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

(1) Notwithstanding s. 100.18 (11) (b) 3., 893.43, 893.52, 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. § 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. § 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. § 893.92.  The new statute does not mention § 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, ¶ 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.            

Act 258: Real Estate Agents Will No Longer Be Able To Pursue Wage Claims

Given that most of my practice involves pursuing claims arising out of real estate transactions, most of my posts on 2015 Wis. Act 258 will consider the new two-year statute of limitations governing actions against real estate agents (see here, here, here, and here).  The Wisconsin REALTORS Association and their affiliates used fear of "frivolous" lawsuits to mobilize real estate agents to lobby their legislators to get this law passed.  Though I might have missed it, I do not recall the WRA alerting real estate agents that they would lose their right to pursue a wage claim under this new law.

Chapter 109 of the Wisconsin Statutes covers claims for unpaid wages.  The definition of "wages" includes "commissions."  See Wis. Stat. § 109.01(3).  Indeed, my firm is currently pursuing a claim for unpaid wages on behalf of a commission salesperson.  Prevailing parties may be awarded reasonable expenses pursuant to Wis. Stat. § 109.03(6), including reasonable attorneys' fees.  See Jacobson v. American Tool Companies, Inc.; Wolnak v. Cardiovascular & Thoracic Surgeons of Central Wisconsin; Johnson v. Roma II - Waterford LLC.  Prevailing parties may also be awarded additional penalties of 50% of the amount of wages due and unpaid pursuant to Wis. Stat.  109.11(2)(a).  In other words, if a real estate firm owes its agent $10,000 in unpaid commissions, the agent could be awarded an additional $5,000 penalty plus attorneys' fees.  The purpose of these provisions is to encourage wage claimants to bring meritorious claims and to help ensure that successful claimants are made whole.  See Johnson.

Unfortunately for real estate agents, Act 258 includes Sections 2D and 174:

Section 2d. 109.01 (1r) of the statutes is amended to read:

109.01 (1r) "Employee" means any person employed by an employer, except that "employee" does not include an officer or director of a corporation, a member or manager of a limited liability company, a partner of a partnership or a joint venture, the owner of a sole proprietorship, an independent contractor or person otherwise excluded under s. 452.38, or a person employed in a managerial, executive, or commissioned sales capacity or in a capacity in which the person is privy to confidential matters involving the employer-employee relationship.

Section 174. 452.38 of the statutes is created to read:

452.38 Independent contractor relationship. (1) Except as otherwise provided in s. 102.078, a licensee shall not, under ch. 102, 103, 104, or 109, under subch. X of ch. 71 or subch. II of ch. 111, under any other law or rule other than those specified under sub. (1m), or in any action or proceeding under the common law, be considered an employee of a firm if all of the following are satisfied:

(a) A written agreement has been entered into with the firm that provides that the licensee shall not be treated as an employee for federal and state tax purposes.

(b) Seventy-five percent or more of the compensation related to sales or other output, as measured on a calendar year basis, paid to the licensee pursuant to the written agreement referenced under par. (a) is directly related to the brokerage services performed by the licensee on behalf of the firm.

(1m) This section does not apply with respect to ch. 108 or any rules promulgated thereunder.

(2) (a) Subsection (1) applies notwithstanding the requirements and responsibilities of a firm under s. 452.132 and any rules promulgated by the board.

(b) Subsection (1) applies regardless of the licensee's status as a supervising broker under s. 452.132 and any actions taken by the licensee as a supervising broker under s. 452.132.

(3) In the case of an individual who is engaged as both an independent contractor and an employee for the same firm, sub. (1) applies only with respect to activities covered under the written agreement referenced under sub. (1) (a).

In short, real estate agents do not qualify as "employees" under the wage claim statutes (and therefore have no right to pursue a claim for unpaid wages under these statutes) as long as they signed an independent contractor agreement with their firm and earn at least 75% of their compensation from providing brokerage services.

I acknowledge that real estate agents might have never been covered by the wage claim statutes.  The definition of "employee" under Wis. Stat. § 109.01(1r) already excludes "independent contractors," and I have not found any reported case involving a real estate agent making a claim for unpaid commissions.  That being said, the inclusion of these changes in Act 258 means that at least some real estate firms feared that their agents could sue under the wage claim statutes for unpaid commissions.  Thanks to the tireless lobbying of real estate agents, the law is now crystal clear that the vast majority of real estate professionals in this state have less protection against getting stiffed on their commissions than used car salesmen.        

Wis. Stat. § 452.142 Applies To Real Estate Closings From This Date Forward

I have started to peel back the layers of the onion that is 2015 Wis. Act 258 and have discovered Section 180, which reads in pertinent part as follows:

Section 180 . Initial applicability.

(1) Actions against licensees. The treatment of section 452.142 of the statutes first applies to an action that accrues on the effective date of this subsection.

Section 181 provides additional guidance:

Section 181. Effective dates. This act takes effect on July 1, 2016, or on the day after publication, whichever is later, except as follows:

(2) Actions against licensees. The treatment of section 452.142 of the statutes and Section 180 (1 ) of this act take effect on the day after publication.

In short, the rest of the "Chapter 452 Modernization Act" does not take effect until July 1st, while real estate agents get their new two-year statute of limitation on March 4th.  To consider what this means, we need to review Section 147 of the Act:

Section 147. 452.142 of the statutes is created to read:

452.142 Actions concerning licensees. (1) Notwithstanding s. 100.18 (11) (b) 3., 893.43, 893.52, 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.

In my opinion, these provisions mean that Wis. Stat. § 452.142 first applies to actions arising from real estate transactions that close, terminate, or expire on March 4, 2016.  The date of closing, termination, or expiration is the accrual date.  In other words, buyers and sellers who closed yesterday have six years to sue their real estate agents for breach of contract, while buyers and sellers who close today have only two years.

I do not believe that § 452.142 applies retroactively.  If § 452.142 applied retroactively, buyers and sellers who just discovered that their real estate agent gave them poor advice in a transaction that closed in 2013 would be barred from commencing an action against that agent.  Even if Section 180 declared that § 452.142 "first applies to action filed on the effective date," retroactive application of this statute is arguably unconstitutional because it would deprive citizens of settled rights without due process of law.

That being said, you need to contact an attorney right away if you believe that you have been victimized by a sloppy real estate agent, a sloppy home inspector, or a dishonest seller.  Please contact me at rudolphkuss@stevensandkuss.com.

Chapter 452 Modernization Act Is Now The Law

The Wisconsin legislature has passed and Governor Walker has signed 2015 Wisconsin Act 258, commonly referred to as the Chapter 452 Modernization Act.  I wrote about this act while it was bill being considered by the assembly here and here.  I will certainly write more about this act and its significance in the future.

For now, the most important thing for buyers and sellers of real estate to know is that some actions against real estate agents are barred by a two-year statute of limitations.  If you have been victimized by a dishonest or sloppy real estate agent, you need to contact an attorney right away.  Please contact me at rudolphkuss@stevensandkuss.com.    

Update On The Chapter 452 Modernization Act

Last week, I wrote about the Chapter 452 Modernization Act in general and proposed Wis. Stat. § 452.142 in particular.  I was pleased to learn about Amendment 5 to Assembly Bill 456, which would have changed the language of Wis. Stat. § 452.142 to the following:

452.142 Actions concerning licensees. (1) Notwithstanding s. 100.18 (11)(b) 3., 893.43, 893.52, or 893.57, an action concerning any act or omission of a licensee relating to the provision of brokerage services by the licensee shall be commenced within 3 years after the cause of action acrrues or be barred.

The new limitations period for actions against real estate agents would have expanded from 2 years to 3 years.  Also, the new limitations period would have been subject to the "discovery rule," helping buyers and sellers who do not discover that they have a potential claim against their real estate agent within that limitations period.  

Amendment 5 was not perfect.  While it would have protected some victims of dishonest real estate agents, it would not have protected victims of sloppy real estate agents.  As I've discussed previously, breach of contract actions accrue at the time of breach and the "discovery rule" does not apply.  Real estate agents breach their contracts when they do not ensure that their buyers have received a completed Real Estate Condition Report signed by all owners of the property before making an offer, when they do not advise buyers to hire their own inspectors, when they do not promptly deliver written notice that their buyers cannot obtain financing, or when they fail to deliver written notice of the defects identified in the buyers' inspection reports.  When other service providers screw up, consumers have 6 years to commence a breach of contract action against them pursuant to Wis. Stat. § 893.43.  When a real estate agent screws up, consumers would have only 3 years to commence a breach of contract action against them.

Despite the continued special interest protectionism, I would have still been satisfied with Wis. Stat. § 452.142 as affected  by Amendment 5.  I thought that this amendment had passed, as I saw "63 Ayes and 35 Noes," so I confirmed my understanding with the office of the amendment's sponsor - Representative Dana Wachs.  I received the unfortunate news that this vote was actually to "table" (i.e., "kill") Amendment 5.  I also learned that the Chapter 452 Modernization Act passed the Assembly.  It will be considered by the Senate before it reaches Governor Walker's desk.   

Proposed Wis. Stat. § 452.142 Is Bad For Homeowners And Bad For Real Estate Agents As Well

This week, the Wisconsin REALTORS Association will almost certainly be successful in convincing the legislature to pass what it calls the "Chapter 452 Modernization Act."  This will be an important act that, to be fair, will provide some benefits to homeowners.  I anticipate writing several posts explaining the significance of this act.

Unfortunately, this "modernization act" features some crass protectionism that demeans all REALTORS and their profession.  Section 147 should be excised from the "Chapter 452 Modernization Act" and given its own name - the "Careless And Dishonest REALTOR Protection Act."  Section 147 will create Wis. Stat. § 452.142:

452.142 Actions concerning licensees. (1) Notwithstanding s. 100.18 (11)(b) 3., 893.43, 893.52, or 893.57, an action concerning any act or omission of a licensee relating to the provision of brokerage services by the licensee 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.

Wis. Stat. § 452.142 creates what is known as a statute of limitations for court actions against real estate agents.  Statutes of limitations bar people from seeking justice through the courts regardless of the merits of their claims.  I've written about statutes of limitations before within the context of claims against sellers.

Of note, statutes of limitations for claims against sellers are often extended by operation of the "discovery rule."  Sellers who conceal defects could find themselves hailed into court ten years after selling their home under some circumstances.  Yet, the "discovery rule" will not apply to claims against real estate agents.  Real estate agents who advise their clients to conceal cracks or water damage in order to sell their home are immunized from liability.  Meanwhile, sellers whose only sin may have been listening to professional advice from their real estate agent are left to defend fraud claims alone.

 The Wisconsin REALTORS Association points out that home inspectors are protected by a 2-year statute of limitations.  This statute of limitation was part of the legislative bargain that subjected home inspectors to registration and licensing requirements for the first time.  Before 1998, any handyman could hold himself out as a "home inspector" without even having to pass a test.  In contrast, real estate agents have been licensed and regulated by the State of Wisconsin since forever and claims against them have always been subject to the same statutes of limitations that govern claims against all other citizens of this state.  There is no compelling reason for the legislature to suddenly grant real estate agents special protections against negligence and fraud claims.  Under this law, consumers have more time to sue used car salesmen for fraud.  Maybe I'm living in an idealized fantasy world, but I thought that real estate agents held themselves to higher standards than used car salesmen.

Furthermore, it simply takes more time for buyers to discover that they have claims against the sellers' real estate agent than it does for them to discover that they have claims against their home inspector.  The buyers walked through the property with their home inspector, asked questions, got answers, and received a written report.  When the buyers discover defects after closing, they and their attorneys have all of the information that they need to evaluate a potential claim against their home inspector.  The same logic does not hold true for the buyers' potential claims against the sellers' real estate agent.  As I've written before, most buyers' claims against the sellers' real estate agent are for failing to disclose what they knew about the property.  When buyers come into my office, I have no idea whether or not the sellers told their real estate agent that their roof leaked.  I have no idea whether or not the sellers' real estate agent advised the sellers to paint their cracked great room walls and ceiling.  When I commence a court action on behalf of defrauded buyers, the sellers are typically the only defendants.  Real estate agents might get added later on as defendants, but only after I have the chance to question the sellers about why they failed to mention their leaky roof or basement in their Real Estate Condition Report.

Wis. Stat. § 452.142(1) will force all attorneys representing defrauded buyers to change their behavior.  Failing to sue real estate agents right away might subject attorneys to liability for malpractice.  There is no surer way to get sued for legal malpractice than to blow a deadline or a statute of limitation.  Consequently, I will have no choice but to allege fraud and misrepresentation claims against real estate agents without fully investigating the facts.  I apologize in advance to the truly ethical real estate agents out there who advise their clients to disclose everything that a buyer could possibly want to know in the Real Estate Condition Report and who would never dream of advising a client to paint over a cracked foundation wall.  Unfortunately for you, your association insists on protecting the bad apples that spoil your profession.        

The Wonderful World Of Seller Financing

I recently defended a foreclosure lawsuit, but not one brought by a bank or mortgage lender.  In this case, my clients were sued by the couple who sold them their home and were financing their purchase of that home.  Welcome to the wonderful world of seller financing!

My clients and their sellers both signed the State Bar of Wisconsin Form 11-2003, which is otherwise known as the Land Contract.  Buyers and sellers of residential real estate enter into the Land Contract when the buyers cannot pay cash and cannot obtain financing.  In some transactions, the Land Contract is the only contract that the parties sign.  In other transactions, the parties enter into a WB-11 Residential Offer To Purchase and enter into the Land Contract in the event that financing is not available on the terms stated in the offer and the seller agrees to finance the transaction pursuant to lines 289-297 of the offer.

In my case, my clients stopped paying on the Land Contract and abandoned the property after they discovered some serious property defects (including fire and water damage) that the sellers failed to disclose to them.  My clients' best defense was that the Land Contract was induced by misrepresentation.  Trouble is, the sellers made no written representations to them about the property's condition, such as providing them with a Real Estate Condition Report or even making the representations contained in lines 109-115 of the WB-11 Residential Offer.

Based on my clients' experience, I strongly advise all buyers to use the WB-11 Residential Offer even if they doubt that they will be unable to obtain financing.  All buyers need the protection that the WB-11 Residential Offer provides, including property condition representations by the sellers; title insurance; and the right to have the property appraised, inspected, and tested.  The State Bar Land Contract lacks these basic protections and also makes the buyers responsible for the sellers' costs, expenses, and attorneys' fees in the event that the buyers cannot make their payments and the sellers foreclose or sue them for the amount owed.

Please email me at rudolphkuss@stevensandkuss.com if you or your clients need an attorney to protect their interests in the purchase of residential real estate or the financing of that purchase.