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Opinion: Foreign land ownership legislation and principles for protecting property rights

Any law restricting foreign land ownership mustn't penalize real estate professionals, sellers, lienholders and future property owners: ALTA CEO

As global tensions have escalated in recent years so, too, have concerns in the United States about the ownership of real estate by people from other countries — especially those from adversary nations.

In response to these concerns, state legislators across the country have moved to pass legislation to prohibit or restrict foreign nationals from purchasing property.

Many of these laws target specific types of real estate deemed crucial to national security, such as farmland or property near military installations, while other laws apply more broadly to all types of land.

Currently, at least 36 states have either passed or introduced legislation to restrict
purchases by foreign nationals or entities.

As an organization dedicated to protecting property rights, the American Land Title Association (ALTA) wants to help ensure laws do not discriminate against or prevent people from legally purchasing real estate.

Laws should also be clear on the role title insurance professionals play in facilitating transactions with foreign owners. Any law restricting foreign land ownership mustn’t penalize real estate professionals, legitimate sellers, lienholders and future property owners.

This is why ALTA devised principles for foreign land ownership legislation that ensure that all stakeholders are protected, and valid property interests are not hindered.

First, any law restricting ownership must clearly state that the obligation to follow the law rests with the buyer. Sellers must have confidence that it is not their responsibility to verify the national origin of the buyer. By imposing this obligation on the buyer, it protects sellers from false enrichment claims.

Similarly, title professionals must be protected in real estate transactions. When drafting foreign land ownership legislation, states should not require title insurance companies or their employees to decide whether the buyer has violated the law by attempting to purchase property.

Title professionals should also not be held liable for closing a prohibited transaction in good faith and any reporting obligations must fall directly and exclusively on the buyer.

States must also outline a judicial process for the forced forfeiture or divestment of property if a buyer is found to have violated the law. There must be a designated state enforcement authority that can bring an enforcement action to a judicial body, which can then unwind the transaction through a judicial proceeding.

Importantly, rather than voiding a transaction as invalid, unwinding a transaction through a judicial proceeding allows legitimate interest holders and creditors (like mortgage and mechanics lienholders) to recoup money owed to them.

ALTA recommends that these proceedings follow existing state divestment procedures, such as forfeiture or foreclosure laws, and result in an unappealable judgment.

Finally, foreign land ownership legislation should also not overlook the importance of safeguarding property records by ensuring records are reliable and up to date. Laws should mandate that authorized state agencies record relevant documents and court orders in local land records.

Without recordation, there is not a continuous chain of title, and unreliable land records can make it difficult to transfer property.

Real estate transactions represent approximately 13% of U.S. gross domestic product, and any laws impacting the legality of different transactions should be handled delicately.

Lawmakers proposing foreign land ownership legislation must pay close attention to how these bills could impact all of the stakeholders involved in a real estate transaction — from real estate professionals to sellers to future property owners.

Diane Tomb is CEO of the American Land Title Association, the national trade association representing the land title insurance and settlement services industry, which employs more than 120,000 people working in every county in the United States.

To contact the author of this story:
Diane Tomb at [email protected]

To contact the editor responsible for this story:
Deborah Kearns at [email protected]

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