Friday, May 29, 2015

Wis. Stat. § 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. § 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. § 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 § 100.18 claim.

Trouble is, there was another problem with Mr. Novell'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 § 100.18. As they say, necessity is the mother of invention.

Now I'm 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. § 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.

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