Real Estate Agents: Just Disclose It

Back when I introduced this blog, I noted that my partner and I primarily represent homeowners who have purchased defective property in their cases against those involved in that purchase. My blog posts have almost exclusively focused on cases against sellers. Many of you might ask "what about cases against real estate agents?"

I believe that I have represented more real estate agents than I have sued. Sellers are usually the only defendants in the cases that we pursue on behalf of defrauded homeowners. Our client's contract is with the seller, not with the seller's real estate agent. Also, as real estate agents remind me when I question them about their involvement, the disclosure form for defects in residential real estate transactions is the Seller's Real Estate Condition Report. It is the seller who completes and signs the Real Estate Condition Report. Obviously, the seller who has lived in the home for twenty-plus years is in a better position to know if the basement leaks than a real estate agent who has visited the home once.

About the only way that a seller's real estate agent (listing agent) can get him or herself in trouble with the buyer is by falsely advertising the property or by not disclosing defects. We occasionally pursue cases against listing agents for making false statements in their advertising flyers, such as falsely representing that a property is zoned commercial. Since those cases are very rare, a listing agent should be primarily concerned with making sure that all defects are disclosed in writing to all buyers. Sellers completing Real Estate Condition Reports are often full of excuses for not wanting to disclose their basement problems:

• "It only happened once - in June 2008 when I-94 flooded"
• "It hasn't happened in years"
• "My Uncle Louie fixed the problem"

 A competent and honest real estate professional will ask him or herself "is this something that a buyer would want to know?" Listing agents should also recognize that sellers (gasp!) often minimize their basement problems. June of 2008 might actually mean "every June since 2008." It hasn't happened in years might actually mean "2016." Uncle Louie might be kookier than Uncle Buck. Listing agents must recognize that Wis. Stat. § 709.02 is intended to protect them and that they must advise sellers to disclose, disclose, DISCLOSE! If a seller tells his or her listing agent about a defect but refuses to disclose it in a Real Estate Condition Report, the listing agent had better make sure that the defect is disclosed to all buyers in writing. Otherwise, the listing agent faces liability under Wis. Stat. § 452.133(1)(c) or Wis. Admin. Code § REEB 24.07(2).

Sellers who are questioned about why they did not disclose certain defects in their Real Estate Condition Report often try to throw their listing agent under the bus. Sellers may testify that they told their listing agent about their shifting foundation wall and that their listing agent advised them to omit that defect from their condition report and paint over that wall. That actually happened on the morning of my first bench trial, so I called the listing agent to testify that afternoon. He clearly and unambiguously testified that he was never told about any basement defects and that he would have advised the sellers to disclose any basement defects in their condition report had they simply told him about those defects. I usually find such explanations convincing, and so do judges and juries. In order to sue a real estate agent, I have to be convinced that the agent knew about the defects. Why would a real estate agent risk being held liable for repair costs and diminished value and jeopardize his or her license for a 6% commission? That does not make sense!        

The General Rule Is That Sellers of Residential Real Estate Are Required To Complete A Real Estate Condition Report

I passed my Real Estate Salesperson and Real Estate Broker exams during the past month, and I am in the process of getting licensed as a Real Estate Broker. Consequently, I will write several posts in the future about aspects of real estate practice that are not directly related to litigation. This is one of those posts, even if my experience as a litigator inspired me to write it.

In an earlier post, I strongly suggested that prospective homebuyers insist on receiving a Real Estate Condition Report prior to submitting any offer to purchase a residential property.

My firm has a client who is adamant that his seller violated the law by failing to furnish a Real Estate Condition Report on his property on the grounds that he never lived in the property. The client is 100% correct. Wis. Stat. § 709.01 requires transferrors of residential real property to furnish a Real Estate Condition Report unless (1) the property has never been inhabited; (2) the seller is a personal representative of an estate; (3) the seller is a trustee; (4) the seller is a conservator; or (5) the seller is a fiduciary appointed by or supervised by a court. This statute does not contain a general exception for home flippers who purchase properties out of foreclosure, make some repairs and cosmetic improvements, and then sell to new homeowners.

Unfortunately, I see these kinds of shenanigans all the time. Either the seller does not furnish a Real Estate Condition Report or furnishes one with all of the Property Condition Statements crossed out with a statement that "seller has never lived in the property." If a seller has "never lived in the property," he should have no problem certifying in a Real Estate Condition Report that he is not aware of any defects affecting the property. Yet, home flippers often try to skirt Chapter 709's requirements instead. 

Wisconsin law does not appear to provide a post-closing legal remedy for violation of Wis. Stat. § 709.02. Even though my client is 100% correct, he has no remedy for this particular wrong. Instead, we are suing the seller for making misrepresentations in the written purchase contract and through concealing defective basement walls with paint.

It is up to prospective homebuyers and buyers' agents to police violations of Chapter 709. 

Again, no one should submit an offer to purchase residential property without first receiving a completed Real Estate Condition Report. While a seller is not legally required to furnish a Real Estate Condition Report prior to receiving an offer, there is no reason why he could not do so. Sellers typically complete Real Estate Condition Reports on the same day that they list their property for sale with a real estate broker. If the seller withholds his Real Estate Condition Report, there is something amiss.

In the event that the Real Estate Condition Report is not furnished by the time that the offer is submitted, the buyer has a right to rescind the contract if the required report is not furnished within 10 days after acceptance. Since Wis. Stat. § 709.02 requires a "completed copy of the report," I would argue that a buyer still has a right to rescind if a home flipper furnishes a Real Estate Condition Report with the Property Condition Statements crossed out or left blank. Every situation is different, however, and homebuyers and their agents should consult with counsel prior to exercising their rescission rights.

My Thoughts On The Wisconsin Law Journal's Review Of Circuit Court Judges

This morning, the Wisconsin Law Journal released its review of how Wisconsin's circuit court judges fared in the Wisconsin Supreme Court and Court of Appeals in 2013. As a frequent practitioner in Wisconsin's circuit and appellate courts, I am always intrigued by this annual list. In a way, this list is like the standings page in the sports section - it tracks wins, losses, and winning percentage.

However, I believe that lawyers are doing themselves and their clients a disservice if they use this list to separate the "good" judges from the "bad" judges. For example, I have practiced in front of Judge Hue, Judge Todd Martens, and Judge Malloy and consider them to be very competent and thoughtful judges. I would not consider substituting on any of them. Yet, they all had "losing" records last year. On the other side of the coin, there are some judges who are fascist, senile, or only on the bench because of who they are related to. Yet, some of them had "winning" records last year.

The only way to know the "good" judges from the "bad" judges is to practice in front of those judges. My partner and I have considerable experience practicing in front of the judges in Milwaukee, Waukesha, Washington, Ozaukee, and Racine Counties. We also have experience practicing in front of judges in Walworth, Rock, Jefferson, Dodge, Fond du Lac, Outagamie, and Sheboygan Counties. Please feel free to contact us if you have questions about the judge assigned to your case.

Milwaukee Journal/Sentinel Article Shows Why Wisconsin Supreme Court Needs To Overrule Linden

Earlier this week, the Milwaukee Journal/Sentinel told the story of John and Beth Liebl, who purchased a million-dollar home near Oostburg only to discover that it is infested with mold. The article is available here.
In short, this home was built in 2004 and sold to the Liebls in 2010. During an extensive remodeling project between 2012 and 2013, the Liebls discovered that all of the walls in their home were covered with mold. The article briefly discusses why the Liebls have no legal remedy against any of the parties involved in the construction or sale of their home.

Based upon the limited information provided, I would have likely rejected the Liebls' potential case against their sellers. I see no evidence that these sellers were aware of moisture intrusion, much less rot or mold. When considering such a case, I primarily look at how long the sellers lived in the property and how soon the buyers discovered problems. However, the overriding factor in this case is how the buyers discovered problems - through making major alterations to their home. Unless the sellers made major alterations to the home during their ownership, I don't see how they could have been aware that the inside of their walls were rotten and moldy. As I discussed in a previous post, buyers need to be able to prove that their sellers were aware of problems that they did not disclose in order to have a case against them.

While the sellers likely did nothing wrong, the contractors involved in the construction of this home most certainly did. This home is less than ten years old, but it almost had to be torn down as a result of moisture intrusion, severe wood rot, and mold. Though the article does not discuss the cause of the moisture intrusion in great detail, these problems often occur due to negligent siding, window, or flashing installation.

Unfortunately for homeowners, the Wisconsin Supreme Court held in Linden v. Cascade Stone Co., 2005 WI 113, that negligence claims against builders and their subcontractors are barred by the economic loss doctrine. Wisconsin law does nothing to deter slipshod and shoddy construction work by builders and their subcontractors, and it does nothing for homeowners (like the Liebls) who have been victimized by such carelessness. Deterring contractor negligence is an important public safety issue, as homeowners, renters, and their children are all endangered by sloppy construction practices. As discussed in the Milwaukee Journal/Sentinel article, the quality of residential construction has been declining for years, and construction professionals are seeing more and more mold cases as a result.

At some time in the future, the Wisconsin Supreme Court will be presented with another negligent construction case. When that day comes, our supreme court needs to consider the interests of all present and future homeowners and the public health, safety and welfare, instead of just considering the private interests of contractors and their insurance companies. The time has come for the Wisconsin Supreme Court to overrule Linden and bring back the negligent construction claim.   

 

Wisconsin's New Stormchaser Law

Wisconsin's new Stormchaser Law takes effect today. Wis. Stat. § 100.65 affects both homeowners and contractors who repair or replace roofing or siding on residential homes. Contractors are prohibited from promising to rebate any part of a homeowners' insurance deductible to induce a sale and are also prohibited from negotiating (or even offering to negotiate) with the insurance company on the homeowner's behalf. If the homeowner will make an insurance claim relating to the contemplated work, the contractor must provide the homeowner with WRITTEN notice of his right to cancel the contract in the event that the insurance company denies the claim. If the insurance company denies the claim, the homeowner has three business days to give the contractor WRITTEN notice of cancellation. If the homeowner cancels the contract, the contractor must refund any payments already made.

Wis. Stat. § 100.65 is an insurance company protection law; not a consumer protection law. Supporters of this law spun the tale of out-of-state fly by night contractors preying on Wisconsin homeowners, but the truth is that insurance companies pushed this law to reduce the number of hail claims. Here's an insightful discussion from an insurance defense attorney in Texas. If Wis. Stat. § 100.65 was truly a consumer protection law, it would specifically declare that contractors cannot enforce home improvement contracts that violate its terms. If Wis. Stat. § 100.65 was truly a consumer protection law, it would have given homeowners a civil cause of action for damages resulting from its violation. Instead, contractors get a $500-$1,000 slap on the wrist for violating this law, and homeowners have to hire someone like me to argue that contracts that violate this law are illegal and unenforceable. Fortunately, a violation of Wis. Stat. § 100.65 is likely also a violation of the Home Improvement Practices Code. If a homeowner proves that a contractor violated the Home Improvement Practices Code, he can recover twice his damages plus reasonable attorneys' fees pursuant to Wis. Stat. § 100.20(5).    

Homeowners need to understand that they must provide their contractor with WRITTEN notice of cancellation under Wis. Stat. § 100.65(5); otherwise, cancellation will be ineffective and the homeowner will be contractually obligated to pay the amount due under the contract. Verbal notice won't cut it.  In fact, faxing or emailing the contractor won't cut it.  Homeowners need to follow the letter or the law and either hand-deliver or snail-mail written notice of cancellation to the contractor. Since Wis. Stat. § 100.65(3)(b) requires contractors to provide homeowners with a separate document that they can use to cancel the contract simply by signing and dating it, homeowners should be able to provide contractors with the required WRITTEN notice without any difficulty.    

   

Fee Shifting In The Wind?

The general rule is that parties in civil litigation have to pay their own attorney; this is what is known as the American Rule.  Yes, sometimes contracts require the losing party to pay the winning party's attorneys' fees should a dispute arise under that contract.  Yes, sometimes judges order one party to pay another party's attorneys' fees based upon a violation of Wis. Stat. (Rule) § 802.05 or for discovery abuse pursuant to Wis. Stat. (Rule) § 804.12.  Most significantly for the purposes of this post, certain consumer statutes require courts to award a prevailing party reasonable attorneys' fees.  These statutes include Wis. Stat. § 100.18 and Wis. Stat. § 100.20.  The purpose of this "fee shifting" is to encourage attorneys to take these cases and to deter sellers from defrauding buyers.  See Stuart v. Weisflog's Showroom Gallery, Inc., 2008 WI 22, 308 Wis. 2d 103, 746 N.W.2d 762; First Wis. Nat'l Bank v. Nicolaou, 113 Wis. 2d 524, 335 N.W.2d 390 (1983).  I like these statutory causes of action, and I plead them whenever I can on behalf of my defrauded clients.

However, I recognize that the American Rule generally applies in civil litigation.  For example, I know that I cannot seek reasonable attorneys' fees on behalf of clients whose use and enjoyment of their property has been interfered with by the actions of another.  These are the nuisance cases that I discussed in a previous post.  Some of our clients claim that their property has diminished in value as the result of the opening of an Aldi in their neighborhood.  Others claim that their property has diminished in value as the result of a gas pipeline or a Superfund site nearby.  Plaintiffs with such claims have to pay their attorney even if they prevail.

Given my background in pursuing diminishment in value claims on behalf of property owners, I was very interested to hear about a new law proposed by Senator Lasee.  Senate Bill 167 would entitle property owners to reasonable attorneys fees if they could prove that they were damaged by a wind energy system.  The law also entitles owners of property near wind turbines to recover for emotional damages, pain and suffering, and relocation expenses.

If you guessed that I favor this legislation, then you guessed incorrectly.  I don't dispute that wind turbines negatively affect property values.  Then again, gas pipelines and Superfund sites also negatively affect property values and have been linked to deadly health problems, including cancer.  Why should those who live near wind turbines recover reasonable attorneys' fees while property owners damaged by other nuisances are left out in the cold?  Furthermore, I see no public policy justification for this exception to the American Rule.  Reasonable attorneys' fees are recoverable under Wis. Stat. §§ 100.18 and 100.20 because we want to deter fraud and other deceptive practices.  Theft by fraud is a criminal offense.  In contrast, there is nothing illegal about wind turbines.  Of course, this proposed law would encourage attorneys (including yours truly) to take these cases, but that could justify any fee shifting statute.  Where's the NEED to encourage attorneys to take these cases?

Please feel free to comment below, as I would reconsider my initial opinion if someone justifies fee shifting in these cases.

Don't Take The Easy Way Out- My Take On Ivancevic v. Reagan

On September 17th, the Wisconsin Court of Appeals filed its decision in Ivancevic v. Reagan and recommended it for publication.  In Ivancevic, the buyers of a property sued their sellers, seeking to rescind their purchase contract on the grounds of "mutual mistake."  They claimed that neither party was aware of defects in the property's roof and attic ventilation system and that the sellers should be forced to repair or buy back the property as a result.  The Court of Appeals affirmed the trial court's order dismissing the case, citing firmly established precedent for the proposition that reformation of a contract on the grounds of mutual mistake is available only when both parties to the contract are not aware of even the possibility of material defects.

In my opinion, the proposition that the parties to a residential real estate transaction are not aware of the possibility that the property contains material defects is absolutely ridiculous.  The likelihood of property defects is why buyers should insist on receiving a Real Estate Condition Report from the seller, as I advised in an earlier post.  Also, the standard WB-11 Residential Offer To Purchase contains contingencies giving buyers the opportunity to have a professional inspect the property for defects.  If the home inspector discovers defects, the contract may give the sellers the right to cure these defects or give the buyers the right to void the offer because of these defects.  True, the home inspector is unlikely to discover all (or even most) defects affecting the property.  Regardless, buyers insist on Real Estate Condition Reports; home inspections; and even specialized foundation, roof, mold, radon, septic, well, and well water inspections because they know (or have been advised by a real estate agent, their parents, or anyone with an ounce of common sense) that it is possible that the property they're considering purchasing will have defects.

What really happened in Ivancevic is that the buyers were either unwilling or unable to plead and prove that the sellers misrepresented the condition of their property - that they knew of defects affecting their property that they did not disclose.  In most cases, buyers' only viable claims against sellers are misrepresentation claims.  Even buyers' "breach of contract" claims are really misrepresentation claims because the standard sales contract only requires sellers to disclose known defects, as discussed in Ivancevic.  It's certainly not easy to prove that sellers lied about their property's condition in their Real Estate Condition Report.  It's certainly not "nice" to call sellers "liars," which is what you're doing when you sue them for misrepresentation and fraud.  Then again, it's certainly not "nice" to sell a wide-eyed twenty-something couple their first home without telling them that they will have to excavate the foundation, replace the roof, drill a new well, or install a mound system.

If you convince me that your sellers knew about the defects affecting your property, I will tenaciously pursue misrepresentation claims on your behalf.  If I am not convinced that your sellers lied to you, I will not take the easy way out by pursuing a half-baked "mutual mistake" claim, for such a claim would waste your time, my time, and the court's time.  Instead, I will be upfront with you about the shortcomings of your case, advise you how you could address those shortcomings, and warn you about the time limits on misrepresentation claims.  If pursuing claims on behalf of homeowners against sellers was easy, every attorney would do it!