In this past election, one state passed an updated law that disallows certain non residents from buying property. What was in the law? What state passed it? What was the huge change since 2023? What does this mean for buying real estate in certain states? Can a state force owners to sell their property via foreclosure even though there was no default? Why should you care about this law and how will it impact you? Will this law hold at the supreme court?
What was in the law to ban foreign ownership?
The law was recently passed in Tennessee to protect against foreign interests buying real estate especially near sensitive facilities (research, army, etc..) below are the details of the law?
CERTAIN FOREIGN PARTIES PROHIBITED FROM OWNING REAL PROPERTY
Present law prohibits the following individuals or entities from purchasing or otherwise acquiring real property in this state if the country where the individual or entity resides or is located, or the official sanctioned government representing that country, or agents, trustees, or fiduciaries thereof, is on the office of foreign assets control of the U.S. department of the treasury’s sanctions programs and country information list:
(1) An individual who (i) is either a citizen of a foreign government or a person identified on the office of foreign assets control of the U.S. department of the treasury’s sanctions programs and country information list; and (ii) is not a citizen of the United States or a person lawfully admitted into the United States for permanent residence, even if such status is conditional (“sanctioned nonresident alien”);
(2) A business entity that is (i) a corporation incorporated under the laws of a foreign country of a sanctioned foreign government; (ii) a business entity whether or not incorporated, in which a majority interest is owned directly or indirectly by sanctioned nonresident aliens (where the determination of “owned,” in terms of ownership or control of a foreign business, is not affected by legal entities, including trusts, holding companies, multiple corporations, and other business arrangements); or (iii) a corporation or business entity that is identified on the office of foreign assets control of the U.S. department of the treasury’s sanctions programs and country information list (“sanctioned foreign business”); and
(3) A government other than the government of the United States, its states, its territories, or its possessions, that is identified by the office of foreign assets control of the U.S. department of the treasury’s sanctions programs and country information list (“sanctioned foreign government”).
This new bill in TN can force a foreclosure
Below is an interesting twist on the original bill that will force a divestment of all properties owned by Foreign entities (as stated above); this is a new change from the original law that radically alters the enforcement of the law.
This bill removes the July 1, 2023, provision and requires a prohibited foreign-party-controlled business entity in violation of this bill to divest the public or private land within two years of the date the entity is found to be in violation. If a prohibited foreign-party-controlled business entity does not divest the public or private land, the attorney general and reporter must commence an action in the county in the circuit court within the jurisdiction of the public or private land. If the public or private land is held in violation of this bill, the court must order that the public or private land be sold through judicial foreclosure. Proceeds of the sale must be disbursed to lien holders, in the order of priority, except for liens which under the terms of the sale are to remain on the public or private land.
New lawsuit in TN will test the enforcement of the law
There is a new lawsuit that will test the forced sale provision. Three people are suing Tennessee government officials over a law that forbids some foreign individuals and entities from owning land in Tennessee.
The law in question prevents people, businesses and other groups residing in certain foreign countries considered to be adversarial to the United States, from owning land in Tennessee. If they already own that land, the law forces them to divest themselves of it.
In their lawsuit, they allege that the new rules “unconstitutionally create criminal liability without due process, criminalize previously lawful behavior, and ban owning an interest in agricultural and/or non-agricultural land based on national origin.”
The lawsuit also alleges that certain parts the law are “unconstitutionally vague,” and that it “unconstitutionally require[s] Prohibited Owners to incriminate themselves” and “unconstitutionally permits the State to take land through escheatment without just compensation.”
The lawsuit also said that the new law is “implied to be preempted… by federal law.”
Supreme court will decide and huge precedents will be set
The new law and in turn lawsuit raise some very important real estate questions and there will be huge case precedent that will impact real estate nationwide.
- Can a state pick who can or cannot own real estate in their state? This is an interesting question, do States get to decide on national security concerns or is this the role of the federal government. Could a state like California pass a law that a foreign entity like Tesla could not own real estate in California due to security concerns for the environment. As you can see there is a slippery slope with far reaching consequences.
- Does federal law preempt state laws like this? Does federal law and in particular the interstate commerce act ensure that Congress and not the states should be tackling these questions:
- This clause is found in Article I, Section 8 of the U.S. Constitution. It gives Congress the power to regulate commerce between states, with foreign nations, and with Indian tribes. The Commerce Clause has been a major source of Congress’s power to regulate the U.S. economy
- Can a state/city force a sale of a property via a foreclosure for violating a law? This is an interesting question, let’s say a foreign entity bought a property in 2002 before this law was in place/conceived. Fast forward and the new bill would now force them to divest the property or if they don’t the government would pursue a foreclosure action. This is an interesting question of is the government taking property without just compensation.
Should states or cities decide who should own property?
Regardless of your political affiliation or your opinion on this particular law, this law goes down a very slippery slope where a state or city can single out individuals and ultimately force the sale of a property without a trial (look at how this played out in Denver). Similar laws could be used in other states to target businesses, industries, people, etc… without trials. As you can imagine the consequences could be huge for property owners.
Although the law currently only impacts Tennessee, the implications of the case precedent are astounding. This law will test the boundaries of state vs federal laws and who can regulate real estate. The Supreme court will have the ultimate say and the precedents that will be set with this case will be felt in every single state. Stay tuned for how this will all be resolved.
Additional Reading/Resources
Tennessee General Assembly Legislation
Law preventing some foreign entities from owning Tennessee land challenged
https://www.fairviewlending.com/do-not-buy-property-tax-liens/
https://coloradohardmoney.com/denver-will-vote-to-ban-one-business-in-the-city/
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. I’m not an armchair reporter/writer. We are an actual private lender, lending our own money. We service our own loans and own commercial and residential real estate throughout the country.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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