Thursday, February 28, 2013

Below v. Norton, Irrelevant After All These Years

Five years ago this week, I argued two cases before the Wisconsin Supreme Court.  The first of these cases was Below v. Norton, which I argued on the morning of Tuesday February 26, 2008.

The trial court and the Court of Appeals had both held that my client's intentional misrepresentation claim against her sellers was barred by the economic loss doctrine, which disfavors tort claims (such as negligence and strict liability claims) between contracting parties.  The Wisconsin Supreme Court had held that the economic loss doctrine barred most intentional fraud claims between commercial parties, see Kaloti Enters., Inc. v. Kellogg Sales Co., 2005 WI 111, and even intentional fraud claims brought by consumers.  See Tietsworth v. Harley-Davidson, Inc., 2004 WI 32.  The Wisconsin Supreme Court had also held that the economic loss doctrine barred some misrepresentation claims in commercial real estate transactions, see Van Lare v. Vogt, Inc., 2004 WI 110, and negligent construction claims by homeowners.  See Linden v. Cascade Stone Co., 2005 WI 113.  Somehow, I convinced the Wisconsin Supreme Court to accept my petition for review in the face of this daunting precedent and also convinced it not to dismiss my petition for review as improvidently granted after it decided Wickenhauser v. Lehtinen, 2007 WI 82.  Unfortunately, despite my best efforts and the best efforts of amicus curiae Wisconsin Academy of Trial Lawyers (now the Wisconsin Association for Justice), the Wisconsin REALTORS Association, the University of Wisconsin Consumer Law Litigation Clinic (whose students also "mooted" my arguments), AARP, Consumer Justice Law Center LLC, Legal Action of Wisconsin, and the Legal Aid Society of Milwaukee, the Wisconsin Supreme Court was unwilling to recognize an exception to the economic loss doctrine for intentional fraud claims brought by noncommercial purchasers of residential real estate.  It held that the economic loss doctrine bars common law intentional misrepresentation claims in all real estate transactions.  See Below v. Norton, 2008 WI 77.

Realtors and lawyers advised their clients on the implications of the Below decision until the legislature abrogated its holding by enacting Wis. Stat. 895.10.  Under this statute, a purchaser of residential real estate may pursue a tort claim against his or her seller for fraud or intentional misrepresentation arising from a residential real estate transaction completed on or after April 23, 2009.  See Shister v. Patel, 2009 WI App 163, n.6. 

If you've purchased a defective home, well-meaning friends and family may tell you that you have no legal remedy.  Thank them for their advice, but please recognize that what they've heard is urban legend.  If you purchased your home on or after April 23, 2009, Below v. Norton does not bar your common law intentional misrepresentation claim.  Even without Wis. Stat. s. 895.10, purchasers of defective residential property still had claims for violation of Wis. Stat. s. 100.18 and breach of contract, as the Below decision itself pointed out.  Furthermore, the Wisconsin Court of Appeals has since held that the economic loss doctrine does not bar claims for violation of Wis. Stat. ss. 895.446 and 943.20.  See Ferris v. Location 3 Corp., 2011 WI App 134.

While it was quite an experience arguing before the Wisconsin Supreme Court, the Below decision is largely irrelevant to claims arising from the purchase of defective residential real estate as we sit here today.  If you're considering buying a home, please follow the advice in my previous post regarding Real Estate Condition Reports.  If you've already discovered that you've bought a home with defects, please review my post regarding statutes of limitations.

Monday, February 18, 2013

No One Told You When To Run - You Missed The Starting Gun!

One of the more common questions that I get from people who have purchased a defective home is how long they have to sue their sellers.  In legal terms, when does the statute of limitation on real estate misrepresentation cases run?

Fortunately, reality turns out to be far better than perception on this issue.  Many new homeowners think that it's too late if more than a year has passed since the sale.  The truth is that most claims have a six-year statute of limitation, which may be extended further by the discovery rule and equitable estoppel arguments.

VIOLATION OF WIS. STAT. s. 100.18: Sellers violate Wis. Stat. s. 100.18 by making representations about the condition of their home that are untrue, deceptive, or misleading.  Per Wis. Stat. s. 100.18(11)(b)3., "no action may be commenced under this section more than 3 years after the occurrence of the unlawful act or practice which is the subject of the action."  Generally, buyers must commence a s. 100.18 action within 3 years after viewing a Real Estate Condition Report.  

BREACH OF CONTRACT: Sellers breach the standard WB-11 Offer To Purchase contract by failing to disclose defects in their Real Estate Condition Report. Per Wis. Stat. s. 893.43, a breach of contract action "shall be commenced within 6 years after the cause of action accrues or be barred." A contract cause of action accrues at the time of breach.  Therefore, a buyer must commence a breach of contract action within 6 years after the sellers accepted the offer to purchase.

INTENTIONAL MISREPRESENTATION: Per Wis. Stat. s. 893.93(1)(b), an "action for relief on the ground of fraud" "shall be commenced within 6 years after the cause of action accrues or be barred."

VIOLATION OF WIS. STAT. ss. 895.446 and 943.20: Wis. Stat. s. 895.446 creates a cause of action for victims of theft by intentional fraud.  Wis. Stat. s. 895.446 does not contain any statute of limitation.  Its cause of action may be governed by s. 893.93(1)(b) or it may be governed by s. 893.93(1)(a), which provides that "an action upon a liability created by statute when a different limitation is not prescribed by law" "shall be commenced within 6 years after the cause of action accrues or be barred."  Regardless, the statute of limitation is clearly 6 years after accrual.

Wis. Stat. s. 893.93(1)(b) declares that a fraud cause of action "is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud."  

Let's say that you purchase a home with a brand new finished basement and live in it for 8 years.  You put it up for sale and the only interested buyer insists that you remove the drywall for his home inspector.  Upon removing the drywall, both of you discover that the foundation walls are cracked and caving in.  Not surprisingly, you lose your buyer but gain several $30,000+ foundation repair estimates.  In my opinion, you have a cause of action against your sellers for intentional fraud thanks to the "discovery rule."  

I would also argue that the sellers should be equitably estopped from asserting the statute of limitations as a defense based upon their intentional concealment of defective foundation walls.  Equitable estoppel is appropriate when a defendant’s conduct is “so unfair and misleading as to outbalance the public's interest in setting a limitation on bringing actions.”  State ex. rel. Susedik v. Knutson, 52 Wis. 2d 593, 598, 191 N.W.2d 23, 26 (1971). 

The bottom line is that homebuyers are not necessarily out of luck when defects are discovered years after purchase.  Indeed, I won a Waukesha County jury trial in 2009 for clients who purchased their home way back in 2001.  See Keller v. Gaszak.

That being said, you should contact professionals right away when you discover defects in a newly-purchased home.  As I recommended in an earlier post, you should start with your real estate agents, consultants, and repair professionals.  You also need to seek legal counsel as soon as possible.  The Wis. Stat. s. 100.18 claim is a powerful claim.  You don't have to prove intent to defraud.  You don't have to prove that the representation was actually false; only that it was "deceptive" or "misleading."  You don't even have to prove that it was reasonable for you to rely upon the representation.  You're entitled to recover reasonable attorneys' fees from the sellers if you win.  However, the 3-year statute of repose is harsh, and the discovery rule does not apply.  Furthermore, juries believe that timing matters regardless of what the law is.         

Sunday, February 17, 2013

The Real Estate Condition Report- Don't Buy Home Without One!

For over 20 years, Chapter 709 of the Wisconsin Statutes has required most sellers of residential real estate to provide a Real Estate Condition Report to prospective buyers.  Sellers are required to certify whether or not they are aware of defects in numerous areas of the property being sold, including the roof; the electrical system; the plumbing system; the HVAC system; the septic system; the well; and the basement.  They are also required to certify whether or not they are aware of other conditions affecting the property such as boundary line disputes; unsafe levels of radon or mold; and remodeling that was completed without the required permits.  Sellers are in the best position to provide this information to buyers because they have usually lived in the property for several years.  In comparison, home inspectors are only allowed to access the property for an hour or two and are usually not allowed to move the sellers' personal property, much less wall and floor coverings.

In the ideal scenario, a buyer receives a Real Estate Condition Report signed by someone who has owned and lived in the property for several years prior to making an offer.  Unfortunately, I often deal with the following less-than ideal scenarios:

  • The buyer does not receive the Real Estate Condition Report until after he or she has already agreed to purchase the property.  
  • The buyer receives a Real Estate Condition Report signed by someone who does not own the property and will not receive any of the proceeds from the sale.
  • The buyer receives a Real Estate Condition Report signed by an absentee owner likely ignorant of the property's true condition.
  • The property has never been inhabited by anyone, i.e., a spec home.
  • The sellers who owned and lived in the property for several years convey the property to a relocation company that completes the Real Estate Condition Report and sells the property (yes, that really happens!).
You might be able to get a great deal on a foreclosed property, a spec home, or a home being sold by the personal representative of an estate. However, that deal won't seem so "great" anymore when you learn that roofers and basement repair contractors don't provide 5-year payment plans.  You will have to commit to paying a bank hundreds of thousands of dollars over the next thirty years in order to buy a home, so the true condition of this home should be absolutely critical to your decision.  Do yourself a favor and insist on receiving a Real Estate Condition Report signed personally by all owners of the property and all persons familiar with the property's condition before you make your offer!    

Wednesday, February 13, 2013

Do You Really Need Me?

This might sound like the worst elevator speech ever, but please bear with me.  Many new homeowners call me about their leaky basements.  In some cases, it is not in their best interests to file a civil lawsuit against their sellers.

I met with such a prospective client this afternoon.  He purchased a $600,000 home in God's Country last spring and has since discovered that one basement wall leaks.  His children's playroom has gotten wet.  Someone who buys such a nice home on such a nice lot deserves better.  His sellers disclosed nothing, and I find it hard to believe that the basement didn't leak during their 8 years of ownership.

He received two estimates from reputable WAFRP member contractors, one of whom referred him to me.  They recommended replacing the inside drain tile in the affected area and adding a sump crock for around $2,000.

My firm represents defrauded homeowners on a contingency fee basis, which means that we get paid a percentage of the amount recovered.  Other firms charge an hourly rate ranging from $200-$500 per hour.  If the problems with your home can be repaired for less than $10,000, it's probably not in your best interests to file a civil lawsuit.

This gentleman might need my services down the line.  Perhaps his sellers will agree to pay for the repairs but ask him to sign a release.  I can make sure that he's protected in case additional basement repairs are needed or defects are discovered in other areas of his home in the future.  Perhaps his sellers will ignore his calls.  I can write his sellers a Golke letter so that he can proceed with repairs without jeopardizing his future case.

If you've purchased a new home with a leaky basement, this is what you need to do:
  • Take photographs and videos of the water;
  • Document and preserve all water-damaged property, especially drywall, studwall, carpeting, and tack strips;
  • Contact your real estate agent;
  • Contact an independent foundation consultant, such as Chuck Weber or Mike Shadid; and
  • Obtain estimates from reputable contractors based upon the independent foundation consultant's recommendations. 
Sometimes, homeowners can solve their leaky basement problems simply by making exterior, above-grade improvements, such as building up the grade or extending the downspouts.  Unfortunately, these relatively inexpensive improvements don't always work and the homeowner is forced to consider drain tile replacement, waterproofing, and other expensive foundation repairs.  In short, you might need my services in the future even if you don't need them right now.