In my last post, I lauded the new Real Estate Condition Report's required disclosure of restrictive covenants and deed restrictions. I write this post to emphasize that disclosure of the mere existence of restrictive covenants in a subdivision isn't good enough.
To review, sellers answer questions on a Real Estate Condition Report "YES," "NO," or "N/A." A "YES" answer to the question "are you aware of restrictive covenants or deed restrictions on the property?" only tells buyers that there are restrictive covenants or deed restrictions; it does not inform buyers what uses of the property are actually restricted. A mere affirmative answer to this question fails to inform buyers whether or not they can have an above-ground pool or hang out their laundry.
True, sellers are required to explain their "YES" responses. The old Real Estate Condition Report contained an explanation section several lines in length at the end of the report. The new Real Estate Condition Report contains explanation sections that run only three lines long at the end of each section. Since the question about restrictive covenants is question 7 in the "LAND USE" section, sellers must explain a "YES" response to that question at the end of that section. Even assuming that this question is the only one in that section to which the seller answered "YES," three lines is nowhere near enough space to explain restrictive covenants that may run over thirty pages in length.
Some real estate condition reports provide sellers with an option of answering "See Expert's Report" instead of "YES, "NO, or "N/A." While restrictive covenants are not expert reports, such an option could prompt some sellers to attach their subdivision's restrictive covenants to their real estate condition reports. Alternatively, some sellers might "explain" their "YES" response to the restrictive covenants question as "see attached restrictive covenants." I doubt that either practice is common however.
Even before sellers were questioned about restrictive covenants and deed restrictions in the new Real Estate Condition Report, I drafted language in offers requiring sellers to deliver any restrictive covenants to buyers within 10 days of acceptance. Even that isn't good enough however. If the content of restrictive covenants is important to buyers and those restrictive covenants are not provided to buyers prior to acceptance, buyers might have to close on their purchase even if they later find out that they cannot have their pool. Without a contingency or a right to rescission based on the contents of the restrictive covenants, the buyers have no excuse for failing to close and might forfeit their earnest money or even face liability for damages.
Going forward, I will draft language in offers requiring sellers to deliver any restrictive covenants to buyers within 10 days of acceptance AND giving buyers the right to rescind their offer and get their earnest money back in the event that they object to the content of any of those restrictive covenants. Of course, some sellers will object to this language because it would allow buyers to rescind for purely subjective reasons (unlike rescissions based on the disclosure of defects in a Real Estate Condition Report, which are subject to a more objective standard). Trouble is, I see no other way to protect buyers from purchasing a property with undesirable restrictive covenants other than demanding that sellers deliver said covenants to buyers before any offer is made, which is unrealistic under most circumstances.
Please reach out to me at rudolphkuss@stevensandkuss.com if you're interested in a property for sale in a residential subdivision.
Saturday, June 30, 2018
Friday, June 29, 2018
Sellers Now Must Disclose Restrictive Covenants And Deed Restrictions
Based on my experience, the biggest improvement in the new Real Estate Condition Report required by 2017 Wis. Act 338 and Wis. Stat. § 709.03 is the following question: "Are you aware of restrictive covenants or deed restrictions on the property?"
The closest that the old Real Estate Condition Report came to this question was Property Condition Statement C.26, which read as follows: "I am aware of subdivision homeowners' associations, common areas co-owned with others, zoning violations or nonconforming uses, rights-of-way, easements, or another use of a part of the property by nonowners, other than recorded utility easements." A seller who was aware of restrictive covenants in his subdivision could honestly answer this statement "No" as long as his subdivision did not have an actual homeowners association.
Contrary to what is popular belief in some quarters, restrictive covenants are enforceable even without a homeowners' association. Some of these restrictive covenants are written so that any neighborhood bully can sue his neighbor for enjoying an above-ground pool or installing a vinyl fence on his property. Even worse, some of these restrictive covenants are written so that the neighborhood fascist can seek payment of his attorneys' fees from the poor neighbor that he is suing for having the wrong politician's campaign sign on his lawn or leaving Christmas lights up past New Years Day on his home.
In my opinion, the existence of restrictive covenants in a subdivision is far more worthy of disclosure to buyers than the existence of a homeowners' association. While homeowners' associations may sue homeowners, they are at least theoretically controlled by the board member election process, Robert's Rules of Order, and group dynamics. The restrictive covenants themselves are the potentially adverse condition affecting the property, regardless of whether they are enforceable by a homeowners' association or by any of your crazy neighbors.
Please reach out to me at rudolphkuss@stevensandkuss.com if you are being bullied by your neighbor or by your homeowners' association over your use of your property.
The closest that the old Real Estate Condition Report came to this question was Property Condition Statement C.26, which read as follows: "I am aware of subdivision homeowners' associations, common areas co-owned with others, zoning violations or nonconforming uses, rights-of-way, easements, or another use of a part of the property by nonowners, other than recorded utility easements." A seller who was aware of restrictive covenants in his subdivision could honestly answer this statement "No" as long as his subdivision did not have an actual homeowners association.
Contrary to what is popular belief in some quarters, restrictive covenants are enforceable even without a homeowners' association. Some of these restrictive covenants are written so that any neighborhood bully can sue his neighbor for enjoying an above-ground pool or installing a vinyl fence on his property. Even worse, some of these restrictive covenants are written so that the neighborhood fascist can seek payment of his attorneys' fees from the poor neighbor that he is suing for having the wrong politician's campaign sign on his lawn or leaving Christmas lights up past New Years Day on his home.
In my opinion, the existence of restrictive covenants in a subdivision is far more worthy of disclosure to buyers than the existence of a homeowners' association. While homeowners' associations may sue homeowners, they are at least theoretically controlled by the board member election process, Robert's Rules of Order, and group dynamics. The restrictive covenants themselves are the potentially adverse condition affecting the property, regardless of whether they are enforceable by a homeowners' association or by any of your crazy neighbors.
Please reach out to me at rudolphkuss@stevensandkuss.com if you are being bullied by your neighbor or by your homeowners' association over your use of your property.
Monday, June 25, 2018
Introducing 2017 Wis. Act 338
My next few posts will discuss 2017 Wis. Act 338. I agree with the Wisconsin REALTORS Association that this new law represents an "extreme makeover" of the condition reports used in Wisconsin real estate transactions. The intent of this law is to make real estate condition reports more user-friendly and less confusing. While these new forms will take some getting used to, I generally agree that the new real estate condition reports are an improvement.
While the condition reports that sellers of residential real estate and vacant land must complete have substantially changed, it is important to recognize that the scope of Chapter 709 has not. Wis. Stat. § 709.01 (when read in conjunction with Wis. Stat. § 709.02) still requires sellers of residential real estate or vacant land to furnish a real estate condition report unless they have never occupied the property and are either a personal representative of an estate, a trustee of a trust, a conservator, or a fiduciary appointed by a court. If the property is owned by an estate, the personal representative still must furnish a condition report unless he or she has never lived in the property (even as a child). If the sellers have set up a revocable trust or family trust for estate planning purposes and transferred ownership of the property to that trust (as many couples do), they still must furnish a condition report. Finally, limited liability companies that purchase foreclosed or otherwise distressed properties in order to fix them up and sell them ("flippers") still must furnish a real estate condition report even if they have never occupied the property because § 709.01(2) does not contain an exception for LLCs or their members. Act 338 did not change the scope of Chapter 709 at all.
While the condition reports that sellers of residential real estate and vacant land must complete have substantially changed, it is important to recognize that the scope of Chapter 709 has not. Wis. Stat. § 709.01 (when read in conjunction with Wis. Stat. § 709.02) still requires sellers of residential real estate or vacant land to furnish a real estate condition report unless they have never occupied the property and are either a personal representative of an estate, a trustee of a trust, a conservator, or a fiduciary appointed by a court. If the property is owned by an estate, the personal representative still must furnish a condition report unless he or she has never lived in the property (even as a child). If the sellers have set up a revocable trust or family trust for estate planning purposes and transferred ownership of the property to that trust (as many couples do), they still must furnish a condition report. Finally, limited liability companies that purchase foreclosed or otherwise distressed properties in order to fix them up and sell them ("flippers") still must furnish a real estate condition report even if they have never occupied the property because § 709.01(2) does not contain an exception for LLCs or their members. Act 338 did not change the scope of Chapter 709 at all.
Tuesday, June 19, 2018
Understanding The New Condominium Sales Law
In the next few posts, I will discuss new laws affecting residential real estate sales or residential real estate litigation. This post addresses 2017 Wis. Act. 303.
Effective April 18, 2018, condominium associations may charge condominium unit sellers a fee of up to $50.00 for furnishing the documents that a seller must furnish to a purchaser pursuant to the WB-14 Residential Condominium Offer To Purchase. See Wis. Stat. § 703.20(2)(a). This provision was apparently intended to prevent condominium associations from charging sellers extortionate fees for the required documents, though I suspect that some associations that have never before charged such a fee will now do so because this law expressly authorizes such charges.
Wis. Stat. § 703.33(1) requires condominium unit sellers to furnish certain documents to purchasers not later than 15 days prior to closing. Effective July 1, 2018, the executive summary required under § 703.33(1)(h) must include the amount of the condominium association's reserve account balance when the association maintains such an account for repairs and replacement of the common elements. This law imposes additional obligations on condominium associations rather than on condominium unit sellers, as associations are required to furnish all of the required information to sellers upon written request. See Wis. Stat. § 703.20(2). That being said, this law potentially benefits purchasers and burdens sellers. I could foresee a diligent purchaser (or his tenacious lawyer) seeking to renegotiate the purchase price or void the purchase contract altogether upon disclosure that the condominium association has insufficient funds to finance repairs or replacement of its building roofs or parking lots.
Finally, effective July 1, 2018, Wis. Stat. § 703.335 requires a condominium association to provide a written payoff statement to a condominium unit seller or his agent upon written request. This sounds like a positive development, as purchasers of condominium units often expect reassurances that they will not be responsible for dues and assessments that should have been paid during the prior ownership. Unfortunately, this law has no teeth. Under § 703.335(5), the liability of a condominium association to a seller for failing to provide a payoff statement within the statutory deadline - or at all- is capped at $350.00. A condominium unit seller could sustain damages far exceeding $350.00 if the closing of the sale of his unit is delayed or lost as a result of the association's failure to timely provide the required payoff statement.
Please contact me at rudolphkuss@stevensandkuss.com if you are looking to buy or sell a condominium unit or if you were deceived in your purchase of a condominium unit.
Effective April 18, 2018, condominium associations may charge condominium unit sellers a fee of up to $50.00 for furnishing the documents that a seller must furnish to a purchaser pursuant to the WB-14 Residential Condominium Offer To Purchase. See Wis. Stat. § 703.20(2)(a). This provision was apparently intended to prevent condominium associations from charging sellers extortionate fees for the required documents, though I suspect that some associations that have never before charged such a fee will now do so because this law expressly authorizes such charges.
Wis. Stat. § 703.33(1) requires condominium unit sellers to furnish certain documents to purchasers not later than 15 days prior to closing. Effective July 1, 2018, the executive summary required under § 703.33(1)(h) must include the amount of the condominium association's reserve account balance when the association maintains such an account for repairs and replacement of the common elements. This law imposes additional obligations on condominium associations rather than on condominium unit sellers, as associations are required to furnish all of the required information to sellers upon written request. See Wis. Stat. § 703.20(2). That being said, this law potentially benefits purchasers and burdens sellers. I could foresee a diligent purchaser (or his tenacious lawyer) seeking to renegotiate the purchase price or void the purchase contract altogether upon disclosure that the condominium association has insufficient funds to finance repairs or replacement of its building roofs or parking lots.
Finally, effective July 1, 2018, Wis. Stat. § 703.335 requires a condominium association to provide a written payoff statement to a condominium unit seller or his agent upon written request. This sounds like a positive development, as purchasers of condominium units often expect reassurances that they will not be responsible for dues and assessments that should have been paid during the prior ownership. Unfortunately, this law has no teeth. Under § 703.335(5), the liability of a condominium association to a seller for failing to provide a payoff statement within the statutory deadline - or at all- is capped at $350.00. A condominium unit seller could sustain damages far exceeding $350.00 if the closing of the sale of his unit is delayed or lost as a result of the association's failure to timely provide the required payoff statement.
Please contact me at rudolphkuss@stevensandkuss.com if you are looking to buy or sell a condominium unit or if you were deceived in your purchase of a condominium unit.
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