Though I usually represent people who have purchased a home, sellers and their agents contact me from time to time with questions that arise during the sales process. This past week, a real estate agent asked me what to do with disappearing buyers. These are buyers who agree to purchase a property and put down a few thousand dollars in earnest money but then completely drop off the face of the earth. They will not close on their purchase due to financing, the appraisal, cold feet, or some other excuse. The sellers do not want to sue them for breach of contract because they have since sold the property to other buyers. The sellers' real estate agent has sent the disappearing buyers a WB-45 Cancellation Agreement & Mutual Release with no response. The agent wants to close her file and does not want to continue to hold the disappearing buyers' money. What can she do?
This situation is covered by lines 71-91 of the WB-11 Residential Offer To Purchase and Wis. Admin. Code s. REEB § 18.09. If at least sixty days has passed since the date when the disappearing buyers were supposed to close, the agent should have an attorney review the transaction and direct her on how to disburse the earnest money. Since the buyers have disappeared, that attorney will almost certainly direct the agent to disburse the earnest money to the sellers. Assuming that neither the agent nor her firm have knowledge that the buyers disagree with this disbursement, the firm can immediately disburse the earnest money as directed by the attorney. The language of the WB-11 offer should protect the agent and her firm from being sued for this disbursement as long as they follow these rules and act in good faith.
Please contact me at rudolphkuss@stevensandkuss.com if you ever need an attorney to review a real estate transaction and direct the disbursement of earnest money.
Saturday, January 16, 2016
Sunday, December 27, 2015
Is Lying About Your Property's Condition A Federal Crime?
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.
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.
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.
Friday, September 11, 2015
Homeowners Should Still Be Allowed To Testify On The Value Of Their Property
Late last year, I hailed the Wisconsin Court of Appeals' decision in Mueller v. Harry Kaufmann Motorcars, Inc., 2015 WI App 8, 359 Wis. 2d 597, 859 N.W.2d 451 for reaffirming that property owners may testify on the actual value of their property to them at the time of sale and that such testimony is sufficient to establish benefit of bargain damages. This sounds like a bunch of legalese, so I'll break it down.
Let's say that you purchased a property with a "clean" Real Estate Condition Report for $250,000. After closing on your purchase and moving into your new home, you discover that the well only produces 2 gallons per minute of water, the septic leech bed has failed and the county is requiring you to replace it with a mound system, the neighbors are demanding that you tear down the pole barn that your sellers illegally erected last summer, and the basement leaks like a sieve. As a property owner in Wisconsin, you may testify that you would have paid no more than $200,000 for your property had the sellers told you the truth about all of these conditions. Your "benefit of bargain" damages are $50,000.00 because the property's value was $250,000 "as represented," but the property's actual value to you in its true condition was only $200,000. You didn't get what you paid for; you got cheated out of $50,000. A jury could award you $50,000 as the damages that you suffered as a result of the sellers' misrepresentations.
Oh, but wait a minute! There are rules governing testimony by lay (non-expert) witnesses in Wisconsin courts. In January of 2011, Wis. Stat. (Rule) § 907.01 was revised to specify that opinion testimony by lay witnesses is limited to those opinions that are "[n]ot based on scientific, technical, or other specialized knowledge within the scope of a witness under s. 907.02(1)." In other words, the rules now specify that lay witnesses cannot give expert testimony. A homeowner cannot get up on the stand and opine that his home's foundation has been sinking since construction or that his home's roof is leaking due to improper installation of the valley flashing. A homeowner similarly cannot get up on the stand and opine that it is necessary to install eight helical piers to stabilize the foundation. Such opinions clearly fall on the expert testimony side of the ledger - they are based on the scientific, technical, or other specialized knowledge of an engineer or other professional. Courts generally require expert testimony on complex causation issues because such issues are outside of a typical juror's wheelhouse. Expert testimony only helps the jury if it comes from a real expert; not from a homeowner playing armchair engineer.
So does this rule change mean that homeowners can no longer testify on how much they would have paid for their property with full disclosure of all the defects? Isn't this expert testimony that should only be offered by a licensed and experienced appraiser?
While such an argument is facially appealing, it ignores the reality that homeowners are not testifying on the fair market value of their property. Fair market value is an expert opinion often supported by objective evidence such as comparable sales. Homeowners are testifying on the subjective value that they would have placed on their property at the time of sale with full disclosure of all of the defects. As I've said before, such subjective opinions of value need not be based on independent financial data. See D.L. Anderson's Lakeside Leisure Co., Inc. v. Anderson, 2008 WI 126, 314 Wis. 2d 560, 757 N.W.2d 803. Federal courts considering the equivalent federal rule allow property owners to offer lay opinions on property values. See, e.g., Christopher Phelps & Associates, LLC v. Galloway, 492 F.3d 532 (4th Cir. 2007).
The bottom line is that recent changes in Wisconsin's lay opinion rules did not bar homeowners from opining in court on the actual value of the property that they purchased. That being said, homeowners should expect their subjective valuation opinions to be greeted with skepticism by judges and juries. In my experience, it is usually better for defrauded homeowners to seek the cost of repairs as damages, especially when evidence of those damages is straightforward and supported by expert testimony.
Let's say that you purchased a property with a "clean" Real Estate Condition Report for $250,000. After closing on your purchase and moving into your new home, you discover that the well only produces 2 gallons per minute of water, the septic leech bed has failed and the county is requiring you to replace it with a mound system, the neighbors are demanding that you tear down the pole barn that your sellers illegally erected last summer, and the basement leaks like a sieve. As a property owner in Wisconsin, you may testify that you would have paid no more than $200,000 for your property had the sellers told you the truth about all of these conditions. Your "benefit of bargain" damages are $50,000.00 because the property's value was $250,000 "as represented," but the property's actual value to you in its true condition was only $200,000. You didn't get what you paid for; you got cheated out of $50,000. A jury could award you $50,000 as the damages that you suffered as a result of the sellers' misrepresentations.
Oh, but wait a minute! There are rules governing testimony by lay (non-expert) witnesses in Wisconsin courts. In January of 2011, Wis. Stat. (Rule) § 907.01 was revised to specify that opinion testimony by lay witnesses is limited to those opinions that are "[n]ot based on scientific, technical, or other specialized knowledge within the scope of a witness under s. 907.02(1)." In other words, the rules now specify that lay witnesses cannot give expert testimony. A homeowner cannot get up on the stand and opine that his home's foundation has been sinking since construction or that his home's roof is leaking due to improper installation of the valley flashing. A homeowner similarly cannot get up on the stand and opine that it is necessary to install eight helical piers to stabilize the foundation. Such opinions clearly fall on the expert testimony side of the ledger - they are based on the scientific, technical, or other specialized knowledge of an engineer or other professional. Courts generally require expert testimony on complex causation issues because such issues are outside of a typical juror's wheelhouse. Expert testimony only helps the jury if it comes from a real expert; not from a homeowner playing armchair engineer.
So does this rule change mean that homeowners can no longer testify on how much they would have paid for their property with full disclosure of all the defects? Isn't this expert testimony that should only be offered by a licensed and experienced appraiser?
While such an argument is facially appealing, it ignores the reality that homeowners are not testifying on the fair market value of their property. Fair market value is an expert opinion often supported by objective evidence such as comparable sales. Homeowners are testifying on the subjective value that they would have placed on their property at the time of sale with full disclosure of all of the defects. As I've said before, such subjective opinions of value need not be based on independent financial data. See D.L. Anderson's Lakeside Leisure Co., Inc. v. Anderson, 2008 WI 126, 314 Wis. 2d 560, 757 N.W.2d 803. Federal courts considering the equivalent federal rule allow property owners to offer lay opinions on property values. See, e.g., Christopher Phelps & Associates, LLC v. Galloway, 492 F.3d 532 (4th Cir. 2007).
The bottom line is that recent changes in Wisconsin's lay opinion rules did not bar homeowners from opining in court on the actual value of the property that they purchased. That being said, homeowners should expect their subjective valuation opinions to be greeted with skepticism by judges and juries. In my experience, it is usually better for defrauded homeowners to seek the cost of repairs as damages, especially when evidence of those damages is straightforward and supported by expert testimony.
Monday, August 10, 2015
Can I Get Out Of My Listing Contract?
I don't know if the summer heat is putting sellers on edge or if some really lazy real estate agents have been unleashed on the public lately, but numerous sellers of residential real estate have asked me this question in the past few weeks. The real question that they want answered is if they can sell their property without having to pay their real estate broker a commission.
The simple answer is "NO." You gave your agent an exclusive right to sell your property for six months. If you sell your property to someone else during those six months, you clearly owe your broker a commission under the terms of the WB-1 Residential Listing Contract - Exclusive Right To Sell. If you try to stiff your broker on its commission, you risk getting hailed into small claims court. Next question!
Did I disappoint you with my simple answer? Did you expect more from me after reading several of my posts? Good! The more complicated answer to this question is "MAYBE."
For example, you might have an argument that your broker breached the contract first and that this breach relieved you of any obligation to pay its commission. Under the "Marketing" provisions of the listing contract, you authorized your broker to use "reasonable efforts" to get a buyer. Even better, your broker AGREED to use "reasonable efforts" to get a buyer for your property. I submit that "reasonable efforts" must mean something more than putting your client's property on the Multiple Listing Service and then sitting on your derriere for the next six months. The Wisconsin Supreme Court has declared that an agent under an exclusive agency contract cannot sit idly by, doing substantially nothing, and then claim a commission on a sale effected through the seller's efforts. See Huchting v. Engel, 17 Wis. 237 (1863).
A more frequent source of broker/seller disputes is the "Protected Buyer" language in the listing contract. The term of the listing contract is extended by a full year as to any "Protected Buyer." In other words, you could sell your property on your own well after your listing contract expires and still owe your broker a commission! What the heck is a "Protected Buyer"?
PROTECTED BUYER: Means a buyer who personally, or through any person acting for such buyer: 1) delivers to Seller or Broker a written offer to purchase, exchange or option on the Property during the term of this Listing; 2) negotiates directly with Seller by discussing with Seller the potential terms upon which buyer might acquire an interest in the Property; or 3) attends an individual showing of the Property or discusses with Broker or cooperating brokers the potential terms upon which buyer might acquire an interest in the Property, but only if Broker delivers the buyer’s name to Seller, in writing, no later than three days after the expiration of the Listing. The requirement in 3), to deliver the buyer’s name to Seller in writing, may be fulfilled as follows: a) If the Listing is effective only as to certain individuals who are identified in the Listing, by the identification of the individuals in the Listing; or, b) if a buyer has requested that the buyer’s identity remain confidential, by delivery of a written notice identifying the broker with whom the buyer negotiated and the date(s) of any showings or other negotiations.
The broker's commission is clearly "protected" if the seller later sells to someone who submitted a written offer during the listing term, but what about "prospects"? If the prospect was working with the broker, then the broker probably earns the commission. The broker merely needs to show that it provided the requisite notice of this "protected buyer" to the seller and that the prospect either attended an individual showing (not an open house) or discussed potential terms with said broker or a cooperating broker.
The thornier issue arises with a prospect who was working with the seller during the listing period and later purchases the property. The broker must prove that the prospect negotiated with the seller by discussing the potential terms of sale during the listing period. Negotiation clearly means something more than mere flirtation; it implies formal discussions of price or other material terms. While direct proof that the seller and prospect negotiated specific terms is hard to come by, courts frown on sellers who receive offers soon after expiration of the listing contract from buyers who have somehow already been approved for a loan to purchase the property, already had the property inspected by a licensed home inspector, and magically obtained a title commitment and an appraisal for this property.
To avoid this issue in the first place, sellers should be more careful in selecting their real estate broker and in reviewing the listing contract. Sellers also need to recognize that their listing contract is with the broker (i.e., Shorewest, Keller Williams, Re/Max, etc.) not with their individual real estate agent. If you suspect that your real estate agent is sleeping on the job, you should contact your agent's supervisor and ask to be assigned to another agent. If all else fails, sellers should negotiate early termination of the listing contract. While you might have to pay your broker something, this is a far better solution than trying to sell your property while you're still under contract with your broker and hoping that your broker doesn't find out.
Sunday, August 9, 2015
Buying Residential Property From An Estate
While Wis. Stat. § 709.01(2) specifically exempts "personal representatives" from that chapter's Real Estate Condition Report requirement, that exemption only applies if the personal representative "never occupied the property transferred." However, as I've discussed before, I often see sellers abuse § 709.01(2)'s exemptions. When buying a residential property from an estate, buyers need to insist on receiving a completed Real Estate Condition Report from the personal representative unless the personal representative represents in writing that she has never occupied the property.
Real Estate Condition Reports are not the only potential source of liability for personal representatives selling residential property. Sellers of residential property have a common law duty to disclose all material defects. See Ollerman v. O'Rourke Company, Inc., 94 Wis. 2d 17, 288 N.W.2d 95 (1980). Personal representatives can also get themselves in trouble when they cheap out on needed basement or roof repairs or paint over signs that the basement or roof leaks. As I discussed in a recent post, such acts of concealment can qualify as representations even when the seller has not made any written representations about the condition of a property. See Novell v. Migliaccio, 2010 WI App 67, 325 Wis. 2d 230, 783 N.W.2d 897.
Trouble is, circuit court judges tend to be particularly prejudiced against real estate misrepresentation cases when the defendant is a personal representative of an estate. Such sellers get to play the sympathy card regardless of what their motivations were at the time that they sold mom's home without disclosing the engineering report recommending major foundation repairs. While I can certainly identify and sympathize with the loss of a parent, that's no excuse for sticking another family with your family's repair bills.
In light of this reality, however, buyers of residential property from an estate need to be particularly vigilant. They should research what work has been done on the property through checking the building inspection file at city hall. Buyers of such properties should always get a home inspection and should also get a specialized foundation and/or roof inspection. While sellers are almost always in the best position to provide information about their home's condition, that rule often does not hold true for personal representatives of an estate. A licensed home inspector would be able to provide a buyer with far more relevant information about a home than many personal representatives could.
Real Estate Condition Reports are not the only potential source of liability for personal representatives selling residential property. Sellers of residential property have a common law duty to disclose all material defects. See Ollerman v. O'Rourke Company, Inc., 94 Wis. 2d 17, 288 N.W.2d 95 (1980). Personal representatives can also get themselves in trouble when they cheap out on needed basement or roof repairs or paint over signs that the basement or roof leaks. As I discussed in a recent post, such acts of concealment can qualify as representations even when the seller has not made any written representations about the condition of a property. See Novell v. Migliaccio, 2010 WI App 67, 325 Wis. 2d 230, 783 N.W.2d 897.
Trouble is, circuit court judges tend to be particularly prejudiced against real estate misrepresentation cases when the defendant is a personal representative of an estate. Such sellers get to play the sympathy card regardless of what their motivations were at the time that they sold mom's home without disclosing the engineering report recommending major foundation repairs. While I can certainly identify and sympathize with the loss of a parent, that's no excuse for sticking another family with your family's repair bills.
In light of this reality, however, buyers of residential property from an estate need to be particularly vigilant. They should research what work has been done on the property through checking the building inspection file at city hall. Buyers of such properties should always get a home inspection and should also get a specialized foundation and/or roof inspection. While sellers are almost always in the best position to provide information about their home's condition, that rule often does not hold true for personal representatives of an estate. A licensed home inspector would be able to provide a buyer with far more relevant information about a home than many personal representatives could.
Friday, July 3, 2015
Buyers: Declare Your Independence From Inspection Agreements
I originally intended to tell some war stories about my fights against arbitration clauses in investment contracts, building contracts, and inspection agreements. My struggle was in trying not to sound too much like a whiner when writing about the bad rulings and in trying not to sound too cocky when writing about the good rulings. Truth is, I could either win or lose a battle against forced arbitration on any given Sunday. You shouldn't care so much about what happens in my arena. What you should care about is avoiding that particular arena in the first place.
I always seek to have my clients' disputes decided in a court of law, usually by a jury of their peers. While I may sometimes gripe about the results or the process, the fact remains that our civil justice system is the envy of the rest of the world. In particular, my clients never have to worry about their opponents bribing, threatening, or punishing the judge or jury.
Unfortunately, arbitration is a different animal. We in the Milwaukee area are familiar with Major League Baseball's punishment of an arbitrator who dared rule against it. The financial industry has fired arbitrators for daring to rule in favor of investors. Word around the campfire is that the Metropolitan Builders Association and the Wisconsin Association of Home Inspectors are not too fond of those who stand up for homeowners either.
I do not often write about buyer claims against home inspectors in this blog because I always advise clients not to sue home inspectors. Home inspectors are protected by a strict two-year statute of limitation and by extremely lenient Standards of Practice. Buyers cannot recover their attorneys' fees on a home inspector negligence claim, and most inspectors do not have errors and omissions insurance. Home inspectors also have the simple-minded (but often convincing) argument that "if I should have seen it, why didn't you?" Home inspectors usually only get themselves in trouble when they downplay the significance of what they see, try to play structural engineer, or engage in deceptive or misleading advertising. That being said, buyers need to protect themselves against accidentally waiving their day in court against their home inspectors.
When you show up for your home inspection, your home inspector will present you with a multi-page document with fine print entitled "Inspection Agreement." In my opinion, you should not have to sign such an agreement.
Why not? The better question is why should you have to sign? Inspection Agreements are not required by the statutes and regulations governing home inspection practice in Wisconsin. There is no Wisconsin law requiring written agreements for services that will take only a few hours to render and will cost less than $500. You should simply be able to write the inspector a check and receive the required home inspection report.
Most of the language in these Inspection Agreements is unnecessary because the Standards of Practice clearly spell out what home inspectors are responsible for, what they are not responsible for, and what they cannot do. Wis. Stat. § 440.975(2) spells out that home inspectors are merely required to perform reasonably competent and diligent inspections to detect observable conditions and that such inspections need not be "technically exhaustive." Wis. Stat. § 440.975(3) requires home inspectors to provide written reports. Wis. Admin. Code § SPS 134.03 spells out the required contents of said reports. Wis. Stat. s. 440.975(4) spells out that home inspectors are not required to report on the need for repairs or whether or not a particular component meets code. Wis. Stat. § 440.975(5) spells out that a home inspector cannot tell a buyer not to purchase a particular property. Wis. Stat. § 440.975(6) spells out that home inspectors are not required to give warranties, test or operate components, enter dangerous areas, move personal items, predict future conditions, or inspect for mold.
Some home inspectors sneak illegal language into their Inspection Agreements. Home inspectors will often try to prevent you from holding them liable for repairs to components that they improperly inspected. They might even try to prevent you from holding them liable for bodily injury caused by a defective condition that they missed. No, they can't do that:
Disclaimers or limitation of liability. No home inspector may include, as a term or condition in an agreement to conduct a home inspection, any provision that disclaims the liability, or limits the amount of damages for liability, of the home inspector for his or her failure to comply with the standards of practice prescribed in this subchapter or in rules promulgated under this subchapter.
Wis. Stat. § 440.976.
While one could argue that home inspection arbitration clauses - especially those that require arbitration presided over by fellow members of the home inspector fraternity - are illegal disclaimers or limitations of liability, I am not aware of any court that has adopted this particular argument. The general rule is that contractual arbitration clauses ARE enforceable. If you want to avoid having any future dispute with your home inspector decided by his friends, there is a solution - do not sign the Inspection Agreement.
I always seek to have my clients' disputes decided in a court of law, usually by a jury of their peers. While I may sometimes gripe about the results or the process, the fact remains that our civil justice system is the envy of the rest of the world. In particular, my clients never have to worry about their opponents bribing, threatening, or punishing the judge or jury.
Unfortunately, arbitration is a different animal. We in the Milwaukee area are familiar with Major League Baseball's punishment of an arbitrator who dared rule against it. The financial industry has fired arbitrators for daring to rule in favor of investors. Word around the campfire is that the Metropolitan Builders Association and the Wisconsin Association of Home Inspectors are not too fond of those who stand up for homeowners either.
I do not often write about buyer claims against home inspectors in this blog because I always advise clients not to sue home inspectors. Home inspectors are protected by a strict two-year statute of limitation and by extremely lenient Standards of Practice. Buyers cannot recover their attorneys' fees on a home inspector negligence claim, and most inspectors do not have errors and omissions insurance. Home inspectors also have the simple-minded (but often convincing) argument that "if I should have seen it, why didn't you?" Home inspectors usually only get themselves in trouble when they downplay the significance of what they see, try to play structural engineer, or engage in deceptive or misleading advertising. That being said, buyers need to protect themselves against accidentally waiving their day in court against their home inspectors.
When you show up for your home inspection, your home inspector will present you with a multi-page document with fine print entitled "Inspection Agreement." In my opinion, you should not have to sign such an agreement.
Why not? The better question is why should you have to sign? Inspection Agreements are not required by the statutes and regulations governing home inspection practice in Wisconsin. There is no Wisconsin law requiring written agreements for services that will take only a few hours to render and will cost less than $500. You should simply be able to write the inspector a check and receive the required home inspection report.
Most of the language in these Inspection Agreements is unnecessary because the Standards of Practice clearly spell out what home inspectors are responsible for, what they are not responsible for, and what they cannot do. Wis. Stat. § 440.975(2) spells out that home inspectors are merely required to perform reasonably competent and diligent inspections to detect observable conditions and that such inspections need not be "technically exhaustive." Wis. Stat. § 440.975(3) requires home inspectors to provide written reports. Wis. Admin. Code § SPS 134.03 spells out the required contents of said reports. Wis. Stat. s. 440.975(4) spells out that home inspectors are not required to report on the need for repairs or whether or not a particular component meets code. Wis. Stat. § 440.975(5) spells out that a home inspector cannot tell a buyer not to purchase a particular property. Wis. Stat. § 440.975(6) spells out that home inspectors are not required to give warranties, test or operate components, enter dangerous areas, move personal items, predict future conditions, or inspect for mold.
Some home inspectors sneak illegal language into their Inspection Agreements. Home inspectors will often try to prevent you from holding them liable for repairs to components that they improperly inspected. They might even try to prevent you from holding them liable for bodily injury caused by a defective condition that they missed. No, they can't do that:
Disclaimers or limitation of liability. No home inspector may include, as a term or condition in an agreement to conduct a home inspection, any provision that disclaims the liability, or limits the amount of damages for liability, of the home inspector for his or her failure to comply with the standards of practice prescribed in this subchapter or in rules promulgated under this subchapter.
Wis. Stat. § 440.976.
While one could argue that home inspection arbitration clauses - especially those that require arbitration presided over by fellow members of the home inspector fraternity - are illegal disclaimers or limitations of liability, I am not aware of any court that has adopted this particular argument. The general rule is that contractual arbitration clauses ARE enforceable. If you want to avoid having any future dispute with your home inspector decided by his friends, there is a solution - do not sign the Inspection Agreement.
Subscribe to:
Comments (Atom)