Realization of the American Dream by Foreign Investors: Alien Agricultural Land Ownership in Iowa.

• Author: Shelman, Bryce T.

1. INTRODUCTION II. BACKGROUND A. Legislative History of Iowa's Alien Ownership Laws B. Enforcement Process of Alien Land Ownership Laws in Iowa C. Other States that Forbid or Limit Foreign Ownership of Land by Law D. Why Are Farmers Interested in Selling Their Land to Foreign Investors in the First Place? III. ANALYSIS A. Corporations that Already Qualify to Own Agricultural Land B. Foreign Investor Compensating the Agricultural Land Owner to Put the Property in a Land Trust and Name the Foreign Investor the Beneficiary C. Foreign Investor Compensating the Owner of the Agricultural Land to Devise the Property to the Investor D. Foreign Investor Advocating for a Modification to Contemporary Iowa Law IV. RECOMMENDATION V. CONCLUSION I. INTRODUCTION

   The American Dream refers to the opportunities for growth and prosperity that many believe are unique to our country. There are several explanations of what the American Dream is, but it is essentially the "dream of a land in which life [is] better and richer and fuller for everyone, with opportunity for each...." (1) Foreign investors have largely been cut out of this dream, particularly in the area of ownership of agricultural land. A total of eight states, all in the Midwestern United States, regulate such ownership. (2)

   In recent years, there has been an increase in foreign investors looking to invest capital in farmland. (3) For example, an enormous Chinese corporation was active in the purchase of agricultural land in Missouri. This purchase necessitated a change in Missouri law, allegedly sponsored by said corporation. In a similar move, with very different results, a Swiss banking giant was unsuccessful in its attempt to purchase agricultural land in Wisconsin despite support from the Governor of Wisconsin. (4) This interest is not one-way. American agricultural land owners are also attracted to selling to international corporations and investors, mainly due to the increasing average age of farmers and the illiquidity of farmland. (5) Given the rising importance of this issue, this Note reviews methods that foreign corporate investors can use to circumvent or change the current restrictions that are blocking the investments they want to make in Midwestern farmland, which is some of the most valuable land in the world.

   Land is extremely important for a number of reasons. Not only is it a finite resource, it is endeared and a source of identity for some; agricultural land owners develop a connection with the land and are shaped by it. (6) Iowans naturally feel very strongly about agricultural land ownership, and it follows that the state has a very stringent restriction on foreign and corporate ownership. (7) The rise of value in agricultural land in recent years (8) and the relative safety of investing in land compared to other ventures makes such investments intriguing to foreign investors. Part II of this Note discusses background information regarding Iowa's ownership laws and reasons why farmers may be interested in selling to foreign investors. (9) Next, in Part III, I discuss ways foreign investors may acquire interests in agricultural land and still comply with Iowa law. (10) Lastly, in Part IV, I recommend that foreign investors should ultimately advocate for a change in the law as this will be the most beneficial in the long run. (11) As discussed below, the language of the statutes indicate that the restrictions on foreign ownership are similar to the restrictions of corporate ownership. A change in the law of foreign ownership may open the door for a change in corporate ownership law in Iowa as well.

2. BACKGROUND

   The state of Iowa has placed restrictions on foreign ownership of land since the 19th century, but did not actually begin to strictly enforce these restrictions until the mid-1970s. (12) Current Iowa law generally allows a nonresident alien, foreign business, or foreign government to acquire realty within the state. (13) Largely, the foreign person or entity may own and alienate said realty, and they incur the same rights and duties regarding ownership as a citizen of the United States. (14) However, Iowa is one of eight states that either directly prohibits or considerably limits the foreign ownership of agricultural land. (15) Iowa forbids nonresident aliens and foreign businesses and governments from acquiring or owning any interest in agricultural land in the state. (16) Agricultural land is defined as "land suitable for use in farming." (17) It is noteworthy that the Legislature chose the word "suitable"; the land does not even need to be actually used for farming purposes to qualify as agricultural land so long as it is capable of being used as such. (18) Iowa's ban on foreign ownership is not absolute; there are a number of exceptions to this ban. (19) For example, the restrictions do not apply to land acquired by devise or descent, (20) a bona fide encumbrance on the agricultural land taken for security purposes, (21) or land acquired for research and experimental purposes. (22)

   Iowa also restricts corporate ownership of agricultural land. (23) Iowa law mandates that "[a] corporation, limited liability company, trust, or unincorporated nonprofit association ... shall not, either directly or indirectly, acquire or otherwise obtain or lease any agricultural land in this state." (24) However, corporations can organize themselves to qualify as authorized corporations, limited liability companies, trusts, and associations that may own agricultural land. (25) Before addressing methods that foreign corporate investors can use to get around the restrictions on foreign and corporate ownership of agricultural land, this Part explains the historical evolution of the laws and the policy reasons underlying existing laws.

   1. Legislative History of Iowa's Alien Ownership Laws

      Iowa's law regarding foreign ownership is regarded by some as the strictest in the nation. (26) The law changed from a simple restriction on the number of acres non-resident aliens could own to a near-complete ban in the 1970s. (27) The foundations of Iowa's ownership laws are built upon English common law, where the King was the owner of all the land in the country and there was no place for "alien[s] who would have allegiance[s] elsewhere." (28)

      The sudden enforcement of these restrictions was prompted by the oil crisis of 1973. (29) In response to the United States' involvement in the Yom Kippur War, the Organization of the Petroleum Exporting Companies (OPEC) increased the price of oil per barrel by 300%. (30) With this increase in liquidity in the hands of foreign countries and financiers, Iowans were fearful that this money would be invested in Iowa farmland. (31) Several reasons were suggested as to why foreign investors may choose farmland to invest in at that time, namely to "assur[e] a supply of U.S. food for foreign consumption, learn[] American techniques of food production and marketing, obtain[] the U.S. rates of return on investment which, in the agricultural sector, often exceed those of other countries, [and] profit[] on the capital appreciation of U.S. land...." (32) Iowa citizens expressed their apprehension about foreign investment, especially the "loss of local control in their communities, the possible rise of a feudal-like system of non-responsive, absentee landlords, substantial increases in the cost of land, and increased rents paid by tenant operators if large tracts of land become controlled by non-resident aliens." (33) A large majority of realtors in the state sensed an unfavorable reaction to the possibility of foreign investors acquiring agricultural land in the state, with some suggesting that there were purely racial motives. (34) Because of this disapproving local reaction to foreign investment, foreign investors went to great lengths to hide their interest in acquiring farmland. (35) Against this backdrop, the Iowa Legislature enacted what is currently embodied in Chapter 9I of the Iowa Code.

      Another policy concern during this time was the acquisition of farmland by corporations, which was seen as a threat to "the centerpiece of [the social and economic structure of agriculture], the family farm." (36) These "statutory constraints] ha[ve] applied not only to nonresident aliens but also to corporations organized under the laws of a foreign country...." (37) Large corporate farms are seen as manipulators of the market that "creat[e] an imbalance of power between themselves and the small independent farmers to the point where those farmers have no free access to any market." (38) Restrictions on corporate ownership of agricultural land are found in Chapter 9H of the Iowa Code.

   2. Enforcement Process of Alien Land Ownership Laws in Iowa

      The attorney general of Iowa is tasked with the enforcement of these restrictions. First, the secretary of state must obtain information that a foreign person or entity holds some form of interest in agricultural land. (39) Then, the secretary of state must report the violation to the attorney general. (40) The attorney general will then commence an action in the district court of the county where the land is located. (41) If the court finds a violation, the land will escheat to the state and be sold in the same manner and following the same procedures as a foreclosure sale. (42) The proceeds from the sale will be used to pay court costs, and then the remaining balance, if any, will be given to the person divested of the property. (43)

   3. Other States that Forbid or Limit Foreign Ownership of Land by Law

      Seven other states prohibit or significantly limit foreign ownership of agricultural land by law: Minnesota, Missouri, Nebraska, North Dakota, Oklahoma, South Dakota, and Wisconsin. (44) Minnesota's law is very similar to Iowa's; no alien is allowed to acquire any interest in agricultural land. (45) Missouri law prohibits "alien[s] or foreign businesses] [from] acquiring] ... land in [Missouri] if...