Saturday, April 23, 2016

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 410-26).  This contingency gives a buyer a certain amount of time to have a Wisconsin registered 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 202-15).  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 281-84).

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. s. 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. s. 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 165-172 or lines 435-42 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 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

Tuesday, April 19, 2016

Revisiting The Statute of Limitation For Claims Against Home Inspectors

Though I am not a big fan of Wis. Stat. s. 452.142, I have to give credit where credit is due.  Despite my position that s. 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. s. 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 s. 893.43, negligence causing property damage actions under s. 893.52, and s. 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 s. 452.142 however, I am no longer convinced that s. 440.977(1) is so strict.

This statute only expressly trumps an existing statute of limitation for negligence causing personal injury or death.  Unlike s. 452.142, s. 440.977(1) does NOT explicitly override the respective limitations periods in s. 893.43 and s. 893.52.  A homeowner has a plausible argument that s. 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 s. 893.54 is clearly stated, there is no evidence in the statutory language that s. 440.977(1) was intended to override s. 893.43 or s. 893.52.  Stated another way, a different limitations period for breach of contract and negligence causing property damage actions is not expressly prescribed by s. 440.977(1).

The evidence is even clearer that s. 440.977(1) does not shorten the limitations period for s. 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 s. 100.18.  Unlike 452.142, s. 440.977(1) does not explicitly trump the existing limitations period in s. 100.18.  Furthermore, s. 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, s. 440.977(1) cannot apply to s. 100.18 actions against home inspectors.

All that being said, you cannot count on courts to interpret s. 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.

Sunday, April 17, 2016

Wis. Stat. s. 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. s. 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. s. 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 the duty to disclose material adverse facts may form the basis for a misrepresentation claim, which I would argue is still governed by Wis. Stat. s. 893.93(1)(b)'s 6-year statute of limitation.  Breach of the other listed duties may form the basis for a negligence cause of action.  This cause of action used to be governed by s. 893.52's 6-year statute of limitation.  Effective March 4, 2016, however, negligence claims against real estate agents are governed by Wis. Stat. s. 452.142's 2-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. s. 452.142.  Breach of contract causes of action against real estate agents used to be governed by s. 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. s. 452.142 and are therefore subject to a 2-year statute of limitation.

Wis. Stat. s. 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. s. 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. s. 452.142 provides as follows:

(1) Notwithstanding s. 100.18 (11) (b) 3.893.43893.52, 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. s. 452.142 clearly changes the limitations period for s. 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 s. 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. s. 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. s. 100.18(11)(b)2.  In light of these hurdles, there's no real incentive to pursue a s. 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.

So how does Wis. Stat. s. 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 6 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 6 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. s. 893.93(1)(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. s. 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. s. 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 6 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. s. 893.93(1)(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 s. 893.54 governs negligent misrepresentation claims, but then held that s. 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 s. 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 s. 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.

Friday, April 15, 2016

Exploiting Wis. Stat. s. 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. s. 452.142 provides as follows:

(1) Notwithstanding s. 100.18 (11) (b) 3.893.43893.52, 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. s. 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. s. 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. s. 893.92.  The new statute does not mention s. 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, para. 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.