Process to Sell City Real Property
While there is a prescribed process set out in Section 364.7 of the Code of Iowa for the sale of city real property (land and buildings), there is no comparable provision governing the sale of city-owned personal property (vehicles, equipment, goods or furnishings).
As provided in Section 364.7(1) of the Code, when a city wishes to sell real property “the council shall set forth its proposal [to sell the property] in a resolution and shall publish notice…of a date, time and place of a public hearing on the proposal…After the public hearing, the council shall make a final determination on the proposal by resolution.” Since the sale of city real property involves a statutorily required process, a city’s failure to properly follow that process may lead to title objections by the buyer’s attorney or its lender. For this reason, the city attorney should be consulted from the outset on any proposal for the sale of city real property.
Typically, the first step in that process is for the council to adopt a resolution indicating its intent to dispose of the property and setting the matter for public hearing. Notice of the public hearing must be published, or posted for some cities, not less than four and not more than 20 days before the date of the public hearing. The resolution and the notice of public hearing must include an accurate legal description of the property. If no legal description exists or the city wishes to sell only part of a larger parcel, it may be necessary to have the property surveyed in order to establish a legal description. The inclusion of a basic description of the property in the notice, such as its street address or its general location, is a good idea and will better inform the public of the location of the property and facilitate discussion at the public hearing. After the public hearing, the council must pass a second resolution authorizing sale of the property.
After the council has adopted the resolution authorizing sale of the property, the city must prepare a deed and deliver it to the buyer upon payment of the purchase price. The city attorney should be consulted in order to determine the appropriate form of deed to use and to draft the deed to assure that it conveys the property by its correct legal description to the proper party. The council’s approval of the deed, its authorization of the mayor to execute the deed on behalf of the city, and its authorization to deliver the deed upon payment of the purchase price, can be included in the resolution authorizing sale, or it can be included in a separate resolution subsequently adopted.
After providing the signed deed to the buyer, the city should ensure the buyer records the deed with the county recorder. In some instances, the county recorder may not accept the deed for recording until the city clerk has provided certified copies of some or all of the flowing documents: the resolution of intent to sell the property, the affidavit of publication of the notice of public hearing, and the resolution authorizing sale and conveyance of the property. Cities that are allowed to post notices should consult with their county recorder as to the required documentation regarding publication of the notice. (Be advised that some city codes specifically address the disposal of city-owned property and may have more stringent requirements). Cities must also follow this process in order to dispose of real property by a lease for a term of more than three years or by a gift to a governmental body for a public purpose.
Determining the Sale Price
Section 364.7(3) provides that “A city may not dispose of real property by gift except to a governmental body for a public purpose.” Although there is no specific procedure in state law for arriving at the appropriate sales price for city real property, on a number of occasions the Iowa Supreme Court has ruled in cases involving allegations that a city sold property for less than its fair market value, which is at bottom an allegation that the city had gifted part of the value of the property to the buyer.
Generally speaking, the court has required cities to sell property at not less than its fair market value. For appraisal purposes, “fair market value” is generally defined as the price that a willing buyer, under no obligation or compulsion to buy, would pay to a willing seller, under no obligation or compulsion to sell. There are several ways in which a city can be assured that it is selling property at fair market value. The city may obtain an appraisal of the property and advertise or list it for sale at that minimum price. The city could also advertise for sealed bids or auction the property after public notice, under the condition that it will accept only the highest bid. In situations where the city sells vacated city street or alley rights-of-ways to the owners of abutting residential properties, and where the vacated right-of-way is not independently usable or developable, some cities have adopted a policy to sell such property at a pre-determined price per lineal foot established by the council.
Whatever method is selected to determine the fair market value of real property, it should be reviewed by the city attorney to assure the process chosen is fair and achieves the fair market value standard.
Sale of City-Owned Personal Property
As previously stated, there are no provisions in the Code governing the sale of city-owned personal property, such as vehicles, equipment, goods or furnishings. Cities should dispose of such property in a manner calculated to obtain the best possible sales price. Cities typically achieve that result by requesting bids or by advertising the property for sale at a minimum price based on its market value, if any.
Disposal of City Personal Property
Cities often dispose of personal property by donating it to another governmental agency. Some cities use a “Declaration and Acceptance of Gift” agreement that a city can use when disposing of property in this manner. The agreement establishes a record that no monetary or other value has passed to the donor city in exchange for the personal property and that the personal property, if retained, will be subject to necessary and ongoing maintenance expenses. The city receiving the property accepts it in “as is” condition and states that it has inspected and tested the property to its complete and absolute satisfaction. Cities and their agencies should consult with their legal counsel regarding its use and modification.