Sunday, December 27, 2015

Is Lying About Your Property's Condition A Federal Crime?

One of 2015's biggest news stories in Florida was the arrest, indictment and conviction of Glenn and Kathryn Jasen. If you click on these links, you'll discover that the Jasens' federal crime was failing to disclose to the buyers of their property that it had been affected by sinkholes.  Indeed, the Jasens violated the Florida statute discussed in my last post  through failing to disclose that they had collected money from their insurance company on a sinkhole claim.  They were indicted under 18 U.S.C. s. 1343 - a federal wire fraud statute.  The federal government proved that they intentionally participated in a scheme to defraud and used interstate wires in furtherance of the scheme.  In other words, they intentionally defrauded their buyers regarding the condition of their property and received money from the buyers' federally-insured mortgage lender in doing so.  The Jasens now face up to twenty years in a federal penitentiary.

The answer to the question posed by this post's title is that lying about your property's condition could be a federal crime if the buyers finance their purchase with a federally-insured mortgage loan.  Even as someone who usually represents defrauded buyers in residential real estate misrepresentation cases, I must agree that this is a scary proposition.

However, as this article points out, the Jasen case was the first federal criminal conviction of its kind.  The Jasens pocketed their insurance money, did nothing to address the sinkhole activity or resulting damage, and endangered the health and safety of a young family through failing to disclose any of this.  The United States Attorney was essentially shamed into pursuing this case by the local news media.  I'm not holding my breath on Milwaukee-area news stations shaming the United States Attorney for the Eastern District of Wisconsin into turning garden-variety leaky basement cases into federal wire fraud cases.  

After all, many of the claims that we pursue ARE state crimes or statutory violations.  Wis. Stat s. 943.20(1)(d) makes it a felony to obtain money through misrepresenting the condition of your property with the intent to deceive and defraud the buyer.  Wis. Stat. s. 100.18 prohibits making any untrue, deceptive, or misleading representation with the intent to sell real estate.  Yet, I am not aware of any district attorney prosecuting a seller in any of my cases even after a jury has found the seller liable.

Why not?  For one, salaried government attorneys have no financial incentive to pursue these cases.  More importantly, government attorneys expect to win every single case that they indict.  While the Jasen case was a slam dunk, no government attorney would attempt to obtain a felony conviction in the more common residential real estate misrepresentation cases that are often colored in shades of gray.  Were the sellers who owned their property for only three years aware that the basement or roof leaked?  Were the sellers aware that the cracks in their living room were signs of a major structural defect?  What if the sellers hired contractors to repair the defects affecting their property? What if the basement has not leaked since 2010?  What if the buyers' home inspector alerted the buyer to the leakage?  What if the buyers were advised to have the property evaluated by a structural engineer or a mold specialist?  The United States Attorney would stay miles away from these fraud cases, but these are the cases that I litigate on a daily basis even though I know that I will lose some of them.

If you think that you were deceived in the purchase of your home, please do not contact the U.S. Marshals.  Instead, you should email me at rudolphkuss@stevensandkuss.com.

Saturday, December 26, 2015

Does Florida Have Anything To Teach Wisconsin About Residential Real Estate Disclosure Law?

While visiting family in Florida over the holidays, I am becoming intrigued by some of the differences between real estate disclosure laws in Florida vs. those in Wisconsin. As we've discussed before, Wisconsin has a specific statute that requires most sellers of residential real estate to furnish a Real Estate Condition Report to buyers. See Wis. Stat. s. 709.02.  There's another state statute that specifies the minimally required form of the Real Estate Condition Report.  See Wis. Stat. s. 709.03. In general, sellers are required to declare whether or not they are "aware" of "defects" affecting their property. "Aware" is defined as having "notice of knowledge."  "Defect" means "a condition that would have a significant adverse effect on the value of the property; that would significantly impair the health or safety of future occupants of the property; or that if not repaired, removed or replaced would significantly shorten or adversely affect the expected normal life of the premises."


Litigating civil actions (i.e., lawsuits) arising from allegedly false Real Estate Condition Reports can sometimes be a frustrating experience because it is often unclear what qualifies as a defect.  If water flooded the sellers' basement during the notorious rains of 2008 or 2010, does that qualify as a "defect"? What if the sellers "repaired" the "defect" by adding additional sump pumps or replacing drain tile? What if the sellers did nothing to "repair" the "defect," but the "defect" has not reappeared since 2010?


While flooded basements are a big deal in Wisconsin, most Florida homes do not have basements.  Sinkholes are the hot button topic down here - holes open up in the ground and homes sink into them.  These sinkholes swallow homes and the people inside of them.  Prospective buyers are understandably worried about sinkholes.  In its infinite wisdom, the Florida legislature passed Fl. Stat. s. 627.7073(2)(c), which requires sellers to disclose that their insurer has paid a sinkhole claim and whether or not they used the full amount of the proceeds to repair the sinkhole damage.  Reading between the lines, it appears that some Florida homeowners obtain money from their insurance company for sinkhole damage but then use to money for consumer spending rather than repairs.  Even worse, they pretend that nothing ever happened when it is time to sell their property. 


I see a similar phenomenon in Wisconsin with respect to insurance claims for basement flooding.  Some Wisconsin homeowners who experienced basement flooding in 2008 or 2010 and were fortunate enough to have a sump crock overflow endorsement obtained money from their insurance company.  The insurance company based its payout on detailed estimates on the cost of drying out the basement and removing and replacing carpeting, drywall, insulation, baseboards, and wall studs.  The homeowner used some of the money to suck water out the carpeting and replace a few sheets of drywall but pocketed the rest.  They disclosed nothing at the time of sale and my clients have now discovered saturated building materials and mold growth.


The Wisconsin legislature could enact a statute similar to Fl. Stat. s. 627.7073 with respect to flood claims.  If it does, it should require disclosure of the flood claims information along with the Real Estate Condition Report.  The Florida Statute requires disclosure "before closing," which is too late as a practical matter, especially in this post-TRID era in which buyers must receive their closing documents at least three business days before closing.  Disclosure of a property condition means nothing if the buyer is still legally obligated (and practically committed) to close on the purchase. 

Friday, September 11, 2015

Homeowners Should Still Be Allowed To Testify On The Value Of Their Property

Late last year, I hailed the Wisconsin Court of Appeals' decision in Mueller v. Harry Kaufmann Motorcars, Inc., 2015 WI App 8, 359 Wis. 2d 597, 859 N.W.2d 451 for reaffirming that property owners may testify on the actual value of their property to them at the time of sale and that such testimony is sufficient to establish benefit of bargain damages. This sounds like a bunch of legalese, so I'll break it down.

Let's say that you purchased a property with a "clean" Real Estate Condition Report for $250,000. After closing on your purchase and moving into your new home, you discover that the well only produces 2 gallons per minute of water, the septic leech bed has failed and the county is requiring you to replace it with a mound system, the neighbors are demanding that you tear down the pole barn that your sellers illegally erected last summer, and the basement leaks like a sieve. As a property owner in Wisconsin, you may testify that you would have paid no more than $200,000 for your property had the sellers told you the truth about all of these conditions. Your "benefit of bargain" damages are $50,000.00 because the property's value was $250,000 "as represented," but the property's actual value to you in its true condition was only $200,000. You didn't get what you paid for; you got cheated out of $50,000. A jury could award you $50,000 as the damages that you suffered as a result of the sellers' misrepresentations.

Oh, but wait a minute! There are rules governing testimony by lay (non-expert) witnesses in Wisconsin courts. In January of 2011, Wis. Stat. (Rule) s. 907.01 was revised to specify that opinion testimony by lay witnesses is limited to those opinions that are "[n]ot based on scientific, technical, or other specialized knowledge within the scope of a witness under s. 907.02(1)." In other words, the rules now specify that lay witnesses cannot give expert testimony. A homeowner cannot get up on the stand and opine that his home's foundation has been sinking since construction or that his home's roof is leaking due to improper installation of the valley flashing. A homeowner similarly cannot get up on the stand and opine that it is necessary to install eight helical piers to stabilize the foundation. Such opinions clearly fall on the expert testimony side of the ledger - they are based on the scientific, technical, or other specialized knowledge of an engineer or other professional. Courts generally require expert testimony on complex causation issues because such issues are outside of a typical juror's wheelhouse. Expert testimony only helps the jury if it comes from a real expert; not from a homeowner playing armchair engineer.

So does this rule change mean that homeowners can no longer testify on how much they would have paid for their property with full disclosure of all the defects? Isn't this expert testimony that should only be offered by a licensed and experienced appraiser?

While such an argument is facially appealing, it ignores the reality that homeowners are not testifying on the fair market value of their property. Fair market value is an expert opinion often supported by objective evidence such as comparable sales. Homeowners are testifying on the subjective value that they would have placed on their property at the time of sale with full disclosure of all of the defects. As I've said before, such subjective opinions of value need not be based on independent financial data. See D.L. Anderson's Lakeside Leisure Co., Inc. v. Anderson, 2008 WI 126, 314 Wis. 2d 560, 757 N.W.2d 803. Federal courts considering the equivalent federal rule allow property owners to offer lay opinions on property values. See, e.g.Christopher Phelps & Associates, LLC v. Galloway, 492 F.3d 532 (4th Cir. 2007).

The bottom line is that recent changes in Wisconsin's lay opinion rules did not bar homeowners from opining in court on the actual value of the property that they purchased. That being said, homeowners should expect their subjective valuation opinions to be greeted with skepticism by judges and juries. In my experience, it is usually better for defrauded homeowners to seek the cost of repairs as damages, especially when evidence of those damages is straightforward and supported by expert testimony.

Monday, August 10, 2015

Can I Get Out Of My Listing Contract?

I don't know if the summer heat is putting sellers on edge or if some really lazy real estate agents have been unleashed on the public lately, but numerous sellers of residential real estate have asked me this question in the past few weeks. The real question that they want answered is if they can sell their property without having to pay their real estate broker a commission.

The simple answer is "NO." You gave your agent an exclusive right to sell your property for six months. If you sell your property to someone else during those six months, you clearly owe your broker a commission under the terms of the WB-1 Residential Listing Contract - Exclusive Right To Sell. If you try to stiff your broker on its commission, you risk getting hailed into small claims court. Next question!

Did I disappoint you with my simple answer? Did you expect more from me after reading several of my posts? Good! The more complicated answer to this question is "MAYBE."

For example, you might have an argument that your broker breached the contract first and that this breach relieved you of any obligation to pay its commission. Under the "Marketing" provisions of the listing contract, you authorized your broker to use "reasonable efforts" to get a buyer. Even better, your broker AGREED to use "reasonable efforts" to get a buyer for your property. I submit that "reasonable efforts" must mean something more than putting your client's property on the Multiple Listing Service and then sitting on your derriere for the next six months. The Wisconsin Supreme Court has declared that an agent under an exclusive agency contract cannot sit idly by, doing substantially nothing, and then claim a commission on a sale effected through the seller's efforts. See Huchting v. Engel, 17 Wis. 237 (1863).

A more frequent source of broker/seller disputes is the "Protected Buyer" language in the listing contract. The term of the listing contract is extended by a full year as to any "Protected Buyer." In other words, you could sell your property on your own well after your listing contract expires and still owe your broker a commission! What the heck is a "Protected Buyer"?

PROTECTED BUYER: Means a buyer who personally, or through any person acting for such buyer: 1) delivers to Seller or Broker a written offer to purchase, exchange or option on the Property during the term of this Listing; 2) negotiates directly with Seller by discussing with Seller the potential terms upon which buyer might acquire an interest in the Property; or 3) attends an individual showing of the Property or discusses with Broker or cooperating brokers the potential terms upon which buyer might acquire an interest in the Property, but only if Broker delivers the buyer’s name to Seller, in writing, no later than three days after the expiration of the Listing. The requirement in 3), to deliver the buyer’s name to Seller in writing, may be fulfilled as follows: a) If the Listing is effective only as to certain individuals who are identified in the Listing, by the  identification of the individuals in the Listing; or, b) if a buyer has requested that the buyer’s identity remain confidential, by  delivery of a written notice identifying the broker with whom the buyer negotiated and the date(s) of any showings or other negotiations.

The broker's commission is clearly "protected" if the seller later sells to someone who submitted a written offer during the listing term, but what about "prospects"? If the prospect was working with the broker, then the broker probably earns the commission. The broker merely needs to show that it provided the requisite notice of this "protected buyer" to the seller and that the prospect either attended an individual showing (not an open house) or discussed potential terms with said broker or a cooperating broker. 

The thornier issue arises with a prospect who was working with the seller during the listing period and later purchases the property. The broker must prove that the prospect negotiated with the seller by discussing the potential terms of sale during the listing period. Negotiation clearly means something more than mere flirtation; it implies formal discussions of price or other material terms. While direct proof that the seller and prospect negotiated specific terms is hard to come by, courts frown on sellers who receive offers soon after expiration of the listing contract from buyers who have somehow already been approved for a loan to purchase the property, already had the property inspected by a licensed home inspector, and magically obtained a title commitment and an appraisal for this property.     

To avoid this issue in the first place, sellers should be more careful in selecting their real estate broker and in reviewing the listing contract. Sellers also need to recognize that their listing contract is with the broker (i.e., Shorewest, Keller Williams, Re/Max, etc.) not with their individual real estate agent. If you suspect that your real estate agent is sleeping on the job, you should contact your agent's supervisor and ask to be assigned to another agent. If all else fails, sellers should negotiate early termination of the listing contract. While you might have to pay your broker something, this is a far better solution than trying to sell your property while you're still under contract with your broker and hoping that your broker doesn't find out.    

Sunday, August 9, 2015

Buying Residential Property From An Estate

My mother has been a widowed empty nester for over 15 years, yet she still lives in the same 3 bedroom, 1.5 bathroom home in Wauwatosa that she's owned for the past 35 years. Someday, we may convince her that she should downsize. If not, she will own that home for the rest of her life and either my sister or I will have to sell it. Selling my childhood home understandably worries me. Will I have to sign a Real Estate Condition Report for a property that I haven't lived in since 1999?

Unfortunately for me, the answer appears to be "yes." While Wis. Stat. s. 709.01(2) specifically exempts "personal representatives" from that chapter's Real Estate Condition Report requirement, that exemption only applies if the personal representative "never occupied the property transferred." I occupied my childhood home continuously from 1979 until 1994 and then sporadically for the next 5 years.

As I've discussed before, I often see sellers abuse s. 709.01(2)'s exemptions. When buying a residential property from an estate, buyers need to insist on receiving a completed Real Estate Condition Report from the personal representative unless the personal representative represents in writing that she has never occupied the property.

Real Estate Condition Reports are not the only potential source of liability for personal representatives selling residential property. Sellers of residential property have a common law duty to disclose all material defects. See Ollerman v. O'Rourke Company, Inc., 94 Wis. 2d 17, 288 N.W.2d 95 (1980). Personal representatives can also get themselves in trouble when they cheap out on needed basement or roof repairs or paint over signs that the basement or roof leaks. As I discussed in a recent post, such acts of concealment can qualify as representations even when the seller has not made any written representations about the condition of a property. See Novell v. Migliaccio, 2010 WI App 67, 325 Wis. 2d 230, 783 N.W.2d 897.

Trouble is, circuit court judges tend to be particularly prejudiced against real estate misrepresentation cases when the defendant is a personal representative of an estate. Such sellers get to play the sympathy card regardless of what their motivations were at the time that they sold mom's home without disclosing the engineering report recommending major foundation repairs. While I can certainly identify and sympathize with the loss of a parent, that's no excuse for sticking another family with your family's repair bills.

In light of this reality, however, buyers of residential property from an estate need to be particularly vigilant. They should research what work has been done on the property through checking the building inspection file at city hall. Buyers of such properties should always get a home inspection and should also get a specialized foundation and/or roof inspection. While sellers are almost always in the best position to provide information about their home's condition, that rule often does not hold true for personal representatives of an estate. While I could tell you all about the Great Tosa Flood of 1997, a licensed home inspector would be able to provide a buyer with far more relevant information about my mother's home than I ever could.   

Friday, July 3, 2015

Buyers: Declare Your Independence From Inspection Agreements

I originally intended to tell some war stories about my fights against arbitration clauses in investment contracts, building contracts, and inspection agreements. My struggle was in trying not to sound too much like a whiner when writing about the bad rulings and in trying not to sound too cocky when writing about the good rulings. Truth is, I could either win or lose a battle against forced arbitration on any given Sunday. You shouldn't care so much about what happens in my arena. What you should care about is avoiding that particular arena in the first place.

I always seek to have my clients' disputes decided in a court of law, usually by a jury of their peers. While I may sometimes gripe about the results or the process, the fact remains that our civil justice system is the envy of the rest of the world. In particular, my clients never have to worry about their opponents bribing, threatening, or punishing the judge or jury.

Unfortunately, arbitration is a different animal. We in the Milwaukee area are familiar with Major League Baseball's punishment of an arbitrator who dared rule against it. The financial industry has fired arbitrators for daring to rule in favor of investors. Word around the campfire is that the Metropolitan Builders Association and the Wisconsin Association of Home Inspectors are not too fond of those who stand up for homeowners either.

I do not often write about buyer claims against home inspectors in this blog because I always advise clients not to sue home inspectors. Home inspectors are protected by a strict two-year statute of limitation and by extremely lenient Standards of Practice. Buyers cannot recover their attorneys' fees on a home inspector negligence claim, and most inspectors do not have errors and omissions insurance. Home inspectors also have the simple-minded (but often convincing) argument that "if I should have seen it, why didn't you?" Home inspectors usually only get themselves in trouble when they downplay the significance of what they see, try to play structural engineer, or engage in deceptive or misleading advertising. That being said, buyers need to protect themselves against accidentally waiving their day in court against their home inspectors.

When you show up for your home inspection, your home inspector will present you with a multi-page document with fine print entitled "Inspection Agreement." In my opinion, you should not have to sign such an agreement.

Why not? The better question is why should you have to sign? Inspection Agreements are not required by the statutes and regulations governing home inspection practice in Wisconsin. There is no Wisconsin law requiring written agreements for services that will take only a few hours to render and will cost less than $500. You should simply be able to write the inspector a check and receive the required home inspection report.

Most of the language in these Inspection Agreements is unnecessary because the Standards of Practice clearly spell out what home inspectors are responsible for, what they are not responsible for, and what they cannot do. Wis. Stat. s. 440.975(2) spells out that home inspectors are merely required to perform reasonably competent and diligent inspections to detect observable conditions and that such inspections need not be "technically exhaustive." Wis. Stat. s. 440.975(3) requires home inspectors to provide written reports. Wis. Admin. Code s. SPS 134.03 spells out the required contents of said reports. Wis. Stat. s. 440.975(4) spells out that home inspectors are not required to report on the need for repairs or whether or not a particular component meets code. Wis. Stat. s. 440.975(5) spells out that a home inspector cannot tell a buyer not to purchase a particular property. Wis. Stat. s. 440.975(6) spells out that home inspectors are not required to give warranties, test or operate components, enter dangerous areas, move personal items, predict future conditions, or inspect for mold.

Some home inspectors sneak illegal language into their Inspection Agreements. Home inspectors will often try to prevent you from holding them liable for repairs to components that they improperly inspected. They might even try to prevent you from holding them liable for bodily injury caused by a defective condition that they missed. No, they can't do that:

Disclaimers or limitation of liability. No home inspector may include, as a term or condition in an agreement to conduct a home inspection, any provision that disclaims the liability, or limits the amount of damages for liability, of the home inspector for his or her failure to comply with the standards of practice prescribed in this subchapter or in rules promulgated under this subchapter.

Wis. Stat. s. 440.976.

While one could argue that home inspection arbitration clauses - especially those that require arbitration presided over by fellow members of the home inspector fraternity - are illegal disclaimers or limitations of liability, I am not aware of any court that has adopted this particular argument. The general rule is that contractual arbitration clauses ARE enforceable. If you want to avoid having any future dispute with your home inspector decided by his friends, there is a solution - do not sign the Inspection Agreement.

Friday, May 29, 2015

Wis. Stat. s. 100.18 - For Members Only

On multiple occasions (here and here), I have emphasized the importance of buyers receiving the statutorily-mandated Real Estate Condition Report prior to making an offer. Usually, this isn't a problem. Real estate agents make sellers' Real Estate Condition Reports readily available on MLS, at open houses, or provide them to the buyers prior to the initial showing. Then again, some homeowners attempt to sell their home without a real estate agent's assistance and some buyers rush in to make offers before a home is really "on the market."

Why should I wait for a Real Estate Condition Report before making an offer, you might ask. The common sense answer is that you want to know the property's condition in deciding what price to offer. You would pay less for a home with a leaky basement or a leaky roof than a home with a dry basement and a new roof, all else being equal. The legal answer is that you risk losing your best claim in the event that the sellers misrepresent the property's condition in the Real Estate Condition Report.

If you discover defects in your new home that were not identified in the sellers' Real Estate Condition Report, a claim for violation of Wis. Stat. s. 100.18 is your best claim and it's not even close. You don't have to prove that the sellers intended to deceive you; only that they intended to sell their home when they completed a Real Estate Condition Report (why else they would complete a Real Estate Condition Report is beyond me). You don't have to prove that the sellers' representations were false; only that they were deceptive or misleading. You don't have to prove that your reliance on the sellers' Real Estate Condition Report was reasonable; only that these representations materially induced (caused) you to purchase the property. See K&S Tool & Die Corp. v. Perfection Machinery Sales, Inc. You are entitled to recover your damages plus reasonable attorneys' fees if you prevail.

Trouble is, Wis. Stat. s. 100.18 contains this pesky little "member of the public" requirement. After all, it is commonly referred to as the false advertising statute. While Wisconsin courts recognize that "the public" does not necessarily mean a large audience and could mean an individual member of the public, a buyer loses his status as a "member of the public" once he or she forms a "particular relationship" with the seller. In the context of real estate sales (as opposed to repeat purchases of goods and services in a commercial setting), a buyer ceases to be a member of the public once he or she enters into a contract with the seller. See Kailin v. Armstrong.

This requirement bit one of my clients in Novell v. Migliaccio. While the tortured history of that case deserves its own post, the Cliffs Notes version is that Mr. Novell's case was originally dismissed at summary judgment on the grounds that it was unreasonable as a matter of law for him to rely on the Migliaccios' Real Estate Condition Report. Like the other case that was dismissed by Judge Guolee on October 17, 2005, I argued that case to the Wisconsin Supreme Court during the last week of February 2008. Relying on K & S Tool & Die, the Wisconsin Supreme Court held in Novell that a buyer need not prove that his reliance on the sellers' Real Estate Condition Report was reasonable for the purposes of his s. 100.18 claim.

Trouble is, there was another problem with Mr. Novell's s. 100.18 claim - a problem that the Migliaccios' attorney somehow only figured out after losing at the Wisconsin Supreme Court. The Migliaccios and the Novells were family friends, and they handled this transaction without the assistance of any real estate professionals. The Migliaccios did not even complete their Real Estate Condition Report until nearly two months after they accepted Mr. Novell's offer. The trial court held that no reasonable jury could find that the representations in the Real Estate Condition Report were made to Mr. Novell while he was still a member of the public. In order to save Mr. Novell's case, I had to convince the Wisconsin Court of Appeals that the Migliaccios' concealment of their leaky basement with paint could qualify as a misrepresentation under s. 100.18. As they say, necessity is the mother of invention.

Now I'm dealing litigating another case with "member of the public" issues. Once again, the buyers made their offer without first receiving a Real Estate Condition Report. The sellers withheld their Real Estate Condition Report from the buyers until after they accepted the buyers' counteroffer. As in Novell, I will argue that the sellers concealed their leaky basement while the buyers were still members of the public. Unlike Novell, I have an argument that the buyers received the Real Estate Condition Report before there was an enforceable contract because the buyers still had the unilateral right to rescind the contract depending on the contents of the Real Estate Condition Report.  In other words, the buyers could have backed out of the deal without consequence (and recovered their earnest money) had the sellers represented in their Real Estate Condition Report that they were aware of basement defects. See Wis. Stat. s. 709.05

While my legal sorcery might save the day again, buyers should not rely on attorneys to protect them from trickery and deception after their purchase. Instead, prospective buyers must find a real estate professional (either an attorney or a buyers' agent) before they offer to purchase a home. Working with a real estate professional should protect most buyers in the event that they encounter a seller who misrepresents a property's condition.

Friday, May 15, 2015

Marchese v. Miller and Total Realty LLC - An Example Of What Real Estate Agents Should Not Do

As I said in an earlier post, most buyer claims against real estate agents contracted by the seller involve allegations of misrepresentation or nondisclosure. In Marchese v. Miller and Total Realty LLC, the Wisconsin Court of Appeals has provided real estate agents with a helpful example of what not to do.

In Marchese, the real estate agent advertised a vacant lot as buildable. He also drafted a WB-40 Amendment To Offer To Purchase that provided that the buyers would not make any payments towards their purchase of this lot until the sellers relocated the retention pond on the lot. He even reassured the buyers prior to closing that that the sellers would relocate the pond. The buyers closed on their purchase even though the pond had not been relocated because they assumed that the title company would not disburse any money to the sellers until the pond was relocated. Unfortunately, money was disbursed to the sellers and the pond was never relocated. The buyers had to purchase another lot because this one was unbuildable with the pond in its present location.

The buyers sued the sellers and the real estate agent. The subject of the Court of Appeals' decision was the trial court's order dismissing all claims against the real estate agent notwithstanding the jury's verdict finding that the real estate agent engaged in intentional misrepresentation and violated Wis. Stat. s. 100.18.

The Court of Appeals held that the evidence presented at trial was sufficient to prove a s. 100.18 claim. The real estate agent admitted at trial that he advertised that a home could be built on the lot even though he knew that no home could be built until the pond was relocated. Even more damning, the seller testified at trial that he told the real estate agent that he would not move the pond until he got paid - after the closing.

The Court of Appeals further held that the evidence presented at trial was sufficient to prove an intentional misrepresentation claim. Though the real estate agent told the buyers that it "shouldn't be a problem" for the sellers to relocate the pond before they got paid, the real estate agent knew that the seller would not move the pond until he got paid.

While there are important lessons in this decision about whether or not real estate agents should should advertise in a manner which is false, deceptive or misleading (no!), whether or not expert testimony is required to prove a negligence claim against a real estate agent (no!), and whether or not judges should disregard jury verdicts (again, no!), the real lesson is that real estate agents must do whatever they can to distance themselves from sellers hellbent on committing fraud. Wis. Admin. Code s. REEB 24.03(2)(b) says as much under the label of "COMPETENCE REQUIRED": "Licensees shall act to protect the public against fraud, misrepresentation and unethical practices." Furthermore, Wis. Admin. Code s. REEB 24.07(2) provides as follows:

Disclosure of material adverse facts. A licensee may not exaggerate or misrepresent facts in the practice of real estate. A licensee, when engaging in real estate practice, shall disclose to each party, in writing and in a timely fashion, all material adverse facts that the licensee knows and that the party does not know or cannot discover through a reasonably vigilant observation, unless the disclosure of the material adverse fact is prohibited by law. This provision is not limited to the condition of the property, but includes other material adverse facts in the transaction. 

This duty to disclose material adverse facts is NOT limited to situations in which the seller tells his real estate agent that his basement and roof leak like a sieve whenever it rains. Under Wis. Admin. Code s. REEB 24.02(1)(b), "adverse fact" is defined to include "[i]nformation that indicates that a party to a transaction is not able to or does not intend to meet his or her obligations under a contract or agreement made concerning the transaction." Here, the seller threw his real estate agent under the bus and testified that he told the seller that he had no intention of complying with his obligations under the WB-40 Amendment. Real estate agents - this is what could happen to you if you allow yourself to get involved with sellers with the wrong intentions!

UPDATE (10/24/2015): This case has been summarized on realtor.org. I have no idea why the author of that "legal case summary" repeatedly refers to Total Realty LLC as "the Buyer's Representative" when the Court of Appeals' decision refers to Total Realty LLC's agent as "the listing and selling broker" and focuses on how that agent advertised the property and what he was told by the seller that he failed to disclose to the buyer. This was not a WB-36 buyers' agent obligated to negotiate on the buyer's behalf.   

Thursday, February 19, 2015

Making A Viable Claim Under The Home Improvement Practice Code

Last week, the Wisconsin Court of Appeals filed its decision in Masterclean, Inc. v. Butler.  In Butler, a Waukesha County jury awarded the homeowners $29,407.37 in damages against a home restoration and remodeling contractor.  The trial court interpreted the jury's verdict as a finding that the homeowners suffered those damages as a result of the contractor's failure to put all material terms and conditions of the contract in writing in violation of the Home Improvement Practices Code, thus entitling the homeowners to double damages and reasonable attorneys' fees and costs pursuant to Wis. Stat. s. 100.20(5).  After doubling the jury's damages award and tacking on reasonable attorneys' fees and costs, the trial court entered a $89,165.67 judgment against the contractor.  The Court of Appeals reversed the judgment, holding that there was no credible evidence supporting a finding that the contractor's failure to put all material terms and conditions of the contract in writing caused the homeowners' damages.  Since the jury also found that the contractor breached its contract and that this breach caused damage to the homeowners, the homeowners will still get a judgment against the contractor.  Unfortunately for them, this judgment will be a lot closer to $30,000 than $90,000.

I've written about the Home Improvement Practices Code before, including the basic requirement that the contractor "put it in writing."  For some reason, the contractor in this case brought a breach of contract claim against the homeowners for nonpayment even though its workmanship was shoddy and its contract violated the Home Improvement Practice Code.  To be clear, a contract that violates a statute or consumer protection regulation cannot be enforced by the contractor under most circumstances.  See Baierl v. McTaggart, 2001 WI 107, 245 Wis. 2d 632, 629 N.W.2d 207.  Contractors that sue homeowners for nonpayment based on a contract that does not perfectly comply with the Home Improvement Practices Code are playing with fire.  Their contract claims will be dismissed and their customers may even countersue them for the damages caused by their shoddy workmanship and Home Improvement Practices Code violations.

While a contractor's failure to "put it in writing" is a good defense for homeowners, the Butler decision shows how difficult it is for homeowners to prove that this Home Improvement Practices Code violation caused them damages.  The Court of Appeals noted that the homeowners' damages were the estimated cost of correcting poor workmanship and also noted the lack of evidence that the contractor had performed unauthorized work.  Essentially, the homeowners would have suffered almost $30,000 in damages even if the contractor had crossed all of its Ts and dotted all of its Is.  Conversely, the homeowners would not have suffered almost $30,000 in damages had the contractor completed its work in a competent and professional manner.

In contrast, it is much easier to prove that a contractor's misrepresentations caused a homeowner's damages.  The Home Improvement Practices Code specifically prohibits contractors from making "any false, deceptive, or misleading representation in order to induce any person to enter into a home improvement contract, to obtain or keep any payment under a home improvement contract, or to delay performance under a home improvement contract."  Wis. Admin. Code s. ATCP 110.02(11).  The homeowner's straightforward argument is that he or she only hired this contractor because he said that he had experience making such improvements, that his work was guaranteed to prevent the basement from leaking, or that he was certified to install EPDM roofs.  The homeowner suffered damages in the amount that he or she had to pay the contractor or in the amount that he or she must pay to correct the contractor's work as a direct result of the contractor's misrepresentations.

Other Home Improvement Practices Code violations that may cause a homeowner to suffer damages include the following:

  • Failing to disclose the identity of any other person assuming responsibility for the performance of the contract, such as when a credentialed contractor farms out his work to anyone with a truck, Wis. Admin. Code s. ATCP 110.05(5)
  • Starting work without obtaining the required permits, especially when the building inspector would have stopped the work, Wis. Admin. Code s. ATCP 110.03(1)
  • Failing to provide notice of an impending delay in contract performance, especially when the contractor leaves a roofing job to go deer hunting without protecting the exposed areas and does not warn the homeowner.

Please contact me at rudolphkuss@stevensandkuss.com if your contractor has abandoned you, has performed improper work, or is threatening to sue you for nonpayment.