Understanding New Wis. Stat. § 452.133(4m)

I have written much recently about the Chapter 452 Modernization Act.  In my last post, I introduced the Act's distinction between "firms" and "licensees" to explain real estate firm responsibility for misrepresentations made by licensees associated with that firm.  To review, buyers and sellers enter into contracts with real estate firms, such as Shorewest, First Weber, Re/Max, or EXIT.  The individual real estate agent providing services to the buyer or seller is known as a licensee - he or she is individually licensed as a Real Estate Broker or Real Estate Salesperson by the State of Wisconsin.

Wis. Stat. § 452.133 has long spelled out the duties of real estate agents.  As of right now (most of the Chapter 452 Modernization Act does not take effect until July 1st), this section is titled "Duties of brokers."  Wis. Stat. § 452.133(1) spells out broker duties to all parties in a transaction, while § 452.133(2) sets forth broker duties to clients.  The word "broker" is somewhat confusing.  Wis. Stat. § 452.01(2)(a) defines "broker" in terms of a "person," while the standard WB-1 Residential Listing Contract uses "broker" in terms of a firm with real estate agents.

At first glance, Wis. Stat. § 452.133(1) and (2) appear to clarify that it is the firm that owes duties to parties and clients:

(1)  Duties to all parties to a transaction. A firm providing brokerage services to a party to a transaction owes all of the following duties to the party:

(a) The duty to provide brokerage services honestly and fairly.

(b) The duty to provide brokerage services with reasonable skill and care.

(c) The duty to timely disclose in writing all material adverse facts that the firm knows and that the party does not know or cannot discover through reasonably vigilant observation, unless the disclosure of a material adverse fact is prohibited by law.

(d) The duty to keep confidential any information given to the firm in confidence, or any information obtained by the firm that the firm knows a reasonable person would want to be kept confidential, unless the information must be disclosed by law or the person whose interests may be adversely affected by the disclosure specifically authorizes the disclosure of particular information. The firm shall continue to keep the information confidential after the transaction is complete and after the firm is no longer providing brokerage services to the party.

(e) The duty to provide accurate information about market conditions that affect the transaction, within a reasonable time after a request for such information by the party, unless disclosure of the information is prohibited by law.

(f) The duty to safeguard trust funds and other property held as required by rules promulgated under s. 452.13 (5).

(g) When the firm is negotiating on behalf of a party, the duty to present contract proposals in an objective and unbiased manner and disclose the advantages and disadvantages of the proposals.

(2) Duties to clients. A firm providing brokerage services to a client owes the client the duties that the firm owes to a party under sub. (1) and all of the following additional duties:

(a) The duty to loyally represent the client's interests by doing all of the following:

1. Placing the client's interests ahead of the interests of the firm.

2. Placing the client's interests ahead of the interests of persons in the transaction who are not the firm's clients by not disclosing to persons in the transaction other than the firm's clients information or advice the disclosure of which is contrary to the interests of a client of the firm, unless the disclosure is required by law.

(am) The duty to provide, when requested by the client, information and advice to the client on matters that are material to the client's transaction and that are within the scope of the knowledge, skills, and training required under this chapter.

(b) The duty to disclose to the client all information known by the firm that is material to the transaction and that is not known by the client or discoverable by the client through reasonably vigilant observation, except for confidential information under sub. (1) (d) and other information the disclosure of which is prohibited by law.

(c) The duty to fulfill any obligation required by the agency agreement, and any order of the client that is within the scope of the agency agreement, that is not inconsistent with another duty that the firm has under this chapter or any other law.

(d) The duty to negotiate on behalf of the client.

OK, so licensees are responsible for their own misrepresentations, but firms are solely responsible for brokerage services?  Not exactly.  Enter brand new § 452.133(4m):

Duties and prohibitions; application to licensees.

(a) Subject to par. (d), a firm's duties under sub. (1) extend to each licensee associated with that firm, and each licensee associated with a firm owes the same duties to a party that the firm owes to that party under sub. (1).

(b) Except as provided in s. 452.134 (3) (b) and subject to par. (d), a firm's duties under sub. (2) extend to each licensee associated with that firm, and each licensee associated with a firm owes the same duties to a client of the firm that the firm owes to that client under sub. (2).

(c)

1. Subject to par. (d), a subagent's duties under sub. (4) (a) extend to each licensee associated with that subagent, and each licensee associated with a subagent owes the same duties to a party that the subagent owes to that party under sub. (4) (a).

2. Subject to par. (d), the prohibitions that apply to a subagent under sub. (4) (b) extend to each licensee associated with that subagent, and no licensee associated with a subagent may take any action that the subagent is prohibited from taking under sub. (4) (b).

(d) The duties and prohibitions under pars. (a) to (c) extend only to a licensee providing brokerage services to a party to the transaction.

While the phrasing is rather clumsy, the gist appears to be that both real estate firms and individual licensees can be held responsible for breaching the duties owed under §§ 452.133(1) and (2).  In fact, even licensees affiliated with the firm who do not provide actual brokerage services to anyone in the transaction can still be held personally responsible if they violate confidentiality, provide inaccurate information about market conditions per a party's request, or fail to safeguard trust funds.  In sum, personal responsibility (and thus personal liability) for both real estate firms and individual licensees will apparently be the rule under Wis. Stat. § 452.133.      

Wis. Stat. § 452.12(3) - Firm Responsibility For Agent Misrepresentations

In my last post, I discussed seller liability for misrepresentations made by real estate agents.  Today, I discuss firm responsibility for these misrepresentations.

In my series of posts discussing the Chapter 452 Modernization Act, I have consistently used the legally meaningless term "real estate agent" because I wanted to focus on the important changes to Chapter 452 rather than the technical distinctions between "licensees," "brokers," and "firms."  As a practical matter, buyers and sellers need to know that their listing contract or buyers' agency agreement is not with an individual real estate agent.  Buyers and sellers contract with business entities such as Shorewest REALTORS, First Weber Group, RE/MAX, and EXIT Realty.  Your individual real estate agent is an associate of the business entity that you contracted with.  That's an important distinction for buyers and sellers to bear in mind in the event that they want to terminate their contract.

The Chapter 452 Modernization Act reduces the broker or real estate firm's responsibility for the actions of its real estate agents.

Wis. Stat. § 452.12(3) used to state the following: "Subject to s. 452.139 (3), each broker shall supervise, and is responsible for, the brokerage services provided on behalf of the broker by any broker, salesperson, or time-share salesperson who is an employee of the broker."

The new § 452.12(3) says, "Subject to s. 452.139 (3), a firm is responsible for the brokerage services provided on behalf of the firm by a licensee associated with the firm only to the extent that the firm fails to comply with s. 452.132 and any rules promulgated under s. 452.07 (1m) with respect to that licensee."

While the old statute appeared to presume broker or firm responsibility for the acts of individual real estate agents, the new statute appears to presume the exact opposite.

The "shall supervise" language from the old statute is gone, though it has been replaced by Wis. Stat. § 452.132:

(1) A firm shall supervise the brokerage service activities of each licensee associated with the firm, including by doing all of the following:

(a) Ensuring that a supervising broker for the firm complies with sub. (4).

(b) Providing a licensee with reasonable access to a supervising broker for the purpose of consultation regarding real estate practice issues.

(2) A firm shall do all of the following:

(a) Provide each licensee associated with the firm with a written statement of the procedures under which the firm and licensees associated with the firm must operate with respect to handling leases, agency agreements, offers to purchase, and other documents and records relating to transactions.

(b) Notify each licensee associated with the firm where a copy of the rules promulgated by the board related to the conduct, ethical practices, and responsibilities of licensees may be obtained.

(c) Before a licensee becomes associated with the firm and at the beginning of each biennial licensure period, ensure that the licensee holds a valid license.

(3) A firm shall be responsible for the custody and safety of all documents and records relating to transactions submitted to the firm as required under sub. (6) (b).

(4) 

(a) A supervising broker for a firm, as determined under sub. (5), shall review all of the following prior to the closing of a transaction in accordance with par. (b):

1. All agency agreements, offers to purchase, leases, and other documents that are executed by the parties and records relating to the transaction that are used by a licensee associated with the firm and submitted to the firm as required under sub. (6) (b).

2. All trust account records relating to the transaction.

(b) The review under par. (a) shall be limited to confirming that a written disclosure statement to a customer or client has been provided by a licensee associated with the firm in accordance with s. 452.135, confirming that any applicable form approved by the board has been used and the forms have been completed by filling in the blanks in a manner consistent with the structure of the form, and communicating to the licensee any errors in how the forms were completed that are apparent on the face of the document and known to the person reviewing the document.

(5) 

(a) A firm that is a licensed broker business entity shall delegate the performance of the duty to supervise licensees associated with the firm to a supervising broker who is a licensed individual broker.

(b) A firm that is not a licensed broker business entity may delegate the duty to supervise licensees associated with the firm to a supervising broker who is a licensed individual broker, but in the absence of a specific supervising broker delegation, the firm itself is deemed to be the supervising broker for that firm.

(c) A delegation under par. (a) or (b) shall be written and signed by or on behalf of the delegating firm, identify the duty delegated, and be signed by the broker to whom the delegation is made.

(d) A firm may delegate the duty to supervise licensees to more than one supervising broker.

(6) 

(a) A licensee associated with a firm shall be responsible for discussing with the party with whom the licensee is working with or representing any error communicated to the licensee as provided in sub. (4) (b), and the party shall determine whether to request any changes to address the error.

(b) A licensee associated with a firm shall submit to the firm in a timely manner all agency agreements, offers to purchase, leases, and other documents that are executed by the parties and records related to the brokerage services provided on behalf of the firm and transactions that are used or received by the licensee.

In short, the Chapter 452 Modernization Act clearly tells real estate firms what they must do in order to properly supervise their licensees and avoid liability for negligent supervision.  None of these supervisory requirements appear designed to prevent misrepresentations made by individual real estate agents.

While it is tempting to cite this provision of the Chapter 452 Modernization Act as another example of how the legislature protected campaign contributors at the expense of Wisconsin homeowners, we must bear in mind that real estate agents are independent contractors.  Imposing broad supervisory requirements on real estate firms creates the risk that independent real estate agents will be treated as employees for tax and regulatory purposes.  While I continue to believe that real estate agents should be allowed to pursue wage claims against their firms for unpaid commissions, many other labor laws make absolutely no sense as applied to real estate agents, such as minimum wage laws.  The application of labor laws to independent real estate agents would deter real estate firms from using such agents, which would in turn reduce the number of real estate agents that buyers and sellers can choose from.  The risk of courts and federal agencies treating independent real estate agents as "employees" is real, see, e.g., Monell v. Boston Pads LLC, 471 Mass. 566 (2015), so I can understand why the WRA acted to preserve the independent contractor status of real estate agents through convincing the legislature to amend Wis. Stat. § 452.12(3) and enact Wis. Stat. §§ 452.132 and 452.38.

Seller Liability For Agent Misrepresentations

Buyers of residential real estate in Wisconsin typically receive a Real Estate Condition Report from the previous owners (or sellers) of the property.  In this Real Estate Condition Report, the sellers are required to disclose their awareness of defects or adverse conditions affecting the property.  While the sellers tell buyers everything that is wrong with their home, their real estate agent tells buyers (or their agents) everything that is supposedly good.  The sellers' real estate agent advertises the property on her website; the Multiple Listing Service; other real estate websites such as Realtor, Zillow, and Trulia; and social media.  Could the buyers hold the sellers liable if the real estate agent misrepresents the acreage, the square footage, the number of bedrooms or bathrooms, the age of the roof, the warranty on foundation repairs, the materials used to remodel the kitchen or bathroom, or lake access?

Wis. Stat. § 452.139(2)(a) attempts to answer this very question:

A client is not liable for a misrepresentation made in connection with the provision of brokerage services by a firm or any licensee associated with the firm, unless the client knows or should have known of the misrepresentation or the firm or licensee is repeating a misrepresentation made by the client.

At first blush, this statute appears to absolve sellers from liability from most real estate agent misrepresentations.  Trouble is, the standard WB-1 Residential Listing Contract includes provisions under which sellers specifically authorize their real estate agent to market the property using certain media and to "do those acts reasonably necessary to effect a sale. . . ."  One could use this language to argue that the sellers should have known of their agent's misrepresentations because they specifically authorized - and even demanded - that their agent advertise their home a certain way.

In order to reduce this risk, I recommend that sellers demand that their listing contract include a provision giving them the right to approve or disapprove the content of all advertising prior to its publication.

Are you considering selling your home?  Please email me at rudolphkuss@stevensandkuss.com for a free initial consultation.    

Sellers: Get Lien Waivers

I recently wrote a post on LinkedIn explaining the Wisconsin Construction Lien Law from a contractor's perspective.  Since this blog is for homeowners (who I primarily represent anyway), this post will explain the Wisconsin Construction Lien Law from a homeowner's perspective.  In particular, I address this post towards homeowners who are planning on selling their home and are having work done in preparation for that sale.

Many sellers have their home painted to give it a fresh look and make it look more appealing to buyers.  This is generally a good idea, as long as you're not trying to conceal structural defects or signs of leakage.  While some homeowners handle all of the painting themselves, many homeowners choose to hire a professional painter.

You pay the painter in advance for the paint and pay him for his labor after he has painted all of the walls and ceilings in your home.  The painter gives you a handwritten receipt for your cash payment.  Your home looks stunning and sells quickly.  Everything is zen until the title company requires you to sign an affidavit itemizing all work that has been performed on your property during the past six months.  Upon reviewing your affidavit, the title company asks you for the lien waiver from your painter.  Like many homeowners, you ask "what's a lien waiver?"

The Wisconsin Construction Lien Law essentially protects contractors from getting stiffed on payment by property owners.  Wis. Stat. § 779.01(3) provides as follows:

Any person who performs, furnishes, or procures any work, labor, service, materials, plans, or specifications, used or consumed for the improvement of land, and who complies with s. 779.02, shall have a lien therefor on all interests in the land belonging to its owners

Your painter arguably has a lien or interest in your property.  Your title company and your buyer's mortgage lender do not want anyone else to have an interest in the property at the time of closing.  They will not accept the risk that your contractor could foreclose on the property after closing.

I understand that this requirement makes little sense under some circumstances.  Your painter's work arguably has not been "used or consumed for the improvement of land," though the definition of "improve" under § 779.01(2)(a)  includes "remodeling."  Your painter may have forfeited his lien rights under Wis. Stat. § 779.02 by failing to provide you with written notice of his lien rights at the time of contracting or within 10 days after buying the paint.  Besides, you paid him in full and got a receipt!  Trouble is, the title company likely will not care that neither you nor the painter think that the painter has a lien on your property.  You will get a lien waiver or you will not close on your sale.

Wis. Stat. § 779.05 contains the formal requirements for lien waivers.  Fortunately, this isn't rocket science.  Title companies provide lien waiver forms.  Wisconsin Legal Blank also supplies contractors with these forms.  You simply need to contact your painter and get him to complete and sign a lien waiver.

I represent both buyers and sellers in residential real estate transactions.  Please email me at rudolphkuss@stevensandkuss.com for a free initial consultation.

Clean Your Room - A Suggested Additional Provision For Your Offer

When disappointed buyers come into my office, I often hear different versions of the same story:

I looked at the home and noticed nothing wrong with the basement walls.  The sellers had shelving, boxes, their Christmas tree, RUBBERMAID containers, crock pots, coolers, books, bulk food, camping supplies, and luggage against the walls.  Those things were still in along the basement walls at the time of the home inspection, and my home inspector did not note any problems with the basement walls.  I walked through the home just before closing and discovered huge cracks in the basement walls.  When I frantically called my agent, she told me that I could not bring back my home inspector or bring in a structural engineer.  She told me that I had to close on Friday and that I could be sued by the sellers if I failed to close.  I closed that Friday morning and have since learned that two of my basement walls need to be excavated and reinforced at an estimated cost of $25,000. 

This is not an easy case.

The standard WB-11 Residential Offer To Purchase contains a inspection contingency (lines 194-216).  This contingency gives a buyer a certain amount of time to have a Wisconsin registered or Wisconsin licensed home inspector inspect the property and write a report.  Within the offer's deadline, the buyer must deliver a copy of the home inspection report to the sellers along with a written notice listing the objectionable defects identified in that report.  If the buyer does not deliver a Notice of Defects to the sellers within the offer's deadline, the inspection contingency is deemed satisfied and no longer provides an "out" for the buyer.  

The standard offer also allows for a pre-closing walk-through (lines 481-484).  The purpose of that walk-through is to make sure that there has been no significant change to the the property since acceptance.  If the property has been damaged between acceptance and closing, the buyer might be able to cancel the offer and refuse to close.  Under our scenario, however, it seems likely the basement wall cracks existed prior to acceptance even if they were not visible to the buyer or his home inspector.  If the buyer refuses to close, the seller could sue the buyer for damages under the standard offer's default provisions (lines 493-496).

The buyer goes through with the closing, hoping that the basement walls do not require expensive repairs.  When he learns otherwise, he wants to sue everybody - his buyers' agent, his home inspector, the sellers, the appraiser, the municipal building inspector.   

The buyer likely does not have a negligence claim against his home inspector.  Wis. Stat. § 440.975(2) sets forth the statutory standard of practice for home inspectors:

A home inspector shall perform a reasonably competent and diligent inspection to detect observable conditions of an improvement to residential real property. Except for removing an access panel that is normally removed by an occupant of residential real property, this subsection does not require a home inspector to disassemble any component of an improvement to residential real property. A reasonably competent and diligent inspection under this subsection is not required to be technically exhaustive.

If that isn't clear enough, Wis. Stat. § 440.975(6)(f) explains that this statute does not require home inspector to "[d]isturb insulation or move personal items, furniture, equipment, vegetation, soil, snow, ice or debris that obstructs access to or visibility of an improvement to residential real property or a component of an improvement to residential real property." 

The buyer might have a misrepresentation claim against the sellers based on their failure to disclose the basement defects in their Real Estate Condition Report.  The sellers will argue that the buyer was not deceived by their representations because he learned the truth before closing.  The buyer will argue that his pre-closing discovery of basement wall cracks is irrelevant because he was legally obligated to close by that time.  Who knows what a judge or a jury will decide?

This dispute could have been avoided.  The buyer (or his agent) could have written an additional provision in the space provided in lines 537-542 requiring the sellers to move all of their personal items, shelving, furniture, and debris away from the walls within 10 days of acceptance (or at least 24 hours before the home inspection).  Alternatively, the buyer could have included an additional provision allowing him to cancel his offer in the event that a Wisconsin registered or Wisconsin licensed home inspector reports that the sellers' personal items, shelving, furniture, or debris obstructed his access to or the visibility of any component of the property. 

I try to help disappointed buyers achieve justice in court, but I can also help people who are looking to purchase a home.  You can reach me at rudolphkuss@stevensandkuss.com

Revisiting The Statute of Limitation For Claims Against Home Inspectors

Though I am not a big fan of Wis. Stat. § 452.142, I have to give credit where credit is due.  Despite my position that § 452.142 does not shorten the limitations period for sellers' contribution actions against their real estate agents, the new statute appears to shorten the limitations period for breach of contract and negligence actions against real estate agents.  It also appears to shorten the limitations period for Wis. Stat. § 100.18 actions against real estate agents.  The Wisconsin REALTORS Association made sure that the new statute trumps existing statutes of limitations for breach of contract actions under § 893.43, negligence causing property damage actions under § 893.52, and § 100.18 actions.  The new statute applies "notwithstanding" those contrary provisions.

Wis. Stat. § 440.977(1) purports to create a statute of limitation for claims against home inspectors:

Notwithstanding s. 893.54, an action to recover damages for any act or omission of a home inspector relating to a home inspection that he or she conducts shall be commenced within 2 years after the date that a home inspection is completed or be barred.

In a previous post, I called this a "strict two-year statute of limitation."  After examining § 452.142 however, I am no longer convinced that § 440.977(1) is so strict.

This statute only expressly trumps an existing statute of limitation for negligence causing personal injury or death.  Unlike § 452.142, § 440.977(1) does NOT explicitly override the respective limitations periods in § 893.43 and § 893.52.  A homeowner has a plausible argument that § 893.43's 6-year statute of limitation should govern the breach of contract action against his home inspector.  A homeowner also has a colorable argument that § 893.52 should govern his negligence causing property damage action against his home inspector, especially since that statute applies "[e]xcept as provided in sub. (2) and in any other case where a different period is expressly prescribed."  While the legislative intent to override § 893.54 is clearly stated, there is no evidence in the statutory language that § 440.977(1) was intended to override § 893.43 or § 893.52.  Stated another way, a different limitations period for breach of contract and negligence causing property damage actions is not expressly prescribed by § 440.977(1).

The evidence is even clearer that § 440.977(1) does not shorten the limitations period for § 100.18 actions against home inspectors.  Oftentimes, I come across a home inspector who claims on his website that he is "insured"; that he is some sort of "specialist" in foundations or roofs; or that he has certain certifications beyond the standard home inspection license.  If statements on a home inspector's website are untrue, deceptive or misleading and induce a consumer to choose him as a home inspector, the consumer has a potential claim under § 100.18.  Unlike § 452.142, § 440.977(1) does not explicitly trump the existing limitations period in § 100.18.  Furthermore, § 100.18 actions against home inspectors are not based on "any act or omission of a home inspector relating to a home inspection that he or she conducts. . . ."  Such actions are based on the deceptive or misleading statements that the home inspector made to convince consumers to hire him as a home inspector in the first place.  Under its plain language, § 440.977(1) cannot apply to § 100.18 actions against home inspectors.

All that being said, you cannot count on courts to interpret § 440.977(1) this way.  If you believe that you have been deceived by your home inspector or damaged by his poor performance, you need to contact an attorney right away.  Please contact me at rudolphkuss@stevensandkuss.com.

Wis. Stat. § 452.142's Impact On Breach of Contract And Negligence Claims Against Real Estate Agents

My last two posts have discussed two glaring weaknesses in Wis. Stat. § 452.142 - it does not apply to sellers' contribution claims against their real estate agents and it likely does not apply to buyers' misrepresentation claims against sellers' real estate agents.  What remains are breach of contract and negligence claims against real estate agents.  Since sellers will rarely sue their real estate agents, we're mostly talking about buyers' non-misrepresentation claims against real estate agents.

Unfortunately, most buyers do not get their own real estate agent for what is usually the biggest and most significant financial transaction of their life.  They believe that the real estate agent smiling at them from the advertising flyer or the agent who answered the phone at the local real estate office is their agent.  No!  That real estate agent who drove you to five homes on a Sunday is not your real estate agent unless you entered into a WB-36 Buyers Agency / Tenant Representation Agreement.  If you did not enter into such an agreement with a real estate agent, you are not that real estate agent's client.  You are merely that agent's customer.  Wis. Stat. § 452.135 requires the real estate agent to provide you with a written disclosure statement telling you that you are that agent's customer prior to negotiating on your behalf.

If you are the real estate agent's customer, the real estate agent owes you the following duties:

The duty to provide brokerage services to you fairly and honestly.

The duty to exercise reasonable skill and care in providing brokerage services to you.

The duty to provide you with accurate information about market conditions within a reasonable time if you request it, unless disclosure of the information is prohibited by law.

The duty to disclose to you in writing certain material adverse facts about a property, unless disclosure of the information is prohibited by law.

The duty to protect your confidentiality. Unless the law requires it, the firm and its agents will not disclose your confidential information or the confidential information of other parties.

The duty to safeguard trust funds and other property held by the firm or its agents.

The duty, when negotiating, to present contract proposals in an objective and unbiased manner and disclose the advantages and disadvantages of the proposals.

Breach of most of these duties could form the basis for a negligence cause of action.  This cause of action used to be governed by § 893.52's 6-year statute of limitation.  Effective March 4, 2016, however, negligence claims against real estate agents are governed by Wis. Stat. § 452.142's 2-year statute of limitation.

** I HAVE UPDATED THE FOLLOWING PARAGRAPH IN LIGHT OF 2017 WIS. ACT 235, WHICH SHORTENED THE STATUTE OF LIMITATIONS OF FRAUD CLAIMS FROM SIX YEARS TO THREE YEARS. 

Breach of the duty to disclose material adverse facts may form the basis for a misrepresentation claim, which used to be governed by Wis. Stat. § 893.93(1)(b)'s 6-year statute of limitation, but is now governed (effective April 5, 2018) by Wis. Stat. § 893.93(1m)(b)'s 3-year statute of limitation.

What about our wise and responsible buyers who hire a buyers' agent?  Real estate agents owe clients the duties listed above AND these additional duties:

The firm or one of its agents will provide, at your request, information and advice on real estate matters that affect your transaction, unless you release the firm from this duty. The firm or one of its agents must provide you with all material facts affecting the transaction, not just adverse facts.

The firm and its agents will fulfill the firm's obligations under the agency agreement and fulfill your lawful requests that are within the scope of the agency agreement.

The firm and its agents will negotiate for you, unless you release them from this duty.

The firm and its agents will not place their interests ahead of your interests. The firm and its agents will not, unless required by law, give information or advice to other parties who are not the firm's clients, if giving the information or advice is contrary to your interests.

Real estate agents owe their clients a broader duty of disclosure, and breach of this duty of disclosure may likewise form the basis for a misrepresentation claim that is arguably exempted from the new 2-year statute of limitation.  Breach of the other listed duties may form the basis for a negligence cause of action or a breach of contract cause of action.  Regardless of whether we allege negligence or breach of contract, such claims meet the same fate under new Wis. Stat. § 452.142.  Breach of contract causes of action against real estate agents used to be governed by § 893.43's 6-year statute of limitation.  Effective March 4, 2016, breach of contract claims against real estate agents are governed by Wis. Stat. § 452.142 and are therefore subject to a 2-year statute of limitation.

Wis. Stat. § 452.142 appears to have greatly reduced the amount of time that buyers have to allege breach of contract and negligence claims against real estate agents.  If you believe that you have suffered harm as a result of the poor performance of the real estate agent who assisted you with the purchase of your home, you need to contact an attorney right away.  Please contact me at rudolphkuss@stevensandkuss.com. 

Exploiting Wis. Stat. § 452.142's Weaknesses - The Buyer's Misrepresentation Claims

This is yet another post about the "Chapter 452 Modernization Act" and its two-year statute of limitations for claims against real estate agents.  To review, Wis. Stat. § 452.142 provides as follows:

(1) Notwithstanding s. 100.18 (11) (b) 3., 893.43, 893.52, or 893.57, an action concerning any act or omission of a firm or any licensee associated with the firm relating to brokerage services shall be commenced within 2 years after whichever of the following that applies occurs first:

(a) A transaction is completed or closed.

(b) An agency agreement is terminated.

(c) An unconsummated transaction is terminated or expires.

(2) The period of limitation under this section may not be reduced by agreement.

(3) The period of limitation under this section does not apply to disciplinary actions initiated by the board.

Today, we'll focus on the buyer's claims against the seller's real estate agent.  As I said in an earlier post, the buyer's most likely claims against the seller's agent are misrepresentation claims.  Seller's agents may misrepresent a property through violating their duty to disclose material adverse facts.  For example, the buyer in my last post has a viable misrepresentation claim against the seller's agent for failing to disclose that the property's basement leaked.  Seller's agents may also affirmatively misrepresent the property in their advertising on the Multiple Listing Service.  In my time, I've seen seller's agents misrepresent square footage, number of bedrooms, conforming use, zoning, acreage, and buildability.

Let's start with the easy one - Wis. Stat. § 452.142 clearly changes the limitations period for § 100.18 actions against real estate agents from "three years after the occurrence of the unlawful act or practice" to two years after closing.  That being said, buyers rarely bring successful § 100.18 claims against real estate agents anyway.  A failure to disclose material adverse facts does not qualify as a representation under this statute.  That forces the buyer to prove that the seller's agent made an affirmative misrepresentation.  Unfortunately, the buyer must also prove that the listing agent KNEW that the representation was false:

This section does not apply to a person licensed as a broker or salesperson under s. 452.09 while that person is engaged in real estate practice, as defined in s. 452.01 (6), unless that person has directly made, published, disseminated, circulated or placed before the public an assertion, representation or statement of fact with the knowledge that the assertion, representation or statement of fact is untrue, deceptive or misleading.

Wis. Stat. § 100.18(12)(b).  Even if the buyer proves that the seller's agent knowingly misrepresented a property with an illegal basement bedroom as a three-bedroom, he still cannot recover reasonable attorneys' fees against that agent:

Any person suffering pecuniary loss because of a violation of this section by any other person may sue in any court of competent jurisdiction and shall recover such pecuniary loss, together with costs, including reasonable attorney fees, except that no attorney fees may be recovered from a person licensed under ch. 452 while that person is engaged in real estate practice, as defined in s. 452.01 (6).

Wis. Stat. § 100.18(11)(b)2.  In light of these hurdles, there's no real incentive to pursue a § 100.18 claim against a real estate agent.  Instead, I typically allege common law negligent, strict liability, and intentional misrepresentation causes of action.  These causes of action are not barred by the economic loss doctrine because the buyer does not enter into a contract with the seller's real estate agent.  Shister v. Patel, 2009 WI App 163.

** I HAVE UPDATED THE REMAINING CONTENT IN LIGHT OF 2017 WIS. ACT 235, WHICH SHORTENED THE STATUTE OF LIMITATIONS OF FRAUD CLAIMS FROM SIX YEARS TO THREE YEARS. 

So how does Wis. Stat. § 452.142 affect a buyer's common law misrepresentation claims against the seller's real estate agent?  In my opinion, buyers still have at least 3 years to commence an intentional misrepresentation cause of action against the seller's agent notwithstanding the new statute.  Additionally, buyers MIGHT still have at least 3 years to commence negligent and strict liability misrepresentation causes of action against the seller's agent.  The issue is how courts interpret "fraud" under Wis. Stat. § 893.93(1m)(b).    

Even the Wisconsin REALTORS Association concedes that the new statute does not apply to fraud.  I independently reached the same conclusion based on the same logic that I used to conclude that the new statute does not apply to contribution claims in my last post.  Since the new statute does not mention Wis. Stat. § 893.93, it does not exempt fraud claims against real estate agents from the existing statute of limitation for fraud claims.  While the new statute expressly overrides the existing statute of limitations for intentional tort claims under Wis. Stat. § 893.57, that statute covers actions "to recover damages for libel, slander, assault, battery, invasion of privacy, false imprisonment or other intentional tort to the person. . . ."  Fraud is usually not an intentional tort "to the person"; and regardless, it has its own specific statute of limitation:

The following actions shall be commenced within 3 years after the cause of action accrues or be barred:

An action for relief on the ground of fraud. The cause of action in such case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud.

Wis. Stat. § 893.93(1m)(b).

Does this statute simply govern causes of action for intentional fraud or does it also govern causes of action for negligent misrepresentation and strict liability misrepresentation?  I note that this statute does not speak of "intentional fraud."  While some might believe that the f-word necessarily connotes an intentional act, the Wisconsin Supreme Court disagreed in a seminal misrepresentation case:

Even at law, recovery in damages is allowed for fraud not amounting to deceit. Fraud is a generic and an ambiguous term. It embranches misrepresentation which may be separated into the three familiar tort classifications of intent, negligence, and strict responsibility.

Whipp v. Iverson, 43 Wis. 2d 166, 168 N.W.2d 201 (1969).  I have not been able to find any published Wisconsin state court decision deciding what statute of limitation applies to causes of action for negligent misrepresentation and strict liability misrepresentation.  Adding to the confusion, United States District Court Judge Lynn Adelman decided this issue twice within the course of two years and came to contrary conclusions.  In Schimpf v. Gerald Inc., 52 F. Supp. 2d 976 (E.D. Wis. 1999), he rejected the defendant's argument that § 893.54 governs negligent misrepresentation claims, but then held that § 893.52 governs such claims.  Id. at 1007.  In Lewis v. Paul Revere Life Ins. Co., 80 F. Supp. 2d 978 (E.D. Wis. 2000), however, he held that § 893.93(1)(b) applied to all common law misrepresentation claims, including those for negligent and strict liability misrepresentation.  Id. at 994-95.  Perhaps no one brought § 893.93(1)(b) to Judge Adelman's attention in Schimpf?

Based on this uncertainty, I see no reason to change how I approach buyer misrepresentation claims against the seller's real estate agent.  I will continue to plead and try to prove causes of action for negligent, strict liability, and intentional misrepresentation.  The bottom line is that the new statute should have little effect on buyers' claims against sellers' agents.

Exploiting Wis. Stat. § 452.142's Weaknesses - The Seller's Contribution Claim

This is another post about the "Chapter 452 Modernization Act" and its two-year statute of limitations for claims against real estate agents.  I've written about this new law here, here, here, here, and here.  To review, Wis. Stat. § 452.142 provides as follows:

(1) Notwithstanding s. 100.18 (11) (b) 3., 893.43, 893.52, or 893.57, an action concerning any act or omission of a firm or any licensee associated with the firm relating to brokerage services shall be commenced within 2 years after whichever of the following that applies occurs first:

(a) A transaction is completed or closed.

(b) An agency agreement is terminated.

(c) An unconsummated transaction is terminated or expires.

(2) The period of limitation under this section may not be reduced by agreement.

(3) The period of limitation under this section does not apply to disciplinary actions initiated by the board.

This new statute looks all-encompassing.  For whatever reason, the Wisconsin REALTORS Association tried really hard to protect the sloppy and careless real estate agents that give the profession a bad name.  Since this new statute exempts claims against real estate agents from Wis. Stat. § 893.43, buyers and sellers only have two years (instead of six years) to commence breach of contract claims against real estate agents under some circumstances.  Since this new statute exempts claims against real estate agents from Wis. Stat. § 893.52, buyers and sellers only have two years to commence negligence claims against real estate agents under some circumstances.

Under some circumstances?!? Unfortunately for bad real estate agents, their allies in the WRA and the legislature failed to recognize that many of the claims asserted against real estate agents are asserted by sellers who have already been named as a defendant in a lawsuit.  Here's how the scenario typically plays out:

The seller asks his real estate agent (the listing agent) if he really needs to disclose basement leakage in his Real Estate Condition Report, claiming that he only got water in his basement during the "100 year floods" of 2008 and 2010 and has not seen any since.  The listing agent says "of course not!"  The buyer purchases the property in reliance on the seller's Real Estate Condition Report, in which the seller represented that he was not aware of any basement leakage during his fifteen years of ownership.  The buyer closes on his purchase and moves into the property.  The buyer has to shop vac three inches of water off of the entire basement floor after the first snowmelt and has to deal with some amount of basement leakage after every rain.  The buyer retains my firm, and we commence a misrepresentation lawsuit against the seller.  After getting served with our lawsuit, the seller meets with an attorney and tells him about the listing agent's advice on completing the Real Estate Condition Report.

The seller's case against the listing agent is that the agent's advice on completing the Real Estate Condition Report caused him to get sued for misrepresentation.  This is an action for contribution, which is governed by Wis. Stat. § 893.92.  The new statute does not mention § 893.92 and therefore does not exempt contribution causes of action against real estate agents from the existing statute of limitation for contribution claims.  Consequently, the seller could sue his listing agent for contribution after being sued.  Indeed, he could wait until after he is adjudged liable for misrepresentation before suing the listing agent, see Estate of Rille v. Physicians Ins. Co., 2007 WI 36, ¶ 15, as long as he sues within one year after his cause of action for contribution accrues.  This is true even if the buyer waited two, four, or even six years after the closing to sue the seller.  The seller may have statute of limitations defenses to some or all of the buyer's misrepresentation claims, but that does not affect the seller's contribution claim against the listing agent.

As a practical matter, the new statute should bar very few of the claims that sellers could assert against their real estate agents.  What other reason could a seller have for suing his real estate agent besides getting sued by the buyer due to that agent's bad advice?  Failing to sell a property fast enough or for enough money does not justify a lawsuit.  After all, the seller agreed to the sales price and it would be difficult to prove that some other real estate agent would have sold the property on more favorable terms.  A seller might defend a lawsuit by his real estate agent for unpaid commissions by arguing that his agent did a bad job and is not entitled to any commission, but the new statute would not apply to such a defense because the seller is not commencing an action.  While the new statute will certainly affect buyers' claims against their real estate agents, it should have little effect on sellers' claims against their agents.