Monday, February 15, 2016

Update On The Chapter 452 Modernization Act

Last week, I wrote about the Chapter 452 Modernization Act in general and proposed Wis. Stat. s. 452.142 in particular.  I was pleased to learn about Amendment 5 to Assembly Bill 456, which would have changed the language of Wis. Stat. s. 452.142 to the following:

452.142 Actions concerning licensees. (1) Notwithstanding s. 100.18 (11)(b) 3., 893.43, 893.52, or 893.57, an action concerning any act or omission of a licensee relating to the provision of brokerage services by the licensee shall be commenced within 3 years after the cause of action acrrues or be barred.

The new limitations period for actions against real estate agents would have expanded from 2 years to 3 years.  Also, the new limitations period would have been subject to the "discovery rule," helping buyers and sellers who do not discover that they have a potential claim against their real estate agent within that limitations period.  

Amendment 5 was not perfect.  While it would have protected some victims of dishonest real estate agents, it would not have protected victims of sloppy real estate agents.  As I've discussed previously, breach of contract actions accrue at the time of breach and the "discovery rule" does not apply.  Real estate agents breach their contracts when they do not ensure that their buyers have received a completed Real Estate Condition Report signed by all owners of the property before making an offer, when they do not advise buyers to hire their own inspectors, when they do not promptly deliver written notice that their buyers cannot obtain financing, or when they fail to deliver written notice of the defects identified in the buyers' inspection reports.  When other service providers screw up, consumers have 6 years to commence a breach of contract action against them pursuant to Wis. Stat. s. 893.43.  When a real estate agent screws up, consumers would have only 3 years to commence a breach of contract action against them.

Despite the continued special interest protectionism, I would have still been satisfied with Wis. Stat. s. 452.142 as affected  by Amendment 5.  I thought that this amendment had passed, as I saw "63 Ayes and 35 Noes," so I confirmed my understanding with the office of the amendment's sponsor - Representative Dana Wachs.  I received the unfortunate news that this vote was actually to "table" (i.e., "kill") Amendment 5.  I also learned that the Chapter 452 Modernization Act passed the Assembly.  It will be considered by the Senate before it reaches the desk of Wisconsin's most famous client of real estate services.   

Monday, February 8, 2016

Proposed Wis. Stat. 452.142 Is Bad For Homeowners And Bad For Real Estate Agents As Well

This week, the Wisconsin REALTORS Association will almost certainly be successful in convincing the legislature to pass what it calls the "Chapter 452 Modernization Act."  This will be an important act that, to be fair, will provide some benefits to homeowners.  I anticipate writing several posts explaining the significance of this act.

Unfortunately, this "modernization act" features some crass protectionism that demeans all REALTORS and their profession.  Section 147 should be excised from the "Chapter 452 Modernization Act" and given its own name - the "Careless And Dishonest REALTOR Protection Act."  Section 147 will create Wis. Stat. s. 452.142:

452.142 Actions concerning licensees. (1) Notwithstanding s. 100.18 (11)(b) 3., 893.43, 893.52, or 893.57, an action concerning any act or omission of a licensee relating to the provision of brokerage services by the licensee 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.

Wis. Stat. 452.142 creates what is known as a statute of limitations for court actions against real estate agents.  Statutes of limitations bar people from seeking justice through the courts regardless of the merits of their claims.  I've written about statutes of limitations before within the context of claims against sellers.

Of note, statutes of limitations for claims against sellers are often extended by operation of the "discovery rule."  Sellers who conceal defects could find themselves hailed into court ten years after selling their home under some circumstances.  Yet, the "discovery rule" will not apply to claims against real estate agents.  Real estate agents who advise their clients to conceal cracks or water damage in order to sell their home are immunized from liability.  Meanwhile, sellers whose only sin may have been listening to professional advice from their real estate agent are left to defend fraud claims alone.

 The Wisconsin REALTORS Association points out that home inspectors are protected by a 2-year statute of limitations.  This statute of limitation was part of the legislative bargain that subjected home inspectors to registration and licensing requirements for the first time.  Before 1998, any handyman could hold himself out as a "home inspector" without even having to pass a test.  In contrast, real estate agents have been licensed and regulated by the State of Wisconsin since forever and claims against them have always been subject to the same statutes of limitations that govern claims against all other citizens of this state.  There is no compelling reason for the legislature to suddenly grant real estate agents special protections against negligence and fraud claims.  Under this law, consumers have more time to sue used car salesmen for fraud.  Maybe I'm living in an idealized fantasy world, but I thought that real estate agents held themselves to higher standards than used car salesmen.

Furthermore, it simply takes more time for buyers to discover that they have claims against the sellers' real estate agent than it does for them to discover that they have claims against their home inspector.  The buyers walked through the property with their home inspector, asked questions, got answers, and received a written report.  When the buyers discover defects after closing, they and their attorneys have all of the information that they need to evaluate a potential claim against their home inspector.  The same logic does not hold true for the buyers' potential claims against the sellers' real estate agent.  As I've written before, most buyers' claims against the sellers' real estate agent are for failing to disclose what they knew about the property.  When buyers come into my office, I have no idea whether or not the sellers told their real estate agent that their roof leaked.  I have no idea whether or not the sellers' real estate agent advised the sellers to paint their cracked great room walls and ceiling.  When I commence a court action on behalf of defrauded buyers, the sellers are typically the only defendants.  Real estate agents might get added later on as defendants, but only after I have the chance to question the sellers about why they failed to mention their leaky roof or basement in their Real Estate Condition Report.

Wis. Stat. s. 452.142(1) will force all attorneys representing defrauded buyers to change their behavior.  Failing to sue real estate agents right away might subject attorneys to liability for malpractice.  There is no surer way to get sued for legal malpractice than to blow a deadline or a statute of limitation.  Consequently, I will have no choice but to allege fraud and misrepresentation claims against real estate agents without fully investigating the facts.  I apologize in advance to the truly ethical real estate agents out there who advise their clients to disclose everything that a buyer could possibly want to know in the Real Estate Condition Report and who would never dream of advising a client to paint over a cracked foundation wall.  Unfortunately for you, your association insists on protecting the bad apples that spoil your profession.        

Wednesday, February 3, 2016

The Wonderful World Of Seller Financing

I recently defended a foreclosure lawsuit, but not one brought by a bank or mortgage lender.  In this case, my clients were sued by the couple who sold them their home and were financing their purchase of that home.  Welcome to the wonderful world of seller financing!

My clients and their sellers both signed the State Bar of Wisconsin Form 11-2003, which is otherwise known as the Land Contract.  Buyers and sellers of residential real estate enter into the Land Contract when the buyers cannot pay cash and cannot obtain financing.  In some transactions, the Land Contract is the only contract that the parties sign.  In other transactions, the parties enter into a WB-11 Residential Offer To Purchase and enter into the Land Contract in the event that financing is not available on the terms stated in the offer and the seller agrees to finance the transaction pursuant to lines 250-56 of the offer.

In my case, my clients stopped paying on the Land Contract and abandoned the property after they discovered some serious property defects (including fire and water damage) that the sellers failed to disclose to them.  My clients' best defense was that the Land Contract was induced by misrepresentation.  Trouble is, the sellers made no written representations to them about the property's condition, such as providing them with a Real Estate Condition Report or even making the representations contained in lines 159-62 of the WB-11 Residential Offer.

Based on my clients' experience, I strongly advise all buyers to use the WB-11 Residential Offer even if they doubt that they will be unable to obtain financing.  All buyers need the protection that the WB-11 Residential Offer provides, including property condition representations by the sellers; title insurance; and the right to have the property appraised, inspected, and tested.  The State Bar Land Contract lacks these basic protections and also makes the buyers responsible for the sellers' costs, expenses, and attorneys' fees in the event that the buyers cannot make their payments and the sellers foreclose or sue them for the amount owed.

Please email me at rudolphkuss@stevensandkuss.com if you or your clients need an attorney to protect their interests in the purchase of residential real estate or the financing of that purchase.