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. § 709.02. There's another state statute that specifies the minimally required form of the Real Estate Condition Report. See Wis. Stat. § 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. § 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. § 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.