Legal Hottips - April 19, 2010
This Legal Hottips article may be reprinted only if it is reprinted in its entirety, including the disclaimers above and below the Hotline questions and answers. The Wisconsin REALTORS® Association Best of the Legal Hotline Service is an educational resource intended to keep the Association abreast of legal developments and concerns involving real estate practice in Wisconsin. We look forward to your input regarding the service, especially regarding the types of topics you would like covered. There is no attachment to this e-mail.
SEND YOUR HOTLINE QUESTIONS BY E-MAIL www.wra.org/Legal/Hottips/hotline_question.asp
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Extension of National Flood Insurance Program
On April 15, 2010, Congress passed, and President Obama signed, legislation to renew the National Flood Insurance Program (NFIP) through May 31, 2010. This measure is retroactive back to March 28 when the NFIP to expired. By law, flood insurance is required for the purchase of real estate in a 100-year floodplain. The lapse in flood insurance resulted in many delayed, and even cancelled, transactions. NAR will work closely with our congressional allies to help ensure a lasting reauthorization and extension prior to the May 31 deadline.
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Fair Housing: Can Discrimination be Unintentional?
Are you at risk of taking actions that have the unintentional effect of steering? Watch NAR’s six-minute Unintentional Discrimination video to find out. The video looks at unintentional discrimination through sales associates’ efforts to help their customers. Visit
http://link.brightcove.com/services/player/bcpid1785312249?bclid=1740033302&bctid=76828995001explores
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1.) Mortgage Banking/Finance - General Finance
QUESTION:
A customer called asking if the $6,500 tax credit be taken if they purchase a condominium unit before their old home has been sold and if they pay cash?
ANSWER:
Because the Hotline and the agent cannot provide tax advice, the agent should refer the customer to his or her tax advisor, legal counsel and the IRS Web site. One good place to start looking for information is the Form 5405 Instructions: http://www.irs.gov/pub/irs-pdf/i5405.pdf
From http://www.irs.gov/newsroom/article/0,,id=206293,00.html:
“Long-Time Homeowners
Q. I understand that even if I have previously owned a home, I may be eligible for the homebuyer credit. Can you explain the rules?
A. If you are a long-time resident and owner of the same main home and you buy a new home, the law may allow you to claim the homebuyer credit. You must buy your new home after Nov. 6, 2009, and before May 1, 2010. Alternatively, if you sign a binding contract on or before April 30, 2010, you must purchase or close on the new home on or before June 30, 2010. If you claim the credit as a long-time resident of the same main home, please provide documentation showing you lived in that home for a five-consecutive-year period during the eight years ending on the date you buy the new home. (1/26/10)”
“Q. I’m already a homeowner. If I buy another home after Nov. 6, 2009, to use as my principal residence, do I have to sell my home to qualify for the homebuyer tax credit?
A. No. If you meet all of the requirements for the credit, the law does not require you to sell or otherwise dispose of your current principal residence to qualify for a credit of up to $6,500 when you buy a replacement home to use as your principal residence. The requirements are that you must buy, or enter into a binding contract to buy, the replacement principal residence after Nov. 6, 2009, and on or before April 30, 2010, and close on the home by June 30, 2010. Additionally, you must have lived in the same principal residence for any five-consecutive-year period during the eight-year period that ended on the date the replacement home is purchased. For example, if you bought a home on Nov. 30, 2009, the eight-year period would run from Dec. 1, 2001, through Nov. 30, 2009. (11/17/09)”
From http://www.irs.gov/newsroom/article/0,,id=206291,00.html:
“Q. If a person does not actually make the payments on a home that’s their principal residence, but the deed and mortgage documents are in their name, can they be considered a first-time homebuyer?
A. Yes. If a taxpayer purchases a home to be used as a principal residence from an unrelated person and has not owned a home within the previous 36 months, the taxpayer is eligible for the first-time homebuyer credit regardless of who makes the mortgage payment. (5/6/09)”
READ MORE ABOUT IT:
For additional information, see the Wisconsin Homebuyer site @ www.wisconsinhomebuyer.org/, NAR’s The Basics: Extended Home Buyer Tax Credit 2009/2010 @ www.realtor.org/home_buyers_and_sellers/2009_first_time_home_buyer_tax_credit and the Internal Revenue Service @ www.irs.gov/newsroom/article/0,,id=204671,00.html.
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2.) Mortgage Banking/Finance - General Finance
QUESTION:
A customer asked if the parents co-sign for their son to purchase a house if he will still be able to get the $8000 first-time homebuyer credit.
ANSWER:
The broker and the Legal Hotline cannot give tax advice. The broker may refer the buyer to the buyer’s tax advisor and the IRS web site for information about eligibility for the tax credit.
The following question and answer appears on the IRS web site at http://www.irs.gov/newsroom/article/0,,id=206294,00.html:
“S2. Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Can Taxpayer A claim the credit and, if so, how much?
A. Yes. Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A's primary residence.”
READ MORE ABOUT IT:
For additional information, see the Wisconsin Homebuyer site @ http://www.wisconsinhomebuyer.org/, NAR’s The Basics: Extended Home Buyer Tax Credit 2009/2010 @ http://www.realtor.org/home_buyers_and_sellers/2009_first_time_home_buyer_tax_credit and the Internal Revenue Service @ http://www.irs.gov/newsroom/article/0,,id=204671,00.html.
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3.) Fair Housing - Miscellaneous
QUESTION:
The broker and her husband may purchase a home in Arizona. The broker anticipates renting it out for short periods throughout the year. The broker is concerned, if there is a swimming pool, about the liability if rented to people with small children. Can the broker stipulate no rental to families with children under the age of 6 because of the possible danger the pool would present or is there another alternative?
ANSWER:
The Fair Housing Act protects all citizens from discrimination on the basis of race, color, national origin, religion, sex, handicap or familial status (families with children under the age of 18 living with parents or legal custodians; pregnant women and people securing custody of children under 1. Congress, however, also intended to preserve housing specifically designed to meet the needs of older persons. Housing that meets the Act’s definition of “housing for older persons” can legally exclude families with children.
READ MORE ABOUT IT:
For information regarding senior housing projects and the HUD rules for 55 and over housing, visit http://www.hud.gov/offices/fheo/seniors/index.cfm. For further discussion see Pages 5-7 of the Legal Update 98.03, “Thirty Years After The Federal Fair Housing Act,” @ www.wra.org/LU9803.
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4.) Offer to Purchase - Delivery
QUESTION:
Question regarding electronic delivery of documents and getting electronic consent from consumers. Is there anything available to REALTOR® members to make it easier to request and receive back the buyer’s approval of the electronic delivery of transaction documents?
ANSWER:
The easiest way for an agent to obtain electronic consent is to copy and paste the language of the “Consent for Use of Electronic Documents and Signatures in Consumer Real Estate Transactions” into the body of an e-mail and send the e-mail to the party. Use the Word version of the Consent form available at http://www.wra.org/e-commerce -- it works best for copying and pasting into an e-mail.
The party should read the disclosure information and satisfy him or herself that his or her computer can handle the embedded documents. Presuming the party wishes to authorize electronic documents and e-mail delivery for the transaction, the party should click on “Reply.” The party then will be able to type in the party’s name (as the party’s electronic signature), type in the party’s e-mail address, and then click on “Send” to return the e-mail to the agent.
Because the Word version of the Consent has both Word and PDF sample files embedded, it provides the consumer’s consent to the use of both Word and PDF files during the transaction. The PDF version of the Consent only provides consent to the use of PDF files during the transaction.
READ MORE ABOUT IT:
For more information, see page 8 the February 2008 Legal Update, “Electronic Commerce and E-Mail Delivery,” @ www.wra.org/LU0802, and the E-Commerce REALTOR® Resource page @ www.wra.org/E-commerce.
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5.) Contract Issues & Forms - Approved Forms
QUESTION:
The listing agent received an offer to purchase on her listing from a co-broke agent on the old offer to purchase form after the mandatory use date of the new WB-11 Residential Offer to Purchase. How should she proceed?
ANSWER:
Based on license law, licensees shall present promptly all offers received (see Wis. Admin. Code § RL 24.13). Therefore, the listing agent should submit the offer to the seller and explain the advantages and disadvantages of the terms as drafted on the old offer form. The co-broke agent could face possible disciplinary action from the Department of Regulation and Licensing for failure to use the new offer form – all licensees must use an approved form like the WB-11 beginning on the mandatory use date and the mandatory use date for the WB-11 was March 1, 2010.
READ MORE ABOUT IT:
Wis. Admin. Code § RL 16.06(7) provides, “A licensee shall use the latest approved version of an approved form.”
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Real Estate Continuing Education
With the start of the 2009-2010 biennium, all licensees must complete six Department of Regulation and Licensing (DRL)-approved courses for a total of 18 hours before December 14, 2010. There are four mandatory courses and a list of DRL-approved electives. Licensees must complete the four mandatory courses and two electives from the DRL-approved electives list.
Mandatory Courses includes: Course 1 - Listing Contracts, Course 2 - Offer to Purchase; Course 3 - New Developments and Course 4 - Buyer Agency Agreements.
In addition, Licensees must take two of the following Elective Courses: Elective A - Risk Reduction, Elective B - 1031 Exchanges and Exchange Opportunities, Elective C - Condominiums, Elective D - Landlord Tenant and Property Management, Elective E - Financing the Sale and Elective F - Broker Supervision.
Continuing education is offered in a classroom setting or by distance learning. Distance Learning options include: On-Demand (video is streamed to your computer), DVD with online testing, and Self-Study Book with online testing.
In addition to the residential continuing education, the WRA offers Commercial continuing education. Classes will be offered in September and November 2010 in Brookfield and is also available On Demand.
For more information visit http://www.wra.org/Education/ContinuingEd/RECE.asp
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Fair Housing Update and Awards Program Luncheon: We Are All Part of the Puzzle
April 23, 2010 | 10:00 a.m. – 2:00 p.m. | Country Springs Hotel and Conference Center, Waukesha
Homeowners struggling with their mortgage payments and looming foreclosures are abundant in today’s economic downturn. A panel will share their experiences with programs that have successfully helped homeowners avoid foreclosure. At lunchtime the keynote speakers will share valuable insights about the Lake Bluff case and the impact of suburban zoning on segregated housing.
For more information and to register for the luncheon program, visit http://wra.org/Education/Events/fairhousing2010/fairhousing.htm
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At Home with Diversity® Course April 28 in Madison
In order to help Wisconsin REALTORS® develop the skills needed to successfully interact with different cultures and populations, the WRA and the WRA Equal Opportunity in Housing committee are proud to announce that they will offer the NAR At Home with Diversity® course on Wednesday, April 28, 2010 from 8:30 a.m.-4:30 p.m. at the WRA Headquarters in Madison. As part of the WRA’s celebration of Fair Housing Month, the course fee will be only $10.
At Home With Diversity® is designed to present a picture of the changing face of the real estate industry. More importantly, the class teaches REALTORS® how to work effectively with -- and within -- a rapidly changing multicultural market. The course offers:
• Updated statistics, demographics, exercises, and resources
• Improved focus on the subtleties of fair housing
• Greater emphasis on developing an inclusive business plan
• More details on business etiquette for specific cultures
• Additional attention to international clientele and real estate practice.
Completion of this seven-hour course earns you credit toward the CIPS, CRS and PMN designations, as well as the NAR At Home with Diversity® certification.
For more information and to register for this class, visit http://wra.org/Education/CourseDetail.asp?pc=DIV042810/CLASS
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ZipForm Tips
ZipForm offers easy-to-follow “How To” videos on subjects ranging from how to correctly complete the forms available through zipForm6 to the basic functionalities of zipForm6. Topics covered range from Filling Out the Forms, Creating Templates, and Adding a New Contact to more complex subjects such as Synchronizing zipForm6 Transactions and Synchronizing Transactions for RELAY. The videos offer a visual demonstration with audio enhancement allowing for a thorough explanation for 36 different capabilities of zipForms. There is no additional charge for the videos; they are complimentary with the downloaded desktop and internet versions of zipForm6. Go to http://www.wra.org/zipform to download zipForm6, and http://support.zipform.com/htv/how-to_videos.htm to access the videos. Videos are also accessible under the help tab in zipForm6 by clicking the How To Videos icon.
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This Wisconsin REALTORS® Association Best of the Legal Hotline service is provided for you by the WRA's Legal Affairs Department. The service should be considered a general statement of applicable legal principles. Given this format, it is impossible to fully address all potential legal issues which might apply in any particular situation. A determination of any individual's legal rights in a transaction can only be obtained after complete analysis of the law and its applicability to the particular fact situation. Please contact the WRA Legal Hotline if additional information is needed, or private counsel, if legal advice is needed. Thank you for using the Wisconsin REALTORS® Association Designated REALTOR® Best of the Legal Hotline service.
Debbi Conrad
Director of Legal Affairs
Wisconsin REALTORS® Association
4801 Forest Run Road Suite 201
Madison, WI 53704
Phone: 608-241-2047; 800-279-1972
Fax: 608-242-2279
WRA Legal and Public Affairs Department
The Legal Hotline is open Monday through Friday from 8:30 a.m. to 4:30 p.m. You can call the WRA's Legal Hotline direct toll free at 800-799-4468 or at 608-242-2296 during these hours.
During non-business hours, you may call the Legal Services Night Voice Mail by dialing either of the Legal Hotline numbers listed above. You can also contact the Hotline 24 hours a day via fax at 608-242-2279 or by using the on-line form on the WRA's Web site. Questions may also be mailed to the Hotline at Wisconsin REALTORS® Association, 4801 Forest Run Road, Suite 201, Madison, WI 53704. For a prompt response, all legal questions should be directed to the Hotline rather than to an individual attorney.
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Legal Hottips - May 10, 2010
This Legal Hottips article may be reprinted only if it is reprinted in its entirety, including the disclaimers above and below the Hotline questions and answers. The Wisconsin REALTORS® Association Best of the Legal Hotline Service is an educational resource intended to keep the Association abreast of legal developments and concerns involving real estate practice in Wisconsin. We look forward to your input regarding the service, especially regarding the types of topics you would like covered. There is no attachment to this e-mail.
SEND YOUR HOTLINE QUESTIONS BY E-MAIL www.wra.org/Legal/Hottips/hotline_question.asp
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1.) Commissions - Referral Fees
QUESTION:
A broker's agent had a referral agreement. The agreement stated the agent would get 50% of the listing commission. The listing commission was 6% and co-broke compensation offer was 2.4%; therefore the agent should have gotten paid 1.8%. However, the other company said its policy is that if the transaction is an in-house sale, the cooperating fee is 3%. Therefore, the agent was paid 1.5%. Can a company change a referral fee agreement based on their company policy?
ANSWER:
The issue of the amount of the fee agreed to is really not a legal issue, but a practical one. The terms of a referral fee agreement really can be whatever the parties agree upon.
The following points should be addressed in any referral fee agreement:
1. The full names and contact information for the referred parties.
2. The full names of the referring and receiving agents and companies.
3. Company addresses and contact information.
4. The state of licensure and license number of the referring agents. The receiving agent should require written confirmation that the referring agent holds an active real estate license and/or seek written confirmation of an active license from the appropriate state real estate commission if there is any question about the licensee’s status.
5. Whether the referral originated with the other agent or the company. To put it another way, if the referring agent goes to another company before the referral fee is paid, does the fee follow the agent or stay with the company? This may depend upon the referring agent’s company policy - are referrals personal to the agents in that company or are they considered part of the company’s business?
6. Whether the referral is exclusive to the receiving company or referrals are being made to other companies as well. If the latter is the case, specify which receiving agents/companies are responsible for paying the referral fee.
7. A clear and precise statement of the basis for computing the fee. If the fee will be based on a percentage of commissions actually collected, specify if this is the gross commission received by the receiving company or the net commission received by the receiving agent. Business practices vary from market to market, so it is necessary to spell out exactly how the fee will be determined.
8. State exactly who is responsible to pay the fee, exactly to whom the fee should be paid, and when the fee will be paid.
9. Performance standard that must be met before the fee is earned. For example, the fee may be due if there is an accepted offer that closes. It should also be stated if there are any restrictions or limitations with respect to types of properties or transactions, geographic areas, etc.
10. Agreement term - how long the referral agreement is good for. If the referred party buys or leases a property with the receiving agent ten years after the referral was made, is the fee still due?
The agent’s broker or company legal counsel may review the referral agreement to determine the contractual obligation.
READ MORE ABOUT IT:
More information about referral fees is available on pages 1-4 of Legal Update 02.01, “Getting Paid Outside of the MLS,” @ www.wra.org/LU0201.
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2.) Offer to Purchase - Bump Notice; Offer to Purchase - Closing Issues
QUESTION:
1) What do lines 56-57 of the revised WB-11 Residential Offer to Purchase mean?
2) With regard to lines 64-65 of the WB-11, if there is a recipient for delivery at line 50 can the agent have actual receipt? Please clarify.
3) An agent from another company is saying that the closing date is an “on or before” date. The new WB-11 states, “This transaction is to be closed no later than ___.” The other agent is saying the parties can close anytime sooner than the specified date without an amendment. Is that correct?
ANSWER:
1) Lines 56-57 of the new WB-11 Residential Offer to Purchase stand for the proposition that if there are multiple individuals who are the buyers or the sellers, personal delivery to one of the buyers, for instance, constitutes personal delivery to all of the buyers. Similarly, actual receipt by one of the multiple sellers constitutes actual receipt by all of those sellers. This language did appear in the prior version of the WB-11 in a section called “Delivery/Receipt” on lines 219-227.
2) No. “Actual Receipt” is defined on lines 64-65 to mean that “a Party, not the Party’s recipient for delivery, if any, has the document or written notice physically in the Party’s possession, regardless of the method of delivery.” The definition clarifies that “actual receipt” has not occurred when the agent gets a notice, only when the party does. The term “Actual Receipt” appears on line 250 in the Seller Termination Rights section of the Financing Contingency and on lines 313-314 in the Closing of Buyer’s Property Contingency as a critical part of the “bump clause.”
3) The closing date is set on line 115 of the revised WB-11 Residential Offer to Purchase. In either version of the WB-11 language, it is true that the closing may be held before the stated date – the parties may do this if they can orchestrate an early successful closing. If that early closing falls through, there is no breach of contract. A breach occurs only if the transaction does not close “no later than” the stated date.
However, Wis. Admin. Code § RL 24.08, as well as Article 9 of the Code of Ethics, provides that licensees shall put all offers and commitments regarding the transaction in writing. Wis. Admin. Code § RL 24.08 further dictates that the exact agreement of the parties be documented in writing. An amendment to modify the closing date to an earlier date may be drafted by either broker to reflect the new agreement of the parties.
READ MORE ABOUT IT:
For further discussion of these issues see the November 2009 Legal Update, “WB-11 Residential Offer to Purchase – 2010 Edition” @ www.wra.org/LU0911. See pages 14-15 of the August 2007 Legal Update, “’Favorite’ Offer to Purchase Provisions” @ www.wra.org/LU0708 with regard to the bump clause.
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3.) Agency - Buyer Agency Agreement; Commissions - Entitlement
QUESTION:
As of May 1st the agent switched companies. The former company will be closing by June 1. The broker is going to work for a new office that is not purchasing any part of business, but she is planning to take listings with her.
In April the agent wrote an offer for a client (buyer’s agency), but the offer was rejected. The broker amended the expiration date of the company’s buyer agency agreements so clients are no longer under buyer agency with old office, thus this buyer may enter into a new agency agreement with the agent at the new office. The buyer would like to write a new offer on the property they wrote on last month. Are they still a protected buyer for the previous office seeing they did have a buyer agency agreement, even though that office will no longer be in business? Who would get the selling side commission from MLS, the new office or the old office?
ANSWER:
There are multiple commission issues that arise out of the agent’s situation. First is the buyer’s obligation to pay the buyer agency fee based on the WB-36 Buyer Agency/Tenant Representation Agreement. Second is a cooperating broker’s right to the MLS offer of compensation based on procuring cause and third is an agent’s right to commission from a former broker when the agent terminates the relationship.
1. WB-36 Buyer Agency/Tenant Representation Agreement
The buyer agency agreement entered into while with the former company was entered into by the agent on behalf of the employing broker. Upon the agent’s departure the broker would be obligated to continue to service the buyer client and may assign it to another agent in the company. If the former broker and the buyer agreed to amend the expiration date of the WB-36, the broker’s responsibility to provide buyer client services would end, except with regard to protected properties. Property protection (see lines 205-210 of the WB-36) lasts for one year after the expiration of the buyer agency agreement and is triggered when a buyer submits an offer on a property during the term of the buyer agency agreement. If the buyer purchases the property during the protection period the commission provisions of the buyer agency agreement would apply. The buyer may be referred to legal counsel about the buyer’s contractual obligations to the former broker based on the WB-36 property protection provisions.
2. MLS offer of compensation
With regard to the MLS offer of compensation, an agent’s real estate brokerage activity is attributed to the employing broker in a procuring cause analysis.
Presuming the uninterrupted series of events that resulted in the sale of the property to the buyer occurred during the agent’s employment with the first broker, the first broker would have an expectation of the MLS offer of compensation based on the activity of the agent before the agent transferred to the second company. However, if the first broker did not maintain the series of events upon the agent’s departure (by assigning another agent to work with the buyer, etc.) then the second broker’s claim for procuring cause may be enhanced based on the first broker’s abandonment of the buyer.
The agent may, upon the buyer’s request, provide brokerage services to the buyer at the new office (second broker). It is possible for the agent to make a claim as the procuring cause of the sale based on the services performed by the agent after the agent shifted to the second broker. If the uninterrupted series of events that resulted in the sale of the property to the buyer occurred while the agent was with the second broker, the second broker may claim the MLS compensation based on the activity of the agent after the agent transferred to the second company.
3. Independent contractor agreement
The claim for the MLS offer of compensation is separate and distinct from the agent/broker-company independent contractor agreement. The agent’s right to compensation from the first broker would be subject to the compensation and termination provisions of the independent contractor agreement and any other relevant office policies. The agent’s share of any commission paid to the first broker would be controlled by these agreements.
READ MORE ABOUT IT:
See the April 2010 Legal Update, “Cooperative Commissions and Procuring Cause,” @ www.wra.org/LU1004, the discussion of the WB-36 in the November 2007 Legal Update, “WB-36 Buyer Agency Agreement – 2008 Revisions,” @ www.wra.org/LU0711, and “Best of the Legal Hotline: Changing Brokers” in the January 2007 edition of the Wisconsin Real Estate Magazine @ http://news.wra.org/story.asp?a=613.
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4.) Commissions - Entitlement
QUESTION:
The seller had a valid listing contract with the broker and during the term of that contract, entered into a purchase agreement with the State of Wisconsin. The seller never cancelled the listing contract and indeed, continued asking for the broker’s advice and help in selling the property for the maximum price. The State bought the property and the transaction has closed. The listing contract expired 2 weeks after the transaction closed. The seller is claiming that his lawyer told him he does not have to pay a commission because his property was purchased by the State and it may have been condemned. Is his lawyer correct? Is the broker owed a commission?
ANSWER:
The Wisconsin Supreme Court held 6-1 in Sonday v. Dave Kohel Agency, 2006 WI 92, that the transfer of prop¬erty as the result of a condemnation action constitutes a sale for the pur¬pose of the WB-5 Commercial Listing Contract. The WB-5 Commercial Listing Contract provides at line 49 that the broker’s commission is earned if the “Seller sells or accepts an offer which creates an enforceable contract for the sale of all or any part of the Property.” This provision mirrors that in the residential listing contract. In a condemna¬tion, title to the condemned property is conveyed to the government or other condemning agency, which, in turn, pays the owner compensation. The court concluded that a transfer of title in return for compensation constitutes a sale for the purposes of the WB-5, even if it is admittedly a forced sale. Because there are no limiting terms in the WB-5 that require that a sale be voluntary or at arm’s length, the fact that the sale was involuntary has no impact on the seller’s agreement to pay commission to the broker.
READ MORE ABOUT IT:
Review a summary of the Sonday case in the August 2006 Legal Update @ www.wra.org/lu06008 and the case opinion may be found @ http://www.wisbar.org/res/sup/2006/2004ap002322.htm.
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5.) Offer to Purchase - Delivery
QUESTION:
The listing broker received a revised offer to purchase with the e-mail delivery box checked along with an electronic or digital signature. The listing broker wants to make sure that everything is done correctly regarding the ecommerce laws. Please advise.
ANSWER:
While the listing company is not required to request the proof of the electronic consent from the agent drafting the offer, it may be beneficial so that the listing company and seller can confirm that the buyer properly electronically consented to e-mail as a form of delivery and the use of electronic signatures. If the agent is drafting the offer for a buyer-customer, thus as a subagent of the listing company, then the listing company may request a copy of the electronic consent from the agent drafting the offer to ensure that the consumer has properly consented electronically as required under the federal E-Sign law.
READ MORE ABOUT IT:
For more information regarding federal E-Sign and Wisconsin E-Commerce practice issues and forms, see the February 2008 Legal Update, “Electronic Commerce and E-Mail Delivery,” @ www.wra.org/LU0802, and the E-Commerce REALTOR® Resource page @ www.wra.org/E-commerce. Also see the November 2009 Legal Update, “WB-11 Residential Offer to Purchase – 2010 Edition” @ www.wra.org/LU0911.
Legal Hottips - June 28, 2010
This Legal Hottips article may be reprinted only if it is reprinted in its entirety, including the disclaimers above and below the Hotline questions and answers. The Wisconsin REALTORS® Association Best of the Legal Hotline Service is an educational resource intended to keep the Association abreast of legal developments and concerns involving real estate practice in Wisconsin. We look forward to your input regarding the service, especially regarding the types of topics you would like covered. There is no attachment to this e-mail.
SEND YOUR HOTLINE QUESTIONS BY E-MAIL www.wra.org/Legal/Hottips/hotline_question.asp
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In this Issue:
• Lenders Pulling 2nd Credit Report on Buyers Pre-Closing
• Brokers Cannot Take Referral Fees for Home Warranties
• No Extension of Tax Credit Closing Deadline or Flood Insurance Program
• Looking for Farm Transaction Experts!
Hotline:
• Authorization to Return Earnest Money in Failed Short Sales
• Assignment of Offer to another Buyer
• Do You Disclose Seller’s Brother’s Mental Health Issue
• Health Care Tax Rumors
• Attorney Approval Contingency
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Lenders Pulling 2nd Credit Report on Buyers Pre-Closing
Under Fannie Mae’s new Loan Quality Initiative (LQI) that went into effect on June 1, 2010, lenders are pulling a second credit report on the buyer right before closing to verify that the buyer’s credit status has not changed and that all debts were disclosed. In other words, the buyer is not officially approved for the mortgage until the second credit report is approved. The lender may also re-verify job status and check other sources to make sure there are no undisclosed debts.
Other lenders also have been known to pull second credit reports right before the closing, but the Fannie Mae LQI will likely cause many more lenders to conduct last-minute verifications.
What this means for buyers is that they are well advised to not make any major purchases or apply for new credit until after closing. For instance, applying for a new credit card may lower a buyer’s credit score. Under the LQI, the lender could delay the closing, increase the interest rate or the down payment, or even cancel the closing, depending upon the actual change.
See Fannie Mae’s Loan Quality Initiative: https://www.efanniemae.com/sf/lqi/
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Brokers Cannot Take Referral Fees for Home Warranties
HUD has indicated that home warranty companies may only compensate real estate agents and brokers for services not related to marketing, such as conducting inspections of items to be covered by a warranty or recording serial numbers of items to be covered. HUD has concluded, in an interpretative rule to be published in the Federal Register, that marketing performed by a real estate broker or agent on behalf of a home warranty company to sell a warranty to a particular homebuyer or seller is a “referral” to a settlement service provider and violates RESPA’s anti-kickback provisions. In other words, payments to real estate agents or brokers by home warranty companies that are contingent on a party’s home warranty purchase and based on no other substantive services other than marketing are RESPA violations according to HUD. Referrals are not compensable services – there must be additional, necessary, distinct services provided that are not nominal in nature to justify broker compensation.
The HUD rule is available at http://cache.inman.com/files/stories/REQ_COMMENT_HOME_WARRANTY.PDF
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No Extension of Tax Credit Closing Deadline or Flood Insurance Program Passed Yet
NAR’s best advice to members with questions and concerns regarding the tax credit deadline is to proceed as if the June 30, 2010 date is binding. At this point all extension measures have stalled in the Senate and the outlook is not favorable although NAR continues its efforts.
NAR is working with Senate leadership in both parties to urge the Senate act quickly to pass H.R. 5569 to extend the flood insurance program. Additional information is available at http://www.realtor.org/government_affairs/natural_disaster
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Looking for Farm Transaction Experts!
The WRA Forms Committee will soon meet to discuss updates to the WB-12 Farm Offer to Purchase. We need ideas and insights from all of you who work in this field. We would welcome agents who are willing to come to our meeting in person or by conference phone to teach us about farm transactions, as well as any of you who prefer to offer comments by e-mail or telephone. If you know about Wisconsin farm transactions and can share your expertise, please contact Debbi Conrad (dconrad@wra.org).
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1.) General Real Estate - Foreclosure
QUESTION:
The seller accepted an offer on his property. It is a short sale and the bank has still not approved the sale. The seller wants to extend the closing, but the buyer may not want to cancel the offer and act on another property. Is the buyer obligated to extend the closing or can the buyer request a cancellation and get his earnest money back?
ANSWER:
Since the buyer and the seller executed an Addendum SSO (2009), and presuming that the box on line 28 “Deadline for Lender Approval” was checked, then the buyer may be able to terminate the contract. Lines 28-30 of the Addendum SSO state, “If Seller has not obtained all needed lender approvals on or before ______, ___, Buyer may terminate this Offer by written notice to Seller and Buyer's earnest money shall be promptly returned.” The broker should review those lines of the Addendum SS0 and determine if the buyer has the ability to terminate the contract. If the buyer does then the buyer would execute a WB-41 Notice Relating to Offer to Purchase indicating that the buyer is exercising his rights to terminate the offer and receive his earnest money back.
READ MORE ABOUT IT:
For further discussion of short sales, see January 2008 Legal Update, “Short Sales - A Risky Business,” @ www.wra.org/LU0801, the March 2009 Legal Update, “Working with Distressed Sales,” @ www.wra.org/LU0903, and the July 2009 Legal Update, “Solving the Mysteries of Short Sales,” @ www.wra.org/LU0907.
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2.) Offer to Purchase - Assignment
QUESTION:
A son wants to buy a house however he is out of the area and would like his father to do the negotiations and execute the contract on son’s behalf. May the father assign rights to the contract to his son prior to closing? Or would the father need to assign the property after closing? The broker is trying to avoid two transfer fees, deed preps, etc.
ANSWER:
Rather than executing an assignment, the son may wish to provide his father this authority with a Power of Attorney (POA). The power of attorney authority to sign for another should be given in writing, preferably notarized, with the detailed instructions from the authorizing party. When signing documents, the POA should comply with Wis. Stat. § 706.03(1), which provides that both the party's name and the POA's name must appear with an indication of authority (such as “Seller X by B, authorized agent” or “B, as agent on behalf of Seller X”).
With respect to assignments, the buyer generally may assign the buyer’s interests under the offer to another buyer and delegate the performance of the buyer’s contractual duties without the consent of the seller. This assignment, however, will not relieve the original buyer of liability for the new buyer’s performance. If the new buyer does not pay or otherwise perform under the contract, the seller may be able to hold the original buyer liable. The offer does not have to be written “and/or assigns,” but that is helpful in eliminating confusion and avoiding legal disputes. The assistance of an attorney is recommended for the buyer seeking to assign his or her rights and obligations under the offer. The assignment must be in writing.
If an assignment is used it may be best to amend the offer and have the original buyer, the new buyer and the seller sign it. In such an amendment, Buyer #1 would assign his rights under the offer and delegate the performance of his or her duties and obligations under the offer to Buyer #2. It may be prudent to have Buyer #2 sign to accept the assignment of rights and agree to perform the delegated duties and obligations. The seller would consent to the assignment and delegation between the buyers. Buyer #1 would remain liable if Buyer #2 did not perform.
READ MORE ABOUT IT:
See pages 7-9 of Legal Update 01.11, “Best of the Legal Hotline – Offer to Purchase Issues,” @ www.wra.org/LU0111, for further discussion of this issue.
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3.) Disclosure - Material Adverse Facts
QUESTION:
The broker has a listing that is an estate where the property is held in a trust. One brother is not in the trust and will not get any part of the sale proceeds. The brother has shown up at the property and been confrontational. The police were called and he was hospitalized for some mental health issues. How much of this does the broker have to disclose to a potential buyer?
ANSWER:
Whether the mental instability of the brother constitutes a fact a licensee needs to disclose as a material adverse fact is a judgment that only the licensee can make after considering all of the facts and circumstances in the situation.
If the agent, as a competent licensee knows that this fact: (1) has a significant adverse affect on the value of the property; (2) significantly reduces the structural integrity of the property; (3) presents a significant health risk to the occupants of the property or (4) is information that indicates that a party to the transaction is not able to or does not intend to meet their obligations under the contract, then the issue constitutes an adverse fact. If a party to the transaction were to so indicate, or if a competent licensee would generally recognize that this fact is of such importance that it would affect a reasonable party's decision to enter into a contract or would affect the party's decision about the terms of the contract, the fact is both adverse and material. If this fact is both adverse and material, then Wis. Admin. Code § RL 24.07(2) requires the licensee to timely disclose the fact in writing to all parties to the transaction, even if the client would direct the licensee not to disclose.
If the licensee knows or is aware of information suggesting the possibility of a material adverse fact, Wis. Admin. Code § RL 24.07(3) states that the licensee will be practicing competently if the licensee makes timely written disclosure of the information suggesting the material adverse fact to all parties to the transaction, recommends the parties obtain expert assistance to inspect or investigate for the possible material adverse fact, and, if directed by the parties, draft appropriate inspection or investigation contingencies. The duty to disclose has priority over any duty owed to the client.
READ MORE ABOUT IT:
See the October 2009 Legal Update, “Diligent Disclosure,” @ www.wra.org/LU0910 for further discussion of licensee disclosure obligations.
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4.) Offer to Purchase - Closing Issues
QUESTION:
The broker has had several calls about an added tax that sellers must pay upon the sale of their property. Some were referring to a 3% tax. Is there such a tax and is it really 3% or is it more?
5.) Offer to Purchase - Contingencies
QUESTION:
Is a general “subject to attorney’s approval” clause in an offer to purchase effective in Wisconsin or does it have to address specific issues only?
ANSWER:
<P>The Wisconsin Court of Appeals in <EM>Nodolf v. Nelson</EM>, 103 Wis. 2d 656, 660, 309 N.W.2d 397 (Ct. App. 1981), explained that a contract is illusory when the contract is conditioned on a fact or event wholly under the control of one party. For example, a financing contingency renders the contract incurably illusory and unenforceable if the contingency grants to one party the exclusive right to determine whether suitable financing has been obtained. Such a “subject to satisfaction” contingency is subjective and the other parties and the courts rarely will have any way of knowing what will satisfy the provision. A contract that is illusory is no contract at all and is void. </P>
<P>Likewise if a buyer includes an attorney approval contingency without objective standards the contract could be deemed unenforceable and an illusory agreement. In general, a contract which is “subject to satisfaction” or subject to approval without conditions could be void. Agents should draft all material terms and contingencies with objective standards. The contract may be void if performance of a provision is entirely discretionary with one party, in other words, subject to one party’s satisfaction rather than mutually agreed-upon parameters. </P>
<P><STRONG>READ MORE ABOUT IT:</STRONG> <BR>See pages 3-4 of <EM>Legal Update</EM> 01.11, “Best of the Legal Hotline – Offer to Purchase Issues,” @ <A>www.wra.org/LU0111</A>. <BR></P>
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ABR® Designation 2-Day Course
The Accredited Buyer’s Representative (ABR®) designation is designed for real estate agents who focus on working directly with buyer-clients.
When you decide to earn your ABR®, you gain:
• Valuable real estate education that elevates your skills and knowledge in the eyes of homebuyers.
• Ongoing specialized information, programs and updates that help you stay on top of the issues and trends in successfully representing homebuyers.
Upon completing the two-day course, scheduled for August 4-5, 2010 in Madison and successfully passing the exam, you will have achieved ABR® candidate status. To earn the ABR® designation, you need to complete the 2-day ABR course plus a 1-day elective course. The 1-day elective course will be offered at the WRA convention on September 26, 2010 – the Short Sales & Foreclosures Course (also core course for the SFR Certification.). Bonus: The 2-day ABR course qualifies for the 2009-2010 Course 4 CE.
For more information, www.wra.org/abr
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GREEN Designation Courses
Green building is a HOT topic in today's real estate marketplace. The 2-day Green Designation course addresses the concerns of consumers that are seeking real green expertise, not just lip service. You can be the one they come to for answers.
The Green Designation Core Course provides real estate professionals with knowledge and awareness of green building principles applied in residences, commercial properties, developments, and communities so that they can help consumers in purchasing, retrofitting, and operating green properties. The course encourages you to be an advocate for green principles in the design and use of homes and commercial buildings and a positive force for creating sustainable communities.
Agents with the GREEN designation have received professional training above and beyond the minimum requirements for licensing and are committed to providing top-level service.
To earn the GREEN Designation, you must successfully complete the two-day core course and a one-day elective course. The 2-day core course is scheduled for August 18-19, 2010 and the 1-day Residential Green Elective Course is scheduled for August 20, 2010 in Madison.
For more information, www.wra.org/green
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Publication of the Week: Houses: the Real Estate Agent’s Guide to FSBOs
Written to help real estate agents discover a successful new approach to selling for-sale-by-owner properties, Houses: the Real Estate Agent’s Guide to FSBOs shares proven techniques for finding FSBOs, servicing listings and closing sales. Author John Maloof also covers topics such as approaching prospects, formulating marketing plans, building a referral base, and staging open houses. Featuring extensive internet resources, this book will teach you how to tap into the generally underutilized for-sale-by-owner market.
To learn more and order, please visit: www.wra.org/pub251.
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Loan Applicants to Receive Credit Score Information from Lenders
Beginning in 2011, new rules from the Federal Reserve and the Federal Trade Commission require lenders to provide consumers with more credit report and credit score information under certain conditions. When consumers apply for credit through a bank, credit union or other lender, they may receive one of the following types of notices:
• Credit Score Notice: gives a basic credit score explanation, and states the consumer’s credit score and how it compares to other consumers' scores.
• Risk-Based Pricing Notice: provided when a consumer is offered credit on terms that are less favorable than the terms offered to other consumers because of information (negative) in the credit report.
• Account Review Notice: given if your APR on an existing credit account is increased based on a review of the consumer’s credit report.
These notices identify the credit bureau that provided the credit report or credit score to the lender, allowing the consumer to dispute any information believed to be incorrect. All of the notices provide information on how to obtain a free credit report. For more credit reports and credit scores information visit http://www.federalreserve.gov/consumerinfo/wyntk_notices.htm and http://www.federalreserve.gov/creditreports/default.htm.
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1.) General Real Estate - Zoning/Land Use
QUESTION:
The seller has 20 lots in a surveyed and platted subdivision. The seller would like to list the lots now to generate money to put the road in to finish the development. They would have to sell 4-5 lots to pay for the road completely or 2-4 for cost of the base layer. Would this be a state, county or township rule? And is it legal to sell any lots contingent on having a road to the lot?
ANSWER:
Wisconsin's Subdivision Code is found in Wis. Stat. Ch. 236. This code applies where five or more lots of 1 1/2 acres or less are created within a five year period for the purpose of sale or building development. Local units of government are authorized to adopt more stringent regulations. The seller may wish to contact the local municipality and/or county directly to see if there are any local applicable rules or have his attorney investigate.
Under the Code, any subdivider or subdivider’s agent who offers, contracts to convey or conveys a subdivision lot knowing the final plat has not been recorded is subject to a fine of up to $500 or imprisonment up to six months or both. There is one exception in Wis. Stat. § 236.31(1): if the preliminary or final plat has been filed for approval with the town or municipality where the subdivision property lies, the subdivider or agent may offer to convey or may contract to convey a lot if the offer or contract states on its face that it is contingent upon the final plat approval and that it will be void if the plat is not approved.
Prior to filing the plat for approval, it would appear that the subdivider or agent could accept non-binding reservations or letters of intent from interested buyers. It would not be appropriate to collect earnest money or deposits in such instances as such act gives the appearance, at least, that a binding agreement has been made.
READ MORE ABOUT IT:
See Wis. Stat. § 236.31(1) on page 9 @ http://www.legis.state.wi.us/statutes/Stat0236.pdf, and a review of the subdivision process in Legal Update 97.11, “Subdivision Controls” @ www.wra.org/LU9711.
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2.) Landlord/Tenants - Miscellaneous
QUESTION:
In a residential lease is it legal to put a “no-move out” clause for the winter months such that the tenant owes a fee if he moves out during certain months? Can there be any fees charged in a lease, in general, if the tenant moves out early and breaks the lease or subleases?
ANSWER:
It is not what you call it, rather the problem is liquidated damages are illegal in WI residential leases. Having this in your rental docs probably invalidates the entire lease. Unfortunately our Supreme Court had decided that a lease that contains a provision prohibited by ATCP 134.08 is unenforceable by the landlord. While you may never have a tenant push this issue, if you were to end up in court it will be painfully expensive as you will have to pay the tenant's attorney and double damages.
Wis. Admin. Code § ATCP 134.08(2) provides, “Prohibited rental agreement provisions. No rental agreement may: (2) Provide for an acceleration of rent payments in the event of tenant default or breach of obligations under the rental agreement, or otherwise purport to waive the landlord's obligation to mitigate damages as provided under s. 704.29, Stats.” The described fees would appear to violate this provision because they impose a penalty upon the tenant which may be viewed as an acceleration of rent. If the fees are high enough, a landlord might not apply his or her best efforts to try to get the property rented again. The landlord does have a duty to try to mitigate the loss and try to get the unit rented again. In essence the fees appear to be liquidated damages that violate § ATCP 134.08(2).
Any lease that includes a provision that violates § ATCP 134.08 is unenforceable by the landlord against the tenant under the Wisconsin Supreme Court decision in Baierl v. McTaggart, 2001 WI 107 http://www.wisbar.org/res/sup/2001/98-3329.htm. The illegal provision makes the lease invalid from the landlord’s perspective. When the landlord attempted recoup his losses when the tenants breached their lease and moved out early, the tenants were able to escape liability. This result was reached even though the landlord did not try to use the illegal provision and the tenants suffered no harm whatsoever due to the inclusion of the provision. If you have a lease with an illegal clause, the entire lease turns into a month to month tenancy.
READ MORE ABOUT IT:
See the discussion of the Baierl case @ http://www.wra.org/legal/wr_articles/wr0801_legal.htm and the discussion of the related Dawson v. Goldammer case on pages 9-10 of Legal Update 03.01, “Case Law Update” @ www.wra.org/LU0301.
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3.) Disclosure - Environmental & Health Issues
QUESTION:
The broker received a Wisconsin Legislative Council Act Memo for 2009 Wisconsin Act 373 [2009 Senate Bill 557]. It says that,
“any person who owns or leases land may request the DNR to provide any of the following wetlands identification services:
• Wetland map review. A written evaluation, based upon a review of wetland maps prepared by the DNR and other information, of whether a parcel of land is likely to contain a wetland.
• Wetland identification. A written evaluation, based upon an on-site inspection of the land by the DNR, of whether a parcel of land contains a wetland. This service is limited to parcels or portions of land not exceeding five acres in size.
• Wetland confirmation. A written statement, based upon an on-site inspection of land by the DNR, of whether the DNR concurs with the boundaries of a wetland as delineated by a third person. Both the delineation and the department's confirmation must include the exact location and boundaries of the wetland.”
Is this a law? If it is what is the recommended disclosure? Is February 1, 2011 or March 1, 2011 the impact date?
ANSWER:
This legislation goes into effect on February 1, 2011.
The seller’s disclosure obligation to disclose wetlands does not change given the new wetland identification services and construction notices legislation. Entry C.11 on the Real Estate Condition Report is where a seller may disclose known wetlands. If the seller utilizes any of the Department of Natural Resources inspections or wetland location services, written reports may be attached to the RECR.
A real estate licensee is to conduct a competent and diligent inspection of the property, per Wis. Admin. Code § RL 24.07. If there is evidence of wetlands, that information may need to be disclosed by the real estate licensee as a material adverse fact or information suggesting a material adverse fact. The broker is not required to be a wetlands expert, but may refer the parties to the DNR or the Army Corps of Engineers with questions about wetlands. In addition, if the property has or may contain wetlands the broker may review the WRA Addendum W (see http://dnr.wi.gov/wetlands/addendum.html) to determine if it would be appropriate to include in the offer.
READ MORE ABOUT IT:
Information about the legislation is available on page 8 of the July 2010 Legal Update entitled “Legislative Update” @ www.wra.org/LU1007. More information about wetlands is available in the DNR publication A User’s Guide to the Wisconsin Wetland Inventory @ http://dnr.wi.gov/wetlands/documents/WWI_Usersguide.pdf and @ http://dnr.wi.gov/wetlands/locating.html.
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4.) Offer to Purchase - Counter-Offers
QUESTION:
An offer to purchase was received from a buyer for one of the broker’s commercial property listings. The offer is dated December 13, 2010 and was signed by the buyer on December 28, 2010. The response date is by January 3, 2011 and has been crossed off (no initials) and changed to January 15, 2011. It is written by one agent and it was emailed to the listing broker by another agent in the same office.
Is this a valid offer? Can the seller do a counter offer? Should the listing office call the cooperating broker and ask them to re-write the offer?
Also, the broker drafting the offer is a “dual agent,” but the addendum asks the seller to credit the buyer 3% of the purchase price towards the buyer’s broker’s commission. Shouldn't the offer state that the broker is the agent of the buyer?
ANSWER:
A counter-offer prepared by the listing agent for the seller would be advisable since the acceptance deadline stated in the offer has passed by. The counter should, at the least, correct the agency statement to indicate that the cooperating agent is a buyer’s agent, not a dual agent. Also, the compensation of 3% paid by the seller may be deleted if unacceptable to the seller and to avoid paying double commission (absent any modifications to the listing contract).
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. Congress, however, also intended to preserve housing specifically designed to meet the needs of older persons. Housing that meets the Act’s definition of “housing for older persons” can legally exclude families with children.
