USA – IOWA Law and Practice Contributed by: David M. Erickson, Christopher S. Talcott, Amy S. Montgomery and Shannon M.H. Hasse, Dentons Davis Brown PC
3.2 Typical Security Created by Commercial Investors The type of security interest required by a lender financing the acquisition and/or development of Iowa commercial real estate may vary by transaction, but should involve the borrower granting a mortgage against the real estate in favour of the lender to secure repayment of the loan. Iowa law also recognises that a borrower may give a lender a deed of trust; however, in practice, the difference will be merely in the form of the instrument as deeds of trust and mortgages are foreclosed in the same manner under Iowa Code Chapter 654. In addition to the mortgage, some lend - ers may require a separate assignment of any rents generated from the acquired real estate, though these may be granted within the mortgage instrument itself. A wide variety of security interests may also be grant - ed against a borrower’s personal property, in the form of a general security agreement which may be sup - plemented and/or perfected by the filing of Uniform Commercial Code (UCC) financing statements. It is possible that a seller may choose to finance the buyer’s acquisition of the real estate, particularly in an environment of high interest rates for new bank loans. If so, the seller and buyer would typically enter into a real estate instalment contract, providing for a down payment to be made at closing and the balance of the purchase price to be paid to the seller in regular instalments with interest. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders Purely in terms of the nature of the documentation and the process involved, there would be no special reg - ulatory hurdles or restrictions affecting foreign lend - ers compared with domestic lenders in a transaction involving Iowa real estate. However, foreign lenders should consider the facts and circumstances involved in the particular transaction as well as other transac - tions that the lender may be involved in within the state, in order to evaluate whether the lender may be deemed to be transacting the business of banking in Iowa. If so, the lender would be subject to the terms of the Iowa Banking Act.
Sales agreements continue to include customary rep - resentations related to the Office of Foreign Assets Control (OFAC) and the Foreign Investment in Real Property Tax Act (FIRPTA). 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate Acquisitions of Iowa commercial real estate are typi - cally financed through mortgage financing offered by commercial banks. In the typical process, the lend - er would first issue a loan commitment letter to the potential buyer/borrower setting forth the amount, interest rate and other main terms of the loan to be made to purchase the real estate, together with the requirements that must be satisfied before the loan will be made. Such requirements would include due diligence matters, the collateral that must be provided to secure repayment of the loan, and business cov - enants that must be met. The loan documents to be signed at closing would reflect the requirements set forth in the loan commit - ment, and would typically include: • a loan agreement setting forth both the lender’s obligations with respect to disbursements of loan funds as well as the borrower’s current and ongo - ing requirements with respect to the loan; • a promissory note evidencing the debt owed to the lender; and • a mortgage encumbering the newly acquired real estate as well as other security documents that might encumber the borrower’s financial accounts, equipment and inventory, or other personal prop - erty. The process for acquisition of large real estate port - folios or companies holding real estate would be the same. However, a viable option in such scenario may be to acquire ownership of the titleholding entity or entities, rather than a direct acquisition of title to the real estate. Structuring the transaction in this way would not trigger real estate transfer tax.
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