Tuesday, June 19, 2018

Understanding The New Condominium Sales Law

In the next few posts, I will discuss new laws affecting residential real estate sales or residential real estate litigation.  This post addresses 2017 Wis. Act. 303.

Effective April 18, 2018, condominium associations may charge condominium unit sellers a fee of up to $50.00 for furnishing the documents that a seller must furnish to a purchaser pursuant to the WB-14 Residential Condominium Offer To PurchaseSee Wis. Stat. § 703.20(2)(a).  This provision was apparently intended to prevent condominium associations from charging sellers extortionate fees for the required documents, though I suspect that some associations that have never before charged such a fee will now do so because this law expressly authorizes such charges.

Wis. Stat. § 703.33(1) requires condominium unit sellers to furnish certain documents to purchasers not later than 15 days prior to closing.  Effective July 1, 2018, the executive summary required under § 703.33(1)(h) must include the amount of the condominium association's reserve account balance when the association maintains such an account for repairs and replacement of the common elements.  This law imposes additional obligations on condominium associations rather than on condominium unit sellers, as associations are required to furnish all of the required information to sellers upon written request.  See Wis. Stat. § 703.20(2).  That being said, this law potentially benefits purchasers and burdens sellers.  I could foresee a diligent purchaser (or his tenacious lawyer) seeking to renegotiate the purchase price or void the purchase contract altogether upon disclosure that the condominium association has insufficient funds to finance repairs or replacement of its building roofs or parking lots.

Finally, effective July 1, 2018, Wis. Stat. § 703.335 requires a condominium association to provide a written payoff statement to a condominium unit seller or his agent upon written request.  This sounds like a positive development, as purchasers of condominium units often expect reassurances that they will not be responsible for dues and assessments that should have been paid during the prior ownership.  Unfortunately, this law has no teeth.  Under § 703.335(5), the liability of a condominium association to a seller for failing to provide a payoff statement within the statutory deadline - or at all- is capped at $350.00.  A condominium unit seller could sustain damages far exceeding $350.00 if the closing of the sale of his unit is delayed or lost as a result of the association's failure to timely provide the required payoff statement.

Please contact me at rudolphkuss@stevensandkuss.com if you are looking to buy or sell a condominium unit or if you were deceived in your purchase of a condominium unit.         

Friday, June 24, 2016

Understanding New Wis. Stat. § 452.133(4m)

I have written much recently about the Chapter 452 Modernization Act.  In my last post, I introduced the Act's distinction between "firms" and "licensees" to explain real estate firm responsibility for misrepresentations made by licensees associated with that firm.  To review, buyers and sellers enter into contracts with real estate firms, such as Shorewest, First Weber, Re/Max, or EXIT.  The individual real estate agent providing services to the buyer or seller is known as a licensee - he or she is individually licensed as a Real Estate Broker or Real Estate Salesperson by the State of Wisconsin.

Wis. Stat. § 452.133 has long spelled out the duties of real estate agents.  As of right now (most of the Chapter 452 Modernization Act does not take effect until July 1st), this section is titled "Duties of brokers."  Wis. Stat. § 452.133(1) spells out broker duties to all parties in a transaction, while § 452.133(2) sets forth broker duties to clients.  The word "broker" is somewhat confusing.  Wis. Stat. § 452.01(2)(a) defines "broker" in terms of a "person," while the standard WB-1 Residential Listing Contract uses "broker" in terms of a firm with real estate agents.

At first glance, Wis. Stat. § 452.133(1) and (2) appear to clarify that it is the firm that owes duties to parties and clients:
(1) Duties to all parties to a transaction. A firm providing brokerage services to a party to a transaction owes all of the following duties to the party:
(a) The duty to provide brokerage services honestly and fairly.
(b) The duty to provide brokerage services with reasonable skill and care.
(c) The duty to timely disclose in writing all material adverse facts that the firm knows and that the party does not know or cannot discover through reasonably vigilant observation, unless the disclosure of a material adverse fact is prohibited by law.
(d) The duty to keep confidential any information given to the firm in confidence, or any information obtained by the firm that the firm knows a reasonable person would want to be kept confidential, unless the information must be disclosed by law or the person whose interests may be adversely affected by the disclosure specifically authorizes the disclosure of particular information. The firm shall continue to keep the information confidential after the transaction is complete and after the firm is no longer providing brokerage services to the party.
(e) The duty to provide accurate information about market conditions that affect the transaction, within a reasonable time after a request for such information by the party, unless disclosure of the information is prohibited by law.
(f) The duty to safeguard trust funds and other property held as required by rules promulgated under s. 452.13 (5).
(g) When the firm is negotiating on behalf of a party, the duty to present contract proposals in an objective and unbiased manner and disclose the advantages and disadvantages of the proposals.
(2)Duties to clients. A firm providing brokerage services to a client owes the client the duties that the firm owes to a party under sub. (1) and all of the following additional duties:
(a) The duty to loyally represent the client's interests by doing all of the following:
1. Placing the client's interests ahead of the interests of the firm.
2. Placing the client's interests ahead of the interests of persons in the transaction who are not the firm's clients by not disclosing to persons in the transaction other than the firm's clients information or advice the disclosure of which is contrary to the interests of a client of the firm, unless the disclosure is required by law.
(am) The duty to provide, when requested by the client, information and advice to the client on matters that are material to the client's transaction and that are within the scope of the knowledge, skills, and training required under this chapter.
(b) The duty to disclose to the client all information known by the firm that is material to the transaction and that is not known by the client or discoverable by the client through reasonably vigilant observation, except for confidential information under sub. (1) (d) and other information the disclosure of which is prohibited by law.
(c) The duty to fulfill any obligation required by the agency agreement, and any order of the client that is within the scope of the agency agreement, that is not inconsistent with another duty that the firm has under this chapter or any other law.
(d) The duty to negotiate on behalf of the client.

OK, so licensees are responsible for their own misrepresentations, but firms are solely responsible for brokerage services?  Not exactly.  Enter brand new § 452.133(4m):

Duties and prohibitions; application to licensees.
(a) Subject to par. (d), a firm's duties under sub. (1) extend to each licensee associated with that firm, and each licensee associated with a firm owes the same duties to a party that the firm owes to that party under sub. (1).
(b) Except as provided in s. 452.134 (3) (b) and subject to par. (d), a firm's duties under sub. (2) extend to each licensee associated with that firm, and each licensee associated with a firm owes the same duties to a client of the firm that the firm owes to that client under sub. (2).
1. Subject to par. (d), a subagent's duties under sub. (4) (a) extend to each licensee associated with that subagent, and each licensee associated with a subagent owes the same duties to a party that the subagent owes to that party under sub. (4) (a).
2. Subject to par. (d), the prohibitions that apply to a subagent under sub. (4) (b) extend to each licensee associated with that subagent, and no licensee associated with a subagent may take any action that the subagent is prohibited from taking under sub. (4) (b).
(d) The duties and prohibitions under pars. (a) to (c) extend only to a licensee providing brokerage services to a party to the transaction.

While the phrasing is rather clumsy, the gist appears to be that both real estate firms and individual licensees can be held responsible for breaching the duties owed under §§ 452.133(1) and (2).  In fact, even licensees affiliated with the firm who do not provide actual brokerage services to anyone in the transaction can still be held personally responsible if they violate confidentiality, provide inaccurate information about market conditions per a party's request, or fail to safeguard trust funds.  In sum, personal responsibility (and thus personal liability) for both real estate firms and individual licensees will apparently be the rule under Wis. Stat. § 452.133.      

Sunday, June 5, 2016

Wis. Stat. § 452.12(3) - Firm Responsibility For Agent Misrepresentations

In my last post, I discussed seller liability for misrepresentations made by real estate agents.  Today, I discuss firm responsibility for these misrepresentations.

In my series of posts discussing the Chapter 452 Modernization Act, I have consistently used the legally meaningless term "real estate agent" because I wanted to focus on the important changes to Chapter 452 rather than the technical distinctions between "licensees," "brokers," and "firms."  As a practical matter, buyers and sellers need to know that their listing contract or buyers' agency agreement is not with an individual real estate agent.  Buyers and sellers contract with business entities such as Shorewest REALTORS, First Weber Group, RE/MAX, and EXIT Realty.  Your individual real estate agent is an associate of the business entity that you contracted with.  That's an important distinction for buyers and sellers to bear in mind in the event that they want to terminate their contract.

The Chapter 452 Modernization Act reduces the broker or real estate firm's responsibility for the actions of its real estate agents.

Wis. Stat. § 452.12(3) used to state the following: "Subject to s. 452.139 (3), each broker shall supervise, and is responsible for, the brokerage services provided on behalf of the broker by any broker, salesperson, or time-share salesperson who is an employee of the broker."

The new § 452.12(3) says, "Subject to s. 452.139 (3), a firm is responsible for the brokerage services provided on behalf of the firm by a licensee associated with the firm only to the extent that the firm fails to comply with s. 452.132 and any rules promulgated under s. 452.07 (1m) with respect to that licensee."

While the old statute appeared to presume broker or firm responsibility for the acts of individual real estate agents, the new statute appears to presume the exact opposite.

The "shall supervise" language from the old statute is gone, though it has been replaced by Wis. Stat. § 452.132:

(1) A firm shall supervise the brokerage service activities of each licensee associated with the firm, including by doing all of the following:
(a) Ensuring that a supervising broker for the firm complies with sub. (4).
(b) Providing a licensee with reasonable access to a supervising broker for the purpose of consultation regarding real estate practice issues.
(2) A firm shall do all of the following:
(a) Provide each licensee associated with the firm with a written statement of the procedures under which the firm and licensees associated with the firm must operate with respect to handling leases, agency agreements, offers to purchase, and other documents and records relating to transactions.
(b) Notify each licensee associated with the firm where a copy of the rules promulgated by the board related to the conduct, ethical practices, and responsibilities of licensees may be obtained.
(c) Before a licensee becomes associated with the firm and at the beginning of each biennial licensure period, ensure that the licensee holds a valid license.
(3) A firm shall be responsible for the custody and safety of all documents and records relating to transactions submitted to the firm as required under sub. (6) (b).
(a) A supervising broker for a firm, as determined under sub. (5), shall review all of the following prior to the closing of a transaction in accordance with par. (b):
1. All agency agreements, offers to purchase, leases, and other documents that are executed by the parties and records relating to the transaction that are used by a licensee associated with the firm and submitted to the firm as required under sub. (6) (b).
2. All trust account records relating to the transaction.
(b) The review under par. (a) shall be limited to confirming that a written disclosure statement to a customer or client has been provided by a licensee associated with the firm in accordance with s. 452.135, confirming that any applicable form approved by the board has been used and the forms have been completed by filling in the blanks in a manner consistent with the structure of the form, and communicating to the licensee any errors in how the forms were completed that are apparent on the face of the document and known to the person reviewing the document.
(a) A firm that is a licensed broker business entity shall delegate the performance of the duty to supervise licensees associated with the firm to a supervising broker who is a licensed individual broker.
(b) A firm that is not a licensed broker business entity may delegate the duty to supervise licensees associated with the firm to a supervising broker who is a licensed individual broker, but in the absence of a specific supervising broker delegation, the firm itself is deemed to be the supervising broker for that firm.
(c) A delegation under par. (a) or (b) shall be written and signed by or on behalf of the delegating firm, identify the duty delegated, and be signed by the broker to whom the delegation is made.
(d) A firm may delegate the duty to supervise licensees to more than one supervising broker.
(a) A licensee associated with a firm shall be responsible for discussing with the party with whom the licensee is working with or representing any error communicated to the licensee as provided in sub. (4) (b), and the party shall determine whether to request any changes to address the error.
(b) A licensee associated with a firm shall submit to the firm in a timely manner all agency agreements, offers to purchase, leases, and other documents that are executed by the parties and records related to the brokerage services provided on behalf of the firm and transactions that are used or received by the licensee.

In short, the Chapter 452 Modernization Act clearly tells real estate firms what they must do in order to properly supervise their licensees and avoid liability for negligent supervision.  None of these supervisory requirements appear designed to prevent misrepresentations made by individual real estate agents.

While it is tempting to cite this provision of the Chapter 452 Modernization Act as another example of how the legislature protected campaign contributors at the expense of Wisconsin homeowners, we must bear in mind that real estate agents are independent contractors.  Imposing broad supervisory requirements on real estate firms creates the risk that independent real estate agents will be treated as employees for tax and regulatory purposes.  While I continue to believe that real estate agents should be allowed to pursue wage claims against their firms for unpaid commissions, many other labor laws make absolutely no sense as applied to real estate agents, such as minimum wage laws.  The application of labor laws to independent real estate agents would deter real estate firms from using such agents, which would in turn reduce the number of real estate agents that buyers and sellers can choose from.  The risk of courts and federal agencies treating independent real estate agents as "employees" is real, see, e.g., Monell v. Boston Pads LLC, 471 Mass. 566 (2015), so I can understand why the WRA acted to preserve the independent contractor status of real estate agents through convincing the legislature to amend Wis. Stat. § 452.12(3) and enact Wis. Stat. §§ 452.132 and 452.38.

Monday, May 30, 2016

Seller Liability For Agent Misrepresentations

Buyers of residential real estate in Wisconsin typically receive a Real Estate Condition Report from the previous owners (or sellers) of the property.  In this Real Estate Condition Report, the sellers are required to disclose their awareness of defects or adverse conditions affecting the property.  While the sellers tell buyers everything that is wrong with their home, their real estate agent tells buyers (or their agents) everything that is supposedly good.  The sellers' real estate agent advertises the property on her website; the Multiple Listing Service; other real estate websites such as Realtor, Zillow, and Trulia; and social media.  Could the buyers hold the sellers liable if the real estate agent misrepresents the acreage, the square footage, the number of bedrooms or bathrooms, the age of the roof, the warranty on foundation repairs, the materials used to remodel the kitchen or bathroom, or lake access?

Wis. Stat. § 452.139(2)(a) attempts to answer this very question:

A client is not liable for a misrepresentation made in connection with the provision of brokerage services by a firm or any licensee associated with the firm, unless the client knows or should have known of the misrepresentation or the firm or licensee is repeating a misrepresentation made by the client.

At first blush, this statute appears to absolve sellers from liability from most real estate agent misrepresentations.  Trouble is, the standard WB-1 Residential Listing Contract includes provisions under which sellers specifically authorize their real estate agent to market the property using certain media and to "do those acts reasonably necessary to effect a sale. . . ."  One could use this language to argue that the sellers should have known of their agent's misrepresentations because they specifically authorized - and even demanded - that their agent advertise their home a certain way.

In order to reduce this risk, I recommend that sellers demand that their listing contract include a provision giving them the right to approve or disapprove the content of all advertising prior to its publication.

Are you considering selling your home?  Please email me at rudolphkuss@stevensandkuss.com for a free initial consultation.    

Sunday, May 29, 2016

Sellers: Get Lien Waivers

I recently wrote a post on LinkedIn explaining the Wisconsin Construction Lien Law from a contractor's perspective.  Since this blog is for homeowners (who I primarily represent anyway), this post will explain the Wisconsin Construction Lien Law from a homeowner's perspective.  In particular, I address this post towards homeowners who are planning on selling their home and are having work done in preparation for that sale.

Many sellers have their home painted to give it a fresh look and make it look more appealing to buyers.  This is generally a good idea, as long as you're not trying to conceal structural defects or signs of leakage.  While some homeowners handle all of the painting themselves, many homeowners choose to hire a professional painter.

You pay the painter in advance for the paint and pay him for his labor after he has painted all of the walls and ceilings in your home.  The painter gives you a handwritten receipt for your cash payment.  Your home looks stunning and sells quickly.  Everything is zen until the title company requires you to sign an affidavit itemizing all work that has been performed on your property during the past six months.  Upon reviewing your affidavit, the title company asks you for the lien waiver from your painter.  Like many homeowners, you ask "what's a lien waiver?"

The Wisconsin Construction Lien Law essentially protects contractors from getting stiffed on payment by property owners.  Wis. Stat. § 779.01(3) provides as follows:

Any person who performs, furnishes, or procures any work, labor, service, materials, plans, or specifications, used or consumed for the improvement of land, and who complies with s. 779.02, shall have a lien therefor on all interests in the land belonging to its owners

Your painter arguably has a lien or interest in your property.  Your title company and your buyer's mortgage lender do not want anyone else to have an interest in the property at the time of closing.  They will not accept the risk that your contractor could foreclose on the property after closing.

I understand that this requirement makes little sense under some circumstances.  Your painter's work arguably has not been "used or consumed for the improvement of land," though the definition of "improve" under § 779.01(2)(a)  includes "remodeling."  Your painter may have forfeited his lien rights under Wis. Stat. § 779.02 by failing to provide you with written notice of his lien rights at the time of contracting or within 10 days after buying the paint.  Besides, you paid him in full and got a receipt!  Trouble is, the title company likely will not care that neither you nor the painter think that the painter has a lien on your property.  You will get a lien waiver or you will not close on your sale.

Wis. Stat. § 779.05 contains the formal requirements for lien waivers.  Fortunately, this isn't rocket science.  Title companies provide lien waiver forms.  Wisconsin Legal Blank also supplies contractors with these forms.  You simply need to contact your painter and get him to complete and sign a lien waiver.

I represent both buyers and sellers in residential real estate transactions.  Please email me at rudolphkuss@stevensandkuss.com for a free initial consultation.

Saturday, April 23, 2016

Clean Your Room - A Suggested Additional Provision For Your Offer

When disappointed buyers come into my office, I often hear different versions of the same story:

I looked at the home and noticed nothing wrong with the basement walls.  The sellers had shelving, boxes, their Christmas tree, RUBBERMAID containers, crock pots, coolers, books, bulk food, camping supplies, and luggage against the walls.  Those things were still in along the basement walls at the time of the home inspection, and my home inspector did not note any problems with the basement walls.  I walked through the home just before closing and discovered huge cracks in the basement walls.  When I frantically called my agent, she told me that I could not bring back my home inspector or bring in a structural engineer.  She told me that I had to close on Friday and that I could be sued by the sellers if I failed to close.  I closed that Friday morning and have since learned that two of my basement walls need to be excavated and reinforced at an estimated cost of $25,000. 

This is not an easy case.

The standard WB-11 Residential Offer To Purchase contains a inspection contingency (lines 410-26).  This contingency gives a buyer a certain amount of time to have a Wisconsin registered home inspector inspect the property and write a report.  Within the offer's deadline, the buyer must deliver a copy of the home inspection report to the sellers along with a written notice listing the objectionable defects identified in that report.  If the buyer does not deliver a Notice of Defects to the sellers within the offer's deadline, the inspection contingency is deemed satisfied and no longer provides an "out" for the buyer.  

The standard offer also allows for a pre-closing walk-through (lines 202-15).  The purpose of that walk-through is to make sure that there has been no significant change to the the property since acceptance.  If the property has been damaged between acceptance and closing, the buyer might be able to cancel the offer and refuse to close.  Under our scenario, however, it seems likely the basement wall cracks existed prior to acceptance even if they were not visible to the buyer or his home inspector.  If the buyer refuses to close, the seller could sue the buyer for damages under the standard offer's default provisions (lines 281-84).

The buyer goes through with the closing, hoping that the basement walls do not require expensive repairs.  When he learns otherwise, he wants to sue everybody - his buyers' agent, his home inspector, the sellers, the appraiser, the municipal building inspector.   

The buyer likely does not have a negligence claim against his home inspector.  Wis. Stat. § 440.975(2) sets forth the statutory standard of practice for home inspectors:

A home inspector shall perform a reasonably competent and diligent inspection to detect observable conditions of an improvement to residential real property. Except for removing an access panel that is normally removed by an occupant of residential real property, this subsection does not require a home inspector to disassemble any component of an improvement to residential real property. A reasonably competent and diligent inspection under this subsection is not required to be technically exhaustive.

If that isn't clear enough, Wis. Stat. § 440.975(6)(f) explains that this statute does not require home inspector to "[d]isturb insulation or move personal items, furniture, equipment, vegetation, soil, snow, ice or debris that obstructs access to or visibility of an improvement to residential real property or a component of an improvement to residential real property." 

The buyer might have a misrepresentation claim against the sellers based on their failure to disclose the basement defects in their Real Estate Condition Report.  The sellers will argue that the buyer was not deceived by their representations because he learned the truth before closing.  The buyer will argue that his pre-closing discovery of basement wall cracks is irrelevant because he was legally obligated to close by that time.  Who knows what a judge or a jury will decide?

This dispute could have been avoided.  The buyer (or his agent) could have written an additional provision in the space provided in lines 165-172 or lines 435-42 requiring the sellers to move all of their personal items, shelving, furniture, and debris away from the walls within 10 days of acceptance (or at least 24 hours before the home inspection).  Alternatively, the buyer could have included an additional provision allowing him to cancel his offer in the event that a Wisconsin registered home inspector reports that the sellers' personal items, shelving, furniture, or debris obstructed his access to or the visibility of any component of the property. 

I try to help disappointed buyers achieve justice in court, but I can also help people who are looking to purchase a home.  You can reach me at rudolphkuss@stevensandkuss.com

Tuesday, April 19, 2016

Revisiting The Statute of Limitation For Claims Against Home Inspectors

Though I am not a big fan of Wis. Stat. § 452.142, I have to give credit where credit is due.  Despite my position that § 452.142 does not shorten the limitations period for sellers' contribution actions against their real estate agents, the new statute appears to shorten the limitations period for breach of contract and negligence actions against real estate agents.  It also appears to shorten the limitations period for Wis. Stat. § 100.18 actions against real estate agents.  The Wisconsin REALTORS Association made sure that the new statute trumps existing statutes of limitations for breach of contract actions under § 893.43, negligence causing property damage actions under § 893.52, and § 100.18 actions.  The new statute applies "notwithstanding" those contrary provisions.

Wis. Stat. § 440.977(1) purports to create a statute of limitation for claims against home inspectors:

Notwithstanding s. 893.54, an action to recover damages for any act or omission of a home inspector relating to a home inspection that he or she conducts shall be commenced within 2 years after the date that a home inspection is completed or be barred.

In a previous post, I called this a "strict two-year statute of limitation."  After examining § 452.142 however, I am no longer convinced that § 440.977(1) is so strict.

This statute only expressly trumps an existing statute of limitation for negligence causing personal injury or death.  Unlike § 452.142, § 440.977(1) does NOT explicitly override the respective limitations periods in § 893.43 and § 893.52.  A homeowner has a plausible argument that § 893.43's 6-year statute of limitation should govern the breach of contract action against his home inspector.  A homeowner also has a colorable argument that § 893.52 should govern his negligence causing property damage action against his home inspector, especially since that statute applies "[e]xcept as provided in sub. (2) and in any other case where a different period is expressly prescribed."  While the legislative intent to override § 893.54 is clearly stated, there is no evidence in the statutory language that § 440.977(1) was intended to override § 893.43 or § 893.52.  Stated another way, a different limitations period for breach of contract and negligence causing property damage actions is not expressly prescribed by § 440.977(1).

The evidence is even clearer that § 440.977(1) does not shorten the limitations period for § 100.18 actions against home inspectors.  Oftentimes, I come across a home inspector who claims on his website that he is "insured"; that he is some sort of "specialist" in foundations or roofs; or that he has certain certifications beyond the standard home inspection license.  If statements on a home inspector's website are untrue, deceptive or misleading and induce a consumer to choose him as a home inspector, the consumer has a potential claim under § 100.18.  Unlike § 452.142, § 440.977(1) does not explicitly trump the existing limitations period in § 100.18.  Furthermore, § 100.18 actions against home inspectors are not based on "any act or omission of a home inspector relating to a home inspection that he or she conducts. . . ."  Such actions are based on the deceptive or misleading statements that the home inspector made to convince consumers to hire him as a home inspector in the first place.  Under its plain language, § 440.977(1) cannot apply to § 100.18 actions against home inspectors.

All that being said, you cannot count on courts to interpret § 440.977(1) this way.  If you believe that you have been deceived by your home inspector or damaged by his poor performance, you need to contact an attorney right away.  Please contact me at rudolphkuss@stevensandkuss.com.