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September 20, 2001

Miller: Cities Have Authority to Require Home Inspections for Homes Sold on Contract

Des Moines-- Attorney General Tom Miller issued an opinion Thursday concluding that cities in Iowa have authority to pass ordinances requiring home inspections for homes sold on contract.

The opinion, requested by Sen. Pat Deluhery of Davenport, was issued today and provided to Deluhery and Davenport city officials. The opinion held that cities have home rule authority to require home inspections, and that ordinances requiring home inspection only for homes sold on contract, and not for homes acquired through mortgages, do not violate constitutional guarantees of equal protection.

The opinion said: "A contract sale of a home bears some resemblance to the renting of a house in that the buyer, who lacks ownership of the property until final payment, makes installment payments. As a practical matter, financially strapped persons who cannot obtain mortgages can only acquire a house by purchasing one on contract. These persons may have limited knowledge of the housing market and lack the protections afforded to persons acquiring homes through the use of real estate agents, lawyers, financial institutions, and mortgages. Some landlords could attempt to circumvent inspections of rental houses by ostensibly 'selling' them (often to their own tenants) on contract."

The opinion continued: "A city could conclude that a landlord owning rental houses may attempt to avoid housing inspections and the cost of remedying any deficiencies noted therein by entering into contract sales with unsophisticated buyers who, unable to comply with onerous contractual terms and conditions, will inevitably default and leave ownership of the houses with the landlord. Indeed, this concern was expressed in a report, provided to us by the City of Davenport, on land sales contracts, housing quality, and predatory lending practices. We therefore believe that a city has a constitutionally justifiable ground for requiring a home inspection only for sales of homes on contract."

In a Sept. 4 letter to Attorney General Tom Miller, Davenport City Administrator Craig Malin provided the report on "Land Sales Contracts, Housing Quality, and Predatory Financing." Malin's letter said, "This report concludes that land sales contracts can be used in Davenport to circumvent the state-mandated rental inspection and/or lead buyers into purchasing properties they can scarcely afford."

The report, issued August 13, said: "Members of the current City Council, as well as previous Councils, have expressed concerns about the potentially negative impact of land sales contracts on homeowners and their neighborhoods. They have perceived that some of these contracts, which are one means of legally transferring property ownership, may contribute to poor housing quality, declining property values, and homeowner financial instability. More specifically, they have questioned whether some property sellers use land sales contracts to circumvent the state-mandated rental inspection or to defraud buyers into purchasing properties they can never afford."

Miller said his office made it a high priority to issue the opinion swiftly, and faster than the normal process of issuing formal legal opinions.

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