One of 2015's biggest news stories in Florida was the arrest, indictment and conviction of Glenn and Kathryn Jasen. If you click on these links, you'll discover that the Jasens' federal crime was failing to disclose to the buyers of their property that it had been affected by sinkholes. Indeed, the Jasens violated the Florida statute discussed in my last post through failing to disclose that they had collected money from their insurance company on a sinkhole claim. They were indicted under 18 U.S.C. § 1343 - a federal wire fraud statute. The federal government proved that they intentionally participated in a scheme to defraud and used interstate wires in furtherance of the scheme. In other words, they intentionally defrauded their buyers regarding the condition of their property and received money from the buyers' federally-insured mortgage lender in doing so. The Jasens now face up to twenty years in a federal penitentiary.
The answer to the question posed by this post's title is that lying about your property's condition could be a federal crime if the buyers finance their purchase with a federally-insured mortgage loan. Even as someone who usually represents defrauded buyers in residential real estate misrepresentation cases, I must agree that this is a scary proposition.
However, as this article points out, the Jasen case was the first federal criminal conviction of its kind. The Jasens pocketed their insurance money, did nothing to address the sinkhole activity or resulting damage, and endangered the health and safety of a young family through failing to disclose any of this. The United States Attorney was essentially shamed into pursuing this case by the local news media. I'm not holding my breath on Milwaukee-area news stations shaming the United States Attorney for the Eastern District of Wisconsin into turning garden-variety leaky basement cases into federal wire fraud cases.
After all, many of the claims that we pursue ARE state crimes or statutory violations. Wis. Stat § 943.20(1)(d) makes it a felony to obtain money through misrepresenting the condition of your property with the intent to deceive and defraud the buyer. Wis. Stat. § 100.18 prohibits making any untrue, deceptive, or misleading representation with the intent to sell real estate. Yet, I am not aware of any district attorney prosecuting a seller in any of my cases even after a jury has found the seller liable.
Why not? For one, salaried government attorneys have no financial incentive to pursue these cases. More importantly, government attorneys expect to win every single case that they indict. While the Jasen case was a slam dunk, no government attorney would attempt to obtain a felony conviction in the more common residential real estate misrepresentation cases that are often colored in shades of gray. Were the sellers who owned their property for only three years aware that the basement or roof leaked? Were the sellers aware that the cracks in their living room were signs of a major structural defect? What if the sellers hired contractors to repair the defects affecting their property? What if the basement has not leaked since 2010? What if the buyers' home inspector alerted the buyer to the leakage? What if the buyers were advised to have the property evaluated by a structural engineer or a mold specialist? The United States Attorney would stay miles away from these fraud cases, but these are the cases that I litigate on a daily basis even though I know that I will lose some of them.
If you think that you were deceived in the purchase of your home, please do not contact the U.S. Marshals. Instead, you should email me at rudolphkuss@stevensandkuss.com.
Sunday, December 27, 2015
Saturday, December 26, 2015
Does Florida Have Anything To Teach Wisconsin About Residential Real Estate Disclosure Law?
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.
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.
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