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.