirements. For more on that see our Step-by-Step Guide to Filing an Iowa Mechanics Lien.