Tuesday, February 18, 2014

Real Estate Brokers, "As Is" Clauses, And The Unauthorized Practice Of Law

In prior posts, I have discussed the duty to disclose defects in residential property - a duty that is owed to all buyers by both the seller and the real estate broker. When a seller tells his real estate broker that his property's basement leaks, the real estate broker should insist on this information being included in the Real Estate Condition Report. What happens, though, when the seller responds to this advice by asking his real estate broker if he can sell his property "as is"?

For starters, real estate brokers caught in this dilemma should review Cori Lamont's excellent article about "as is" clauses in Wisconsin Real Estate Magazine. The most important point is that an "as is" clause DOES NOT relieve a real estate broker of her obligation to disclose defects to all buyers under Wis. Admin. Code s. REEB 24.07(2). Indeed, I believe that a real estate broker who does not disclose defects to all buyers is also violating her duty to act to protect the public from fraud and misrepresentation under Wis. Admin. Code s. REEB 24.03(2)(b).

To review, the seller wants you to help him escape any risk of liability for misrepresentation. If you help the seller sell his property "as is," you will remain potentially liable to the buyer for failing to disclose the defects that your seller told you about. The "as is" clause may save the seller, but it cannot save you. What's not to like?

But wait, it gets worse! A real estate broker risks violating several rules within Wis. Admin. Code s. REEB 16- Approved Forms And Legal Advice if she gives the client what he wants. A real estate broker would have to draft a special "as is" form because no approved form contains "as is" language. Trouble is, Wis. Admin. Code s. REEB 16.04 bars real estate brokers from drafting special, non-approved forms. Theoretically, a real estate broker could hand write "as is" language in a counteroffer or amendment, but Wis. Admin. Code s. REEB 16.05 bars real estate brokers from giving opinions regarding the legal effect of such language. The seller would want to know if the "as is" language will be his "get out of jail free card," but it is Unlicensed Practice of Law for a real estate broker to give such an opinion. Real estate brokers who draft non-approved forms or engage in Unlicensed Practice of Law demonstrate "incompetency to act as a real estate licensee in a manner that safeguards the interests of the public" pursuant to Wis. Admin. Code s. REEB 16.07. That's not the only possible consequence, as explained in Wis. Stat. s. 757.30(1):   

Every person, who without having first obtained a license to practice law as an attorney of a court of record in this state, as provided by law, practices law within the meaning of sub. (2), or purports to be licensed to practice law as an attorney within the meaning of sub. (3), shall be fined not less than $50 nor more than $500 or imprisoned not more than one year in the county jail or both, and in addition may be punished as for a contempt.

Therefore, real estate brokers should "just say no" when asked to draft "as is" language on behalf of sellers of residential property.