The Iowa Supreme Court entered a ruling earlier this month which set aside a sale of real estate by a ward’s personal representative due to the fact that the ward, who was incompetent, was not personally served with notice of the sale. The ruling is unusual in certain respects, not the least of which are that the fact that the sale in question was 11 years old at the time of the Supreme Court’s ruling and the fact that the ward’s personal representative had sought and obtained a district court’s approval of the sale at the time it occurred.

Bessie Jordan was a retired school teacher whose primary asset was an interest in a family farm. She was no longer mentally competent to handle her own affairs by 1985 and her sister’s son was appointed as her guardian and conservator at that time. Bessie’s real estate was leased during the first few years of the conservatorship, but in August of 1988 the conservator sought approval from the district court to sell the farm to a corporation owned by the conservator’s wife. The application to the court revealed that the proposed purchaser was a corporation owned by the conservator’s wife. The application also was supported by two appraisals from qualified farm appraisers - the purchase price proposed by the conservator was based on the higher of the two appraisals. The district court granted the conservator’s application to sell Bessie’s real estate interest in September 1988. Those orders were entered without notice to Bessie or anyone acting in her behalf other than the conservator applicant.

Bessie died in October 1992 and her conservator’s wife was initially appointed as administrator of her estate. In May of 1994 the conservator’s wife was replaced as administrator of Bessie’s estate and the new administrator promptly filed an action to set aside the sale of Bessie’s real estate 6 years earlier. At the trial of that action the district court refused to set aside the sale, finding that the purchase price paid for the real estate was fair and that the sale was in Bessie’s best interest at the time. An appeal was then filed with the Iowa Supreme Court.

The Supreme Court was clear that it set aside the sale of Bessie’s real estate not because the sale involved self-dealing by her conservator but because the conservator did not give his ward proper notice of the sale. The Supreme Court candidly noted in its opinion that the answer to the question of to whom notice should have been given in such a case is “not entirely clear”. Notwithstanding the absence of a clear directive in the State’s probate code concerning persons entitled to notice of a conservator’s sale of a ward’s property, the Court found its own precedent “specific enough to answer the question for purposes of the present dispute”. In short, the Court found that notice of an application to sell a ward’s property must be given personally to the ward even though that person is a minor or incompetent and that the ward should be represented in such situations by a guardian ad litem - i.e., an attorney appointed by the court for the express purpose of representing the ward’s interest in connection with the proposed sale. Absent such notice, the court’s order approving the proposed sale is void for want of jurisdiction and is not binding on the ward or her successors regardless of how much time has passed since the sale occurred.

The Court acknowledged that the passage of more than 11 years from the date of the sale in question would result in “some complications in restoring the status quo”. As a general matter, each party to the transaction must return to the other either in kind or in matching value what each person has received from the voided transfer (i.e., Bessie’s estate would be entitled to the real estate and fair rental for its use by the buyer, and the buyer would be entitled to a return of its purchase price). Whether the rights of innocent third parties had intervened during that 11 year period, such as mortgage lenders to the buyer, cannot be ascertained from the Court’s opinion. Although the Court emphasized that it wished to effect an “equitable solution” to the litigation, it did not acknowledge or address the possibility that in voiding the sale of Bessie’s real estate, it was cutting off the rights of innocent third parties who made loans to the buyer of the real estate and took liens on the real estate as collateral.

The Bessie Jordan case should be of great interest and concern to anyone associated with past or future sales of real estate owned by a ward. Regardless of whether court approval was sought for the sale of a ward’s property, and regardless of how long ago the sale may have occurred, any such sale which was not made following personal notice to the ward and appointment of a guardian ad litem is now subject to challenge. Anyone with an interest in such a transaction should seek competent legal advice as to whether further measures, such as further court proceedings, are now necessary to insulate such a transaction from a court challenge.