Posted: Fri Apr 16, 2010 10:32 am Post subject: Legal Hot Tips Thread
Legal Hottips - November 2, 2009
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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Wisconsin First in Nation to Administer New Rule to Protect Children during Renovation
The Wisconsin Department of Health Services completed modification on October 19 to bring its Lead-Based Paint (LBP) rules into compliance with the new federal LBP law for LBP renovations. Wisconsin is the first state in the nation to complete this modification.
In 2008 the U.S. Environmental Protection Agency (EPA) published its Renovation, Repair and Painting (RRP) rule that regulates paint-disturbing work conducted in residential houses, apartments and child-occupied facilities such as schools and day-care centers built before 1978. This rule affects construction trades, rental property owners and property managers. Its goal is to protect young children from exposure to lead-dust hazards that can be created during renovation and other paint disturbances.
Renovation is broadly defined to include many activities not normally considered to be renovations. The definition includes any activity that disturbs painted surfaces and includes most repair, remodeling, and maintenance activities, including painting and window replacement.
Under the new Wisconsin DHS rules, renovators must provide the pamphlet “Renovate Right” to property owners and occupants before starting work. Beginning April 22, 2010, company certification will be required and at least one trained and certified renovator must oversee each regulated project. Renovators will be required to train untrained workers, ensure the use of lead-safe work practices and proper cleaning and conduct cleaning verification after each project to ensure that lead hazards are not left behind.
Visit http://dhs.wisconsin.gov/lead/ for more information. For further discussion of the federal RRP rules, see the October 2009 Legal Update, “Lead-Based Paint Renovations, Repairs and Painting” at www.wra.org/0810.
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1.) Disclosure - Material Adverse Facts
QUESTION:
Re: Appraisal. The broker has a condominium unit that was appraised for the FHA in June and the appraisal came in very low. The offer was for $167,500. The comps the appraiser used were for a 1,300 sq. ft. unit, which made the appraised value about $116.92 per square foot. The condominium unit that the appraiser was appraising was about 170 square feet larger than that, and using that square footage amount, would have made the appraisal $171,876, but the appraisal was for $152,000. There is another offer for $166,000. Does the listing agent have to tell the buyer’s agent what the first appraisal was since most likely they cannot get another appraisal on the property for at least six months?
ANSWER:
Real estate licensees are required to disclose material adverse facts and information suggesting material adverse facts. However, an appraiser’s opinion of value is not a fact and thus it does not have to be disclosed as a material adverse fact. If the seller or licensee is aware of negative comparables that led to the appraiser’s opinion of value, these may need to be disclosed if they were current and accurate and if either a buyer requested them or the licensee volunteered to provide them. Any factual information such as current price comparables used to arrive at appraised value may need to be disclosed by a licensee if they constitute material adverse facts. In addition, the determination of value in an appraisal might arguably be considered confidential information.
On the other hand, a disclosure may be needed because of the apparent FHA policies with regard to appraisals. The FHA appraisal rules allow an appraisal to be used for six months. The intent is to minimize costs to subsequent buyers and there does not appear to be a prohibition against obtaining a new appraisal in a subsequent transaction. However, if there are FHA policies or other factors at work such that another FHA appraisal will not be made available for six months – and that low first appraisal may mean that FHA financing will not be an option for that transaction – that may need to be disclosed.
READ MORE ABOUT IT:
For information about appraisals and appraisers, read the October 2004 Legal Update, “Appraisers and Appraisal Issues,” @ www.wra.org/LU0410.
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2.) Listing Contracts - Termination/Withdrawal
QUESTION:
An agent has a commercial listing and it expires in December. The seller called saying he double listed with another company. The agent asked the seller if the agent brought a buyer would the seller cancel the other listing and the seller said yes. This morning the seller called and said he will terminate the listing contract with the other company but he first wants the name of the buyer. How to proceed?
ANSWER:
A licensee who coaches a seller about how to terminate a listing or otherwise interferes with an existing listing contract may be accused of license law and ethical violations and sued in court for damages. It may be seen as interference with the other broker’s agency contract in violation of Article 16 of the Code of Ethics. A person who interferes with a contract may also be sued in civil court if damages can be proved. Such conduct also may be viewed as giving legal advice in violation of Wis. Admin. Code § RL 24.06(1) and Article 13 of the Code of Ethics.
The following information is provided for the broker’s information only. The seller may be referred to legal counsel or to the other broker to discuss the seller’s rights and obligations per the other listing contract. The agent may also want to consult with an attorney before taking any further steps to help protect the agent from liability.
Regardless of the type of listing, sellers have the power to revoke a listing contract at any time. The listing is a personal services contract which establishes a fiduciary relationship of trust and confidence with the broker. Because the contract reflects the agency relationship, the seller possesses the power to revoke or terminate the listing contract at any time. The seller (the principal) cannot be compelled to remain in the agency relationship with the broker (the agent) with whom the seller no longer wishes to work.
The power to revoke or cancel the listing contract, however, must be distinguished from the right to do so. The seller always has the power to cancel the listing contract but may not have the right to declare an early termination to the listing. Canceling the listing before its expiration date will typically constitute a breach of the contract terms and thus violate the broker’s rights. The broker may then demand compensation for the damages sustained as a result of the early listing cancellation. The broker cannot, however, sue the seller for specific performance because of the agency relationship.
These damages may include the costs of advertising, reimbursement for other expenses incurred by the broker in the process of listing and marketing the property, and the value of services rendered, assuming the broker can sufficiently prove this. Commission will be due only if the broker can prove that the broker had procured a buyer ready, willing and able to purchase the property upon the terms and conditions specified in the listing contract, or on terms otherwise acceptable to the seller.
Note that some brokers are adding provisions to their listing contracts specifically describing a procedure for the early termination of the listing. If so, as long as the seller follows the contract provisions for termination, the seller may generally cancel the listing without fear of being charged for any damages. That is not the case, however, if the early termination provision calls for an early termination fee or other damages.
Note also that the seller may cancel the listing without risk of damages if the termination is for cause. For example, if the listing broker fails to perform according to the terms of the listing contract or otherwise fails to act in good faith, then the seller will have the right, not just the power, to terminate the listing. Then the broker cannot claim any damages based upon the early termination because the broker was in breach of contract.
The seller may terminate the listing by verbal notice (only for old listings -- written notice of termination is required under the 2008 listings), by written letter or notice, or by amendment of the listing contract (changing the expiration date to a current date). Upon receipt of such notice from the seller, the broker has no right to refuse the seller or exact any price or penalty for the cancellation unless originally stated in the listing contract (other than the action for damages discussed above).
Once the seller has notified the broker that the listing is terminated, preferably in writing (written notice of termination is required under the 2008 listings), the other listing broker will have no further rights with respect to the listing, other than any listing protection or override rights it establishes with respect to properly qualified buyers.
READ MORE ABOUT IT:
More information about termination of listings see the October 2007 Legal Update, “WB-1 Listing Contract – 2008 Revisions” @ www.wra.org/LU0710 and the September 2006 Broker Supervision Newsletter @ www.wra.org/BSNsept06.
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3.) Advertising - Advertising Other Company's Listings
QUESTION:
Re: Web sites. Is it legal to advertise other offices’ listings on a broker’s web site?
ANSWER:
The advertising of another company’s listings on a broker’s web site will be subject to compliance with Wis. Admin. Code § RL 24.04, Article 12 of the Code of Ethics, company policy and MLS policy including the Internet Data Exchange (IDX) rules. IDX allows for the posting other company’s listings on a broker’s web site when IDX policy is followed. The text of Article 12 and § RL 24.04 are included below. The broker may ask the local MLS for the applicable IDX rules.
Article 12 of the Code of Ethics provides, “REALTORS® shall be careful at all times to present a true picture in their advertising and representations to the public. REALTORS® shall also ensure that their professional status (e.g., broker, appraiser, property manager, etc.) or status as REALTORS® is clearly identifiable in any such advertising. (Amended 1/93)”
Wis. Admin. Code § RL 24.04 Advertising.
(1) FALSE ADVERTISING. Licensees shall not advertise in a manner which is false, deceptive, or misleading.
(2) DISCLOSURE OF NAME. (a) Except for advertisements for the rental of real estate owned by the broker, a broker shall in all advertising disclose the broker's name exactly as printed on the broker's license or disclose a trade name previously filed with the department, as required by s. RL 23.03, and in either case clearly indicate that the broker is a business concern and not a private party. (b) Except for advertisements for the rental of real estate owned by the licensee, a licensee employed by a broker shall advertise under the supervision of and in the name of the employing broker. (c) A licensee may advertise the occasional sale of real estate owned by the licensee or the solicitation of real estate for purchase by the licensee without complying with pars. (a) and (b), provided that the licensee clearly identifies himself, herself or itself as a real estate licensee in the advertisement.
(3) ADVERTISING WITHOUT AUTHORITY PROHIBITED. Brokers shall not advertise property without the consent of the owner.
(4) ADVERTISED PRICE. Brokers shall not advertise property at a price other than that agreed upon with the owner; however, the price may be stated as a range or in general terms if it reflects the agreed upon price.
READ MORE ABOUT IT:
For general information about advertising, see the February 2006 Legal Update, “Real Estate Advertising,” @ www.wra.org/LU0602.
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4.) Contract Issues & Forms - Approved Forms
QUESTION:
Can lines 24-26 on the WB-11 Residential Offer to Purchase be stricken if the parties do not wish to authorize the use of U.S. Mail or commercial delivery services as a means for delivery of notices or documents?
ANSWER:
Yes, per Wis. Adm. Code § RL 16.06(3), a licensee may cross our provisions on approved forms to reflect the agreement of the parties, provided the deleted language remains legible.
READ MORE ABOUT IT:
Review the DRL rules for licensees’ use of forms @ http://www.legis.state.wi.us/rsb/code/rl/rl016.pdf.
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5.) Contract Issues & Forms - Miscellaneous Contract Issues
QUESTION:
Re: Buyer’s social security number. The buyer is supposed to close tomorrow and she does not want to disclose her social security number. However, the closing agent is insisting that the buyer must disclose her social security number because it is required on the transfer return and they can’t close without it. What are the buyer’s rights?
ANSWER:
The register of deeds office will refuse to record a deed without a completed Wisconsin Real Estate Transfer Return. The return does require that the buyer provide a social security number. As a suggestion, the buyer may want to discuss the matter directly with the title company so the information is disclosed to a limited number to individuals. The printed receipts for the new returns only display the last four digits of the social security number to provide greater security. Finally, if the buyer refuses to provide the information, she should be directed to discuss the matter with her attorney and obtain personal legal advice on how to proceed.
READ MORE ABOUT IT:
Visit the Wisconsin Department of Revenue web site @ http://www.revenue.wi.gov/ust/retn3.html for further information regarding the Real Estate Transfer Return.
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Form Revisions
The following Department of Regulation and Licensing forms are currently being revised. We expect the forms will be released in November and mandatory March 1, 2010.
WB-11 - Residential Offer to Purchase
WB-40 - Amendment to Offer to Purchase
WB-41 - Notice Relating to Offer to Purchase
WB-42 - Amendment to Listing Contract
WB-44 – Counter-Offer
WB-46 - Multiple Counter-Proposal
WB-47 - Amendment to Buyer Agency/Tenant Representation Agreement
Several WRA drafted forms including the Addendum A and O will be updated in the coming months as well. A complete list of forms and ordering information will be available soon.
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Positioning Properties to Compete in the Market (Staging Course) - CRS Elective - November 5, 2009
Whole-house makeovers? A traveling carpentry crew? Although it may be hard to tell from its portrayal in the media, the fundamentals of “staging” are far from lavish or expensive. In fact, at its core, staging is just one component of a strategic property marketing approach. This course is designed to help you learn to position any property against the competition in any market!
Attend this course on November 5 in Lake Geneva, WI and learn new skill sets to help you successfully market any listing. This course fulfills a CRS one-day elective and the education for the Certified Home Marketing Specialist Designation (CHMS). For more details visit: www.wra.org/crscourses
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Management Conference - December 9-10, 2009 - Country Springs Hotel, Pewaukee
Lawrence Yun, Chief Economist and VP of Research, National Association of REALTORS® will provide an update about the economy, the housing market and other factors impacting your business and your life.
• Buyers and Sellers Focus Group. Back by popular demand. Hear how buyers and sellers tick. This focus group gives you a chance to submit questions to live participants and tap into their minds on technology, social media and REALTOR®-client communication. Extremely insightful for managers exploring new technologies.
• The Real Estate Company of the Future with industry renowned economic expert Steve Murray of REALTrends. Is the downturn just cyclical or structural? Review successful brokerages and how consumerism and technology will affect the business. This presentation will review existing business models and their relative success and areas of opportunity in the years to come.
• Plus several workshops on:
• Blogging Solutions: 12 Great Ways to Put a Blog to Work for You
• The Five Essentials For Successful Coaching and Mentoring
• Developing Multiple Micro Revenue Streams from Property Management
• Recruiting in Today's Environment...Agents are Online; Consumers Too
• Video Solutions: 12 Great Ways to Boost Your Business Using Video
• Just When You Thought It Was Safe To Go Back Into the Water
• REOs and Short Sales: Expanding Your Business
• Move `Em Up Or Move `Em Out... (dealing with non-productive agents)
• Bonus: A $500 airline travel certificate sponsored by Travelog will be given away at the end of the closing session. You must be present to win.
Join us on December 9 for 3 hours of continuing education - CE Elective F - Broker Supervision
For more details visit: www.wra.org/management
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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 - November 16, 2009
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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Attention All Condominium and Vacant Land Practitioners!
The Department of Regulation and Licensing’s Real Estate Contractual Forms Advisory Committee is working on revisions to the WB-14 Residential Condominium Offer to Purchase and has a preliminary working draft. If you have a working knowledge of condominium transactions and would like to comment on the draft – either individually or as a guest at the WRA Forms Committee’s next meeting/conference call – we would love to hear from you! Please contact Debbi Conrad at dconrad@wra.org.
In addition, the DRL will next be working on the WB-13 Vacant Land Offer to Purchase. We are looking for ideas regarding what types of provisions should be included in the revised vacant land offer. If you assume that the updated WB-11 Residential Offer to Purchase is the starting point, what additions and modifications should be made to create a WB-13 uniquely suited for vacant land transactions, including everything from a residential subdivision lot to large development tracts. If you have ideas for vacant land offer provisions, please contact Debbi Conrad at dconrad@wra.org or Kevin King at kking@wra.org.
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Fannie Mae Announces Deed for Lease™ Program
Fannie Mae is implementing a Deed for Lease™ Program where qualifying homeowners facing foreclosure will be able to remain in their homes by give the lender a deed in lieu of foreclosure and then lease the home from the lender at a market rate. “The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications,” said Jay Ryan, Vice President of Fannie Mae. “This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.”
To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance may also be eligible for leases under the program. Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period. For additional information about the Deed for Lease Program, including full details on program eligibility, visit https://www.efanniemae.com/sf/servicing/d4l/.
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1.) Mortgage Banking/Finance - General Finance
QUESTION:
In regards to the current homeowner tax credit of $6,500, does the individual purchasing a new home have to sell his existing home or can he simply rent out his existing home and buy a new home?
ANSWER:
From NAR's soon-to-be-revised Q & A on the tax credit extension:
“8. As a repeat buyer, am I required to sell my current home or can I keep it and use it as rental or other purpose?
A. There is no requirement that the current home be sold or otherwise disposed of. Assuming that the 5 of 8 year requirement and other tests have been met, a repeat buyer can purchase a home and qualify for the $6500 credit so long as the PURCHASED home is used as a principal residence.”
READ MORE ABOUT IT:
For additional information, see NAR 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. These resources can be expected to be updated frequently over the upcoming days and weeks. They offer examples of fact situations, filing options and other details.
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2.) Offer to Purchase - Inspection Contingency
QUESTION:
The accepted offer to purchase has an inspection contingency that provides that “the seller shall not have the right to cure.” After the inspection, the buyers decide that they would rather have the seller cure the defects rather than ask for a credit. An amendment was prepared asking for the items to be cured by the seller. The listing agent said the seller can’t cure them whether they want to or not. The listing agent feels that since the offer says the seller does not have the right to cure, that they cannot cure any defects, even if the buyers are asking them to in an amendment. Can the seller agree to cure the defects and sign the amendment, even if the offer was written with no right to cure?
ANSWER:
Requesting an amendment is different than, and independent from, giving a notice of defects. The standard WB-14 Residential Condominium Offer to Purchase inspection contingency specifically states that a proposed amendment does not satisfy the notice requirement. The right to cure provision in the inspection contingency describes the process to be followed by the seller in response to a notice of defects – it is not an overall limitation on the seller’s rights.
The buyer may propose a solution outside of the notice of defects/right to cure procedure stated on the inspection contingency by asking the seller, for example, to repair or replace specific items or to provide a monetary credit. It is the seller’s choice whether to agree to the amendment or not. If not, and if there is still time left in the home inspection contingency, the buyer can give a notice of defects that will make the offer null and void per lines 339-340 of the WB-14.
READ MORE ABOUT IT:
To read more about home inspection contingency issues, please see the February 2007 WRA Broker Supervision Newsletter, “Proper Use of the Home Inspection Contingency,” @ www.wra.org/bsnFeb07 and the August 2004 Legal Update, “Effective Home Inspections,” @ www.wra.org/LU0408.
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3.) Commissions - Miscellaneous Commission Issues
QUESTION:
The broker listed an apartment building and the owner has a non-contingent offer that is scheduled to close November 30th. Last week the owner told the broker that his partners will not approve the sale and therefore he can’t proceed. The broker also understands that the seller may be in the process refinancing the property - probably with the intention of holding the property. On November 5th, the broker filed a Notice of Intent to Claim Broker Lien. How soon can the broker file the Notice of Broker Lien?
ANSWER:
The good news is that brokers engaged in commercial transactions are able to use the statutory broker lien law to protect their interests in commissions. The bad news is the requirements to perfect the broker lien are somewhat involved. Also, there are different timelines for giving notices and recording and delivering documentation to perfect commission liens, depending on whether the commercial transaction involves a sales, buyer agency, lease listing or property management situation.
Given the complexity and stringent requirements under Wis. Stat. § 779.32, the lien statute, as well as potential counter-claims for slander of title, it is best to seek legal counsel to assist in the process of filing the lien.
READ MORE ABOUT IT:
Forms are available in Wisconsin REALTORS® Association ZipForm, including a Notice of Intent to Claim Broker Lien, the Notice of Broker Lien Satisfaction of Lien and a Waiver of Broker Lien Rights. Extended examples of “how to” use the lien in commercial transactions are available in Legal Update 98.09, “Using the Commercial Lien & Lease Listing Forms” @ www.wra.org/LU9809.
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4.) Office Management - General Office Management
QUESTION:
Re: Worker’s compensation. Is a broker/company required to have worker’s compensation for agents?
ANSWER:
The Wisconsin Worker’s Compensation Act requires most employers to maintain worker’s compensation insurance for all workers classified as employees. Covered employers include every employer who usually employs three or more employees or who has paid wages of $500 or more per calendar quarter. Generally speaking, all real estate brokers, salespeople and personal assistants working for a broker/company are considered employees for worker’s compensation purposes.
The Department of Workforce Development (DWD) maintains that all real estate agents working for a broker/company are employees because of the broker/company’s supervisory duties. The DWD’s interpretation of the relationship between a broker/company and its agents appears online at www.dwd.state.wi.us/wc/employers/realestate.htm.
Wis. Stat. § 102.07( provides that every independent contractor is an employee for purposes of workers' compensation - with one exception. If an independent contractor maintains a separate business with his or her own office, materials and facilities, holds a federal employer identification number, and meets the other seven criteria listed in the statutes, the employer will not be responsible for providing workers' compensation for this person. While it may seem that there are some real estate agents operating on such a truly independent, almost free-lance basis, the DWD has taken the position the all real estate licensees working for a broker are employees for purposes of worker’s compensation. Accordingly, any brokers seeking to take the position that their sales staff are independent contractors for worker’s compensation purposes may wish to confirm that all the criteria of the exception have been met, and get a formal opinion from a tax attorney or one familiar with this law regarding the status of the broker’s sales force for purposes of worker's compensation, before not paying for workers' compensation insurance for independent contractor salespeople.
Personal assistants, both unlicensed and licensed, are also classified as employees for purposes of worker’s compensation law, provided they are hired with the knowledge of the broker/company. Broker/employers cannot deduct worker’s compensation payments or premiums from their agents or other personnel per Wis. Stat. § 102.16(3). Employers without worker’s compensation insurance are subject to benefit reimbursement and penalties. For more information, contact the DWD Worker’s Compensation Division at (608) 266-1340 or online at http://www.dwd.state.wi.us/wc/employers/default.htm.
READ MORE ABOUT IT:
See “Who is Eligible for Worker's Compensation Insurance?” in the July 2005 edition of the Broker Supervision Newsletter @ www.wra.org/online_pubs/broker_supervision/2005/br0507.asp.
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5.) General Real Estate - Condominiums
QUESTION:
The seller accepted an offer on his 2nd floor condominium unit which has a basement. Nothing adverse was found during the inspection, but radon was found in the basement, presumably coming from the sump pump which is owned by the condominium association.
The buyer delivered a proposed amendment to the seller whereby the seller would hire a qualified person to undertake mitigation and submit any receipts and a lien waiver to the buyer at least three days before closing. The seller does not own the sump and has no authority to make any alterations to the building in order to comply with this proposal. He contacted the condominium association president who has agreed to address the problem, but there will need to be condominium meetings, bids taken, etc. This will not happen before the closing date set by the buyer and the seller has no control over who the association hires to get the job done.
Is the buyer asking the seller to do something potentially illegal since the sump does not belong to him? Inasmuch as the buyer is asking the seller to act on something over which the seller has no control can the buyer then cancel out of the contract on the basis of his amendment?
ANSWER:
The buyer may request radon mitigation. If, however, the basement is a limited common element, the condominium association, not the seller personally, would have the authority to complete mitigation. The seller has properly provided the results of the radon test to the condominium association and they intend to address the matter. Depending on the timing, the seller may not be able to sign the buyer’s offered amendment knowing the work would not be performed within the time requested by the buyer. The seller may offer an alternative amendment indicating what the condominium association plans to do. It is difficult for the seller to promise much in such an amendment and the buyer may wish to directly contact the condominium association. If the parties cannot reach an agreement the original testing contingency provisions may be implemented.
READ MORE ABOUT IT:
For further discussion about condominiums, see the June 2004 Legal Update, “Condominium Law Revisions,” @ www.wra.org/LU0406 and the Condo Law resource page @ www.wra.org/condolaw.
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Forms Resource Page Updated
The WRA's resource page on form changes, www.wra.org/formsupdate, now contains a video explanation of the new WB-11 Residential Offer to Purchase as well as a link to the November 2009 Legal Update. The WRA is currently working on making the forms available in print and on ZipForm. Form availability will be posted on this update page so please check back frequently.
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Register for Management Conference Today! - December 9-10, 2010 - Country Springs Hotel - Pewaukee
If you are one of the many brokers and managers trying to sort through the changes in the real estate industry, then this year's Management Conference is for you! It’s packed full of workshops to guide you in the areas of using the Internet and online marketing to the fullest potential, recruiting in a tough market, cultivating contacts and positioning yourself as an expert through social media plus much more.
• Buyers and Sellers Focus Group. Back by popular demand. Hear how buyers and sellers tick. This focus group gives you a chance to submit questions to live participants and tap into their minds on technology, social media and REALTOR®-client communication. Extremely insightful for managers exploring new technologies.
• The Real Estate Company of the Future with industry renowned economic expert Steve Murray of REALTrends. Is the downturn just cyclical or structural? Review successful brokerages and how consumerism and technology will affect the business. This presentation will review existing business models and their relative success and areas of opportunity in the years to come.
• Plus several workshops on:
• Blogging Solutions: 12 Great Ways to Put a Blog to Work for You
• The Five Essentials For Successful Coaching and Mentoring
• Developing Multiple Micro Revenue Streams from Property Management
• Recruiting in Today's Environment...Agents are Online; Consumers Too
• Video Solutions: 12 Great Ways to Boost Your Business Using Video
• Just When You Thought It Was Safe To Go Back Into the Water
• REOs and Short Sales: Expanding Your Business
• Move `Em Up Or Move `Em Out... (dealing with non-productive agents)
• Bonus: A $500 airline travel certificate sponsored by Travelog will be given away at the end of the closing session. You must be present to win.
Join us on December 9 for 3 hours of continuing education - CE Elective F - Broker Supervision
For more details visit: www.wra.org/management
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2010 Designation Week - February 8-11, 2010, Radisson Paper Valley Hotel, Appleton, Wisconsin
According to the National Association of REALTORS®, designations can almost double your income in real estate. Whether you have one designation, want to earn more or are working towards your first one, Designation Week offers you an opportunity to attend multiple courses in one week and make significant progress towards earning nationally-recognized designations - all in one location.
Many Designations, One Location:
• GRI Course 2, which includes CRS201 - Feb. 8-11, 2010
• GRI Course 3, which includes CRS202 - Feb. 8-11, 2010
• CRS 201 only - Feb. 8-9, 2010
• CRS 202 only - Feb. 10-11, 2010
• Marketing with Microsoft Office (CRS Elective) - Feb. 8, 2010
• ABR 2-day course - Feb. 8-9, 2010
• Short Sales & Foreclosures (ABR Elective) - Feb. 10, 2010
• New GREEN Designation Course (ABR Elective) - Feb. 9-10, 2010
• GREEN Residential Elective Course - Feb. 11, 2010
• Bonus: Register for Designation Week and you can complete six hours of the 2009-2010 Continuing Education on Sunday, Feb. 7, 2010. No Charge for Designation Week Attendees! Continuing Education Courses offered: Elective A - Risk Reduction at 8:30 a.m. Feb. 7, 2010 and Elective E - Financing the Sale at 1 p.m. on Feb. 7, 2010.
Register with a Buddy and Save - Up to three registrations on one form for any of our Designation Week courses gets you and your friends a discount. Check it out!!
For more details visit: www.wra.org/DesWeek
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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.
This is an advertisement from the WRA
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Copyright 1998 - 2009 Wisconsin REALTORS® Association There is no attachment to this e-mail.
Legal Hottips - December 1, 2009
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 - Incentives
QUESTION:
The seller wanted to offer $1,000 at closing as an incentive to a buyer in the MLS data sheet. The seller received an offer from an agent with buyer agency. The buyer asked for a reduced price and for $3,000 from the seller for the buyer’s closing costs. The contract was negotiated whereby the seller agreed to sell for less than the asking price and give the buyer $3,000 at closing. At the end of the closing, the buyer asked when she was going to get the $1,000 that was promised. Later, the broker of the buyer's agent said the incentive offered in the MLS data obligated the seller to pay the buyer the additional $1,000 even though nothing about it was ever mentioned by the buyer's agent prior to the closing nor was it included in the original offer or any amendments, including the one eventually signed by the seller and the buyer. The buyer's agent did not attend the closing where the buyer signed the closing documents that showed the accounting of the funds including the $3,000 payment to the buyer and a $1,000 agent bonus that also had been offered in the MLS remarks, but no extra $1,000 payment to the buyer. Does the seller owe the buyer the extra $1,000?
ANSWER:
The seller may authorize the broker to advertise special financing and incentives on lines 19-20 of the 2008 WB-1 Residential Listing Contract. When discussing either buyer or broker incentives, it is in best interest of the broker to explain completely to the seller how incentives may be paid and to whom.
The seller cannot directly pay the selling agent a bonus because any commission or fee paid for brokerage services must be paid to the agent’s employing broker, per Wis. Stat. § 452.14(3)(f). The amount the agent receives is subject to the terms of the independent contractor agreement between the agent and his or her employing broker.
The broker may include information in the MLS regarding agent incentives offered by the seller. However, because the seller is not a member of the MLS, the broker making such offers in the MLS may be personally liable for the payment of the incentives because the MLS is for broker-to-broker offers of cooperation and compensation. If the seller wishes to offer incentives to the cooperating agent, a prudent broker would make sure that the listing contract provides for the seller reimbursing the listing broker or channeling this payment through the listing broker to the cooperating broker.
The seller may authorize the broker to offer a bonus to the buyer; much like the seller may authorize the listing broker to advertise that various items of personal property are included in the list price of the listing and available for purchase. In both instances, the offer to purchase is the binding contract that represents the details of the bargain between the seller and the buyer. The free-standing freezer is not included in the deal unless it is listed as included in the offer. Similarly, when a seller is offering an incentive to a buyer, the terms of the incentive need to be stated in the offer to purchase to create the contractual obligation between the parties.
When listing brokers advertise the seller’s incentive, such as in the remarks section of the MLS or in other promotional materials, they should specify that the seller is offering the incentive. This may help avoid liability in the event the seller reneges and help shield the broker from improper advertising claims. The offer should include the incentive as a contract provision between the buyer and the seller to make sure the lender and underwriter are fully informed and that there are no side deals that have not been disclosed to the secured lender.
READ MORE ABOUT IT:
The October 2006 Broker Supervision Newsletter @ www.wra.org/BSNOct06 addresses selling incentives offered either by brokers or sellers.
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2.) Agency - Miscellaneous Agency
QUESTION:
Another licensed broker is a party to a commercial transaction. Can he collect a commission since he is a member and partner of a property that will be put into a LLC? According to Wis. Admin. Code § RL 24.05(4), “A licensee acting as a principal in a real estate or business opportunity transaction shall not accept any commission” etc.
ANSWER:
Generally, under the laws of agency, a licensee can be either a principal or an agent in a transaction, but not both. Instead, a buyer/licensee can negotiate a buyer's incentive to be paid by the listing broker or the seller. This incentive can be for the amount of the co-broke commission which would otherwise be paid to the selling broker in the transaction.
However, in this case, the purchaser of the properties is an LLC of which the broker happens to be a member. Because it is the LLC and not the broker that is purchasing the property, the broker can act as an agent of the LLC and collect a commission. However, pursuant to Wis. Admin. Code § RL 24.05(2), a licensee acting as an agent in a real estate transaction may not act in the transaction on the licensee’s own behalf, on behalf of the licensee's immediate family or firm or on behalf of any other organization or business entity in which the licensee has an interest without the prior written consent of all the parties in the transaction. This written consent may be obtained in the offer.
READ MORE ABOUT IT:
See “Best of the Legal Hotline” in the September 2006 edition of the Wisconsin Real Estate Magazine @ http://news.wra.org/story.asp?a=553.
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3.) Offer to Purchase - Miscellaneous
QUESTION:
An agent has a listing and the seller had an accepted offer that was subject to appraisal. The appraisal was too low and the buyers decided not to purchase the property. The agent had a second potential buyer for the same unit, but since it had an accepted offer on it, they wrote an offer with agent on a FSBO unit in the same complex. That unit is smaller and less updated. Can the agent share the appraisal on the larger unit with the second buyer with the intention of the buyer switching to the larger unit?
ANSWER:
Since the buyers are still under contract for the purchase of another condominium the appraisal should not be given. This could be interpreted as interference with another’s contract, which is a tort. A person who interferes with a contract may also be sued in civil court if damages can be proved.
If the second buyer was released from the contract, it would still be unwise for the listing agent to provide a copy of the appraisal report because it may likely be considered a confidential transaction document under Wis. Stat. § 452.133(1)(d). Both the REALTOR® Code of Ethics and Wisconsin license law require brokers to maintain confidential information, including the price of another buyer’s offer. See Wis. Stat. § 452.133(1)(d), Wis. Admin. Code § RL 24.12(1), and Article 1 of the Code of Ethics.
In addition, the appraisal was prepared for a specific client (the first buyer or that buyer’s lender) and appraisals generally cannot be simply reassigned to a second buyer.
READ MORE ABOUT IT:
For information about appraisals and appraisers, read the October 2004 Legal Update, “Appraisers and Appraisal Issues,” @ www.wra.org/LU0410. Wis. Admin. Code § RL 24 is @ http://www.legis.state.wi.us/rsb/code/rl/rl024.pdf and the REALTOR®
Code of Ethics is @ http://www.realtor.org/mempolweb.nsf/pages/code?opendocument.
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4.) Listing Contracts - Change of Company Name
QUESTION:
Re: Possible merger with another company. Would the broker need to have all listings re-signed?
ANSWER:
The answers depend on how the “merger” is structured. When corporations are merged under Wis. Stat. §§ 180.1100-180.1161, the surviving business entity, generally speaking, acquires the obligations and the rights of the other merging business entities and no changes are needed. If ownership changes in a corporation (and in many partnerships), the entity stays intact and no changes are needed. But if the entity changes a partnership incorporates or one office sells out to another (except by statutory merger of corporations), then amendments to the listing contracts or new listing contracts are needed.
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5.) Office Management - Termination
QUESTION:
An agent is trying to terminate her association with the company and the broker refuses to sign the termination papers. The agent had a signing bonus and an agreement to work for two years and a non-competition clause. The employing broker will not release the agent until the signing bonus is paid back. How to proceed?
ANSWER:
The DRL Form 766 Notice of Termination of Employment of Broker or Salesperson (online at http://drl.wi.gov/dept/forms/fm766.pdf) may be completed either by the agent or broker.
However, the Department of Regulation and Licensing does not regulate agent-broker employment contracts. The agent may wish to work with legal counsel to review the terms and conditions of the independent contractor agreement and company policy, including the termination provisions.
A covenant to not compete within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonable and necessary for the protection of the employer. The covenant must provide reasonable time and territorial restrictions, not be harsh or oppressive to the employee and not be contrary to public policy.
Generally a covenant not to compete is not enforceable unless there is a substantial risk to the employer's relationship with clients and customers or with respect to confidential business information should the employee (or independent contractor) terminate the relationship with the employer. The covenant not to compete is used to prevent the unauthorized use of trade secrets or customer lists or in those instances where the employee's services are of a unique character.
Whether or not a covenant to not compete will be enforceable in a real estate broker-sales associate relationship will turn on whether or not the sales associate is providing unique services (including services in a management capacity); whether or not there are trade secrets of the company that require protection; and/or whether or not there are customer/client lists of the company that require protection.
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Forms Resource Page Updated
The WRA’s resource page on form changes, www.wra.org/formsupdate, now contains a video explanation of the new WB-11 Residential Offer to Purchase as well as a link to the November 2009 Legal Update. The WRA is currently working on making the forms available in print and on ZipForm. Form availability will be posted on this update page so please check back frequently.
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Register for Management Conference Today! - December 9-10, 2010 - Country Springs Hotel - Pewaukee
If you are one of the many brokers and managers trying to sort through the changes in the real estate industry, then this year's Management Conference is for you! It’s packed full of workshops to guide you in the areas of using the Internet and online marketing to the fullest potential, recruiting in a tough market, cultivating contacts and positioning yourself as an expert through social media plus much more.
• Buyers and Sellers Focus Group. Back by popular demand. Hear how buyers and sellers tick. This focus group gives you a chance to submit questions to live participants and tap into their minds on technology, social media and REALTOR®-client communication. Extremely insightful for managers exploring new technologies.
• The Real Estate Company of the Future with industry renowned economic expert Steve Murray of REALTrends. Is the downturn just cyclical or structural? Review successful brokerages and how consumerism and technology will affect the business. This presentation will review existing business models and their relative success and areas of opportunity in the years to come.
• Plus several workshops on:
• Blogging Solutions: 12 Great Ways to Put a Blog to Work for You
• The Five Essentials For Successful Coaching and Mentoring
• Developing Multiple Micro Revenue Streams from Property Management
• Recruiting in Today's Environment...Agents are Online; Consumers Too
• Video Solutions: 12 Great Ways to Boost Your Business Using Video
• Just When You Thought It Was Safe To Go Back Into the Water
• REOs and Short Sales: Expanding Your Business
• Move `Em Up Or Move `Em Out... (dealing with non-productive agents)
• Bonus: A $500 airline travel certificate sponsored by Travelog will be given away at the end of the closing session. You must be present to win.
Join us on December 9 for 3 hours of continuing education - CE Elective F - Broker Supervision
For more details visit: www.wra.org/management
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Join us at Winter Convention on January 25-27, 2010!
Head to the Lake of the Torches Hotel, Lac du Flambeau for three fun-filled days. You can complete your CE (18 hours will be offered) and take a CRS elective course - Short Sales and Foreclosures taught by LeRoy Houser and Frank Serio. Ralph Roberts will open the convention with his powerful session “Power Selling in Any Market” plus there will be many other workshops.
Besides taking courses, visiting the Exhibits, attending workshops and a top-notch Opening Session, other activities at Winter Convention include a Chili Cook-Off sponsored by the Northwoods Association of REALTORS® and a Welcome Party and Reception. Enter your favorite chili recipe and you may win a prize. You can even go out on your own and enjoy snowshoeing, snowmobiling, cross-country skiing, or ice fishing – there’s something for everyone in the north woods!
Plus: Two Lucky Winners will receive a $150 WRA credit toward education or products. Must be present to win.
For more details visit: www.wra.org/winterconvention
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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.
This is an advertisement from the WRA
To be removed from future WRA e-mail messages, please visit our e-mail preference page at www.wra.org/myEmail.
Copyright 1998 - 2009 Wisconsin REALTORS® Association There is no attachment to this e-mail.
Legal Hottips - December 14, 2009
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.) Offer to Purchase - Contingencies
QUESTION:
Is it true that the new WB-11 Offer to Purchase will have an attorney approval contingency as part of the form?
ANSWER:
No, the revised WB-11 has been approved in its final form by the Secretary of the Department of Regulation and Licensing, and it does not contain an attorney approval clause. The new form was available for optional use as of November 1, 2009 and has a mandatory use date of March 1, 2010.
Although there is no attorney approval contingency in the WB-11, attorney involvement is encouraged throughout the form: the new WB-11 recommends in three separate places that the parties consult with their attorneys. That is not surprising given that Wis. Admin. Code § RL 16.05(1) prohibits licensees from giving advice or opinions concerning the legal rights or obligations of the parties to a transaction, the legal effect of a specific contract or conveyance or title to a property. Licensees may, however, give a general explanation of the provisions of an approved form, such as the WB-11, to the parties to a transaction at the time of completing the form or when delivering an approved from for a party’s acceptance [§ RL 16.05(2)].
Licensees may not discourage any person from retaining an attorney [§ RL 24.06(2)]. As REALTORS® we take it one step farther. Under Article 13 of the Code of Ethics, REALTORS® shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it
Licensees may certainly include attorney approval contingencies in additional provisions or in offer addenda, but these provisions must be drafted with specificity and contain sufficient detail to withstand judicial scrutiny. If an attorney-approval contingency is at the sole discretion and judgment of the attorney or the buyer, this may render the contract unenforceable as an illusory contract. An attorney-approval provision that will withstand judicial scrutiny will likely need to limit the attorney’s review to specified legal aspects of the contract, and may specify a procedure similar to the one outlined in the standard inspection contingency: the attorney renders a written report of legal defects (legal description, title, provisions sufficiently definite to be enforceable, etc.), the party gives a notice of defects stating to which defects the party objects and what changes should be made to make the contract acceptable, and the other party has a right to cure – all with definite deadlines. The contingency cannot give the attorney or the buyer wide-open discretion to back out of the offer for any reason or for no reason at all. There must be definite standards.
READ MORE ABOUT IT:
For sample contingency language, a good reference tool is the Wisconsin Clause Manual. The first section of the manual explains a sales agent’s obligations under the DRL drafting rules when writing offers. The second section provides a collection of clauses, special provisions, and disclosures, including detailed attorney approval contingencies. For additional information, visit www.wra.org/PUB280.
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2.) Offer to Purchase - Financing Contingency
QUESTION:
In the new WB-11 Residential Offer to Purchase, it states at lines 240-244: “Buyer and Seller agree that delivery of a copy of any written loan commitment to Seller (even if subject to conditions) shall satisfy Buyer’s financing contingency if, after review of the loan commitment, Buyer has directed, in writing, delivery of the loan commitment. Buyer’s written direction shall accompany the loan commitment. Deliver shall not satisfy this contingency if accompanied by a notice of unacceptability.” If the offer to purchase is in the name of two buyers, do both have to sign the authorization to deliver the loan commitment?
ANSWER:
Yes. Wis. Stat. § 706.02(1) states that all documents conveying an interest in a property, including the offer to purchase and the deed or land contract, is not valid unless signed by or on behalf of each of the parties. This arguably includes amendments, counter-offers, notices and the written directive authorizing delivery of a loan commitment to the seller.
If both buyers do not agree to the loan commitment terms, there would be no good reason to allow only one buyer to have the power to submit it to the seller. The contract is with both buyers and both buyers must agree to any such fundamental aspect of the purchase. There is no authority in the WB-11 for only one buyer to sign the written directive authorizing delivery of the loan commitment to the seller. One party may be able to sign on behalf of the other but that would require a power of attorney.
READ MORE ABOUT IT:
For further discussion of the financing contingency provisions, see pages 10-12 of the November 2009 Legal Update, “WB-11 Residential Offer to Purchase – 2010 Edition” @ www.wra.org/LU0911.
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3.) Contract Issues & Forms - Approved Forms
QUESTION:
The new WB-11 residential offer to purchase has some white spaces on some of the pages, particularly at the bottom of some of the even-numbered pages. Can a licensee use these spaces to add additional terms and conditions into the state-approved form?
ANSWER:
No, when using DRL-approved forms, REALTORS® must be aware that they are prohibited from altering the forms and must place additional material in the blank lines provided on the approved forms or use addenda. Wis. Admin. Code § RL 16.06(1) prohibits the altering of DRL-approved forms – by placing blank lines containing inserted provisions between provisions of the approved form text or adding text in existing white spaces – in such a way as to create the appearance and implication that the changes are approved by the DRL. Licensees should use the blank lines provided in the approved forms or attach an addendum as authorized under § RL 16.06 (4) and (5) when additional provisions or language is desired to reflect the contractual intent of the parties.
READ MORE ABOUT IT:
Review the DRL rules for licensees’ use of forms @ http://www.legis.state.wi.us/rsb/code/rl/rl016.pdf.
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4.) Commissions - Procuring Cause
QUESTION:
The broker has been approached by a friend who has recently looked at a property with different agent. The friend has no agency agreement with this other agent, however, she showed him several houses, including the subject property. For whatever reason, the friend has decided that he doesn't want to work with this other agent any longer and asked the broker if he would help the friend write an offer on this house that he has seen once with the other agent. The friend plans on signing a buyer agency agreement with the broker, thus making the friend the broker’s client prior to writing the offer. How does all this impact procuring cause analysis on this property?
ANSWER:
The issue in this question is procuring cause: who caused the buyer to make the offer that resulted in the sale of the property? There is no one act which determines procuring cause - it can only be answered by a full, knowledgeable consideration of all the facts of the case. If the brokers cannot negotiate an acceptable settlement, the dispute should be submitted to the local association for mediation or arbitration.
A buyer agency agreement does not supersede or dictate procuring cause. The fact that the other agent already showed the subject property to this buyer could give rise to procuring cause. However, Arbitration Panels will consider whether the first broker did anything to cause the purchaser to reasonably conclude that the first broker had lost interest or disengaged from the transaction (abandonment). In other instances, a purchaser, despite reasonable efforts by the broker to maintain ongoing contact, may seek assistance from another broker. The panel will want to consider why the purchaser “abandoned” the first broker and whether that broker engaged in conduct which caused the purchaser to terminate the relationship (estrangement). This can be caused, among other things, by words or actions. Panels will want to consider whether such conduct caused a break in the series of events leading to the transaction and whether the successful transaction was actually brought about through the initiation of a separate, subsequent series of events by the second broker.
One way to address the issue without arbitration is to speak with the original broker and see if some compensation agreement can be reached, i.e. a split of the commission, should the transaction successfully close.
READ MORE ABOUT IT:
For further discussion of procuring cause, see Legal Update 02.04, “What is Procuring Cause?” @ www.wra.org/LU0204. For discussion of mediation, see Legal Update 02.09, “REALTOR® Mediation,” @ www.wra.org/LU0209.
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5.) Offer to Purchase - Inspection Contingency
QUESTION:
The broker wrote an offer on the property. The offer was accepted and a home inspection was conducted. The seller refused to sign the amendment proposed by the buyer, so the buyer gave a notice of defects. There is a seller right to cure. Within the 10 days the seller has to decide whether to cure the defects and inform the buyer of the decision, the seller proposed an amendment to the buyer. Can the seller do that?
ANSWER:
Yes. During the seller’s 10-day response time period the seller may offer the buyer an amendment to propose a different way to address the defects that concerned the buyer. In such a case the terms of the amendment may describe techniques, materials, contractors and timing with regard to the seller repairing or replacing certain items (as opposed to the seller curing the defects in a good and workmanlike manner).
The amendment should include language that the buyer and seller agree that the buyer’s notice of defects is withdrawn if the amendment is accepted. The withdrawal of the notice of defects is required because the offer to purchase provides that if the seller does not elect to cure, the offer will become null and void by the passage of 10 days after the buyer delivers the notice of defects.
READ MORE ABOUT IT:
For further discussion of the inspection contingency provisions, see pages 17-19 of the November 2009 Legal Update, “WB-11 Residential Offer to Purchase – 2010 Edition” @ www.wra.org/LU0911.
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Legal Hottips - December 21, 2009
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.) Listing Contracts - Listing Protection
QUESTION:
The broker had a property listed. A buyer initially viewed the property with an agent from another company. A showing report was provided by e-mail to the seller listing the name of the buyer on the report shortly after the showing occurred. This is documented and undisputed. The broker contends that the showing slip complied completely with lines 220-229 and that notification to the seller of that name fulfilled the requirements for that buyer to be considered protected. The broker finds no requirement within contract to make any notification beyond providing the name of protected parties, in writing, within the required time frame. Is that correct?
ANSWER:
The Extension of Listing section coupled with the definition of Protected Buyer describes the listing protection process. A listing broker must deliver the buyer’s name to the seller before the deadline, which is three days after the expiration of the listing. Delivery must also be by a method provided for in the listing contract. The delivery may be contemporaneous with showings or may be during the three days following listing contract expiration. The listing contract requires delivery of the name, but does not specify the form or content of the written notice.
One issue here is whether the “showing report” provided to the seller is sufficient to meet the requirement of the listing contract to deliver the buyer’s name to the seller. The answer may be more clear if it was understood by the seller at the time of the delivery of the showing report that this act by the broker was done not only to provide confirmation to the seller that the showing indeed took place (and perhaps feedback from the buyer), but also to file the name of the buyer with the seller as a protected buyer, pursuant to lines 220-229 of the WB-1 Residential Offer to Purchase. For example, the notice might include a statement referencing the extension of listing provisions and stating that the name has been provided for listing protection purposes so the seller understands that there are legal or contractual implications regarding the delivery of the prospective buyer’s name beyond just reporting how the showing went and what the buyer thought of the property. The answer may be less clear if the seller did not understand that the broker intended delivery of the showing report to meet this requirement.
Prudent practice would have a listing broker deliver a second or complete list of protected buyers to the seller. Regardless of how listing protection was established, a complete list is intended to notify the seller of all protected buyers, thereby allowing the seller to inform any future broker of the prior broker’s legal rights. While providing this additional second list may seem like additional work, it is indispensable to protect the interests of all concerned under the one year protection period.
If the parties – in particular, the two listing brokers – are unable to resolve this matter, the seller should be directed to consult with private legal counsel in the event the property is sold to the buyer in question.
READ MORE ABOUT IT:
See pages 8-10 of the February 2004 Legal Update, “Listing Procedures for the Prudent Broker,” @ www.wra.org/LU0402 for further discussion of listing protection issues.
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2.) Agency - Multiple Representation
QUESTION:
If agent has listed a property and the sellers allowed multiple representation without designated agency in the listing contract, and the agent is a buyer's agent for the buyer and the buyer also allowed multiple representation without designated agency in the buyer agency contract, when agent writes an offer for the buyer, does the agent state he is a dual agent or a buyer's agent?
ANSWER:
If both clients agree, in writing, to multiple representation without designated agency, the agent may write the offer. In multiple representation without designated agency, the broker/company and its agents may provide brokerage services to each client, but when it comes time to negotiate, they must remain objective and neutral and cannot provide any advice or opinions that place the interests of one client ahead of the other. Accordingly, it is appropriate for this agent to complete line 1 on the offer to indicate that he is a “dual agent.” On the new WB-11, the agent would be “agent of buyer and seller.”
READ MORE ABOUT IT:
See pages 2-3 of the November 2009 Legal Update, “WB-11 Residential Offer to Purchase – 2010 Edition” @ www.wra.org/LU0911. For further discussion of multiple representation, see the June 2006 Legal Update, “Revised Agency Law Implementation,” @ www.wra.org/LU0606.
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3.) General Real Estate - Foreclosure
QUESTION:
The broker is representing a buyer who wants to write an offer on a home that is a short sale. There has been another offer on the table for approximately 3 months, but the bank has not approved it. The buyer wants an offer in primary. Does the broker need to write this offer as secondary? And when reading and attaching the Short Sale Addendum, it is the broker understanding that the bank places the offer that they choose into primary, not the seller. Or is this wrong?
ANSWER:
It is very risky and ill-advised for a seller to accept more than one offer to purchase as a primary offer. Standard of Practice 1-7 provides in relevant part, “REALTORS® shall recommend that sellers obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract.” Clearly the safest practice from the seller's standpoint is to make subsequent offers secondary offers - with each one also subject to the approval of the seller's lender for a short sale.
Accepting multiple offers as primary may also place the seller at risk of a breach of contract claim. Each of the offers is accepted with the parties agreeing to act in good faith and with due diligence to complete the terms of the contract. Any one of the primary buyers could allege that the seller cannot in good faith attempt to negotiate a short sale to meet the terms of their contract given there are multiple primary offers.
The seller can submit the offers to the lender at the same time for the lender's consideration unless the lender does not wish to receive more than one offer at a time. The lender however does not determine which offer is primary because the lender is not a party to the offer. The parties to the offer are only the buyer and seller.
READ MORE ABOUT IT:
For further discussion of short sales, see January 2008 Legal Update, “Short Sales - A Risky Business,” at www.wra.org/LU0801, the March 2009 Legal Update, “Working with Distressed Sales,” at www.wra.org/LU0903, and the July 2009 Legal Update, “Solving the Mysteries of Short Sales,” at www.wra.org/LU0907.
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4.) General Real Estate - Foreclosure
QUESTION:
Re: foreclosed properties. When the foreclosed properties have to be taken into the agent's name for utilities, gas, clean-outs, etc., the agent then pays the bills and forwards the bills to the REO companies. Is this a check that can be sent directly to the agent or must it go through the brokerage? The agent was paid for work done in August and the franchise is asking it to be run through the company, apparently based on Minnesota law.
ANSWER:
How fees are paid would depend upon the facts and circumstances. Property management may be performed with the consent and under the name of the brokerage as one of the companies’ activities, or it may be an activity performed by the agent as a side line of work that is completely separate and not done as a brokerage function.
One indication may be whether the management/maintenance tasks were authorized in the listing contract. If the services are part of the listing contract then the payment would be required to go through the listing broker because a Wisconsin licensee may not receive commissions or fees from anyone other than their employing broker. If, on the other hand, the services are provided for and the contractual agreement is with a separate person or entity and not the brokerage, the payment of fees would be paid per that separate contract. The agent may wish to review company policy to determine if such services may be offered by the real estate brokerage company or by an independent company.
READ MORE ABOUT IT:
For more information about REO transactions, please see the March 2009 Legal Update “Working with Distressed Sales” @ www.wra.org/LU0903 and the February 2008 Broker Supervision Newsletter, “Listing and Selling REO Properties,” @ http://www.wra.org/online_pubs/broker_supervision/2008/br0802.asp.
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5.) Offer to Purchase - Bump Notice
QUESTION:
The buyer has an accepted primary offer that is subject to sale. It looks like the seller is going to accept another offer that will have a contingency for closing on the buyer's home. The agent working with the first buyer is expecting to get a 48-hour bump notice. Once the notice is delivered, can the buyer do an amendment indicating they cannot remove their home sale contingency but would like to make their offer secondary?
ANSWER:
Yes, the primary buyer may renegotiate with the seller to be placed into secondary position if they cannot waive their home sale contingency, as long as it is done before the bump clause deadline.
READ MORE ABOUT IT: See pages 14-15 of the August 2007 Legal Update, “’Favorite’ Offer to Purchase Provisions” @ www.wra.org/LU0708.
Legal Hottips - December 28, 2009
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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Federal Short Sale Standards
Short sale procedures and forms for loan servicers are standardized in guidelines released November 30, 2009 under the federal government's Making Home Affordable loan modification initiative for troubled home owners. The Treasury Department released guidelines and forms for its new Home Affordable Foreclosure Alternatives Program (HAFA).
See http://www.realtor.org/government_affairs/short_sales_hafa for HAFA information and short sales tips and tools. HAFA is part of the Home Affordable Modification Program (HAMP). HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program. HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac, which will issue their own versions of HAFA in coming weeks.
HAFA is a complex program with 43 pages of guidelines and forms, designed to simplify and streamline use of short sales and deeds-in-lieu of foreclosure. HAFA (https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf):
• Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.
• Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
• Prohibits loan servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
• Uses standard processes, documents and timeframes/deadlines.
• Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for loan servicers to cover administrative and processing costs; and up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).
The program does not take effect until April 5, 2010, but mortgage loan servicers may implement it before then if they meet certain requirements. The program ends on December 31, 2012.
In an effort to give condominium lending a boost, the new temporary FHA rules ease concentration and owner-occupancy requirements and make changes to pre-sale rules and to the agency's spot loan approval process. For a summary of these rules, visit http://www.hud.gov/offices/hsg/sfh/condo/faqs_condo.pdf. The temporary guidance is effective for all FHA case numbers assigned on or after Dec. 7, 2009 and is effective until Dec. 31, 2010. The changes include increased loan limits, no more segregation of condominium loans form single-family loans (making them easier to sell on the secondary market), relaxation of requirement for attorney review of condominium documents and relaxed presale requirement (30 percent instead of 50 percent. To read the details, see:
• MORTGAGEE LETTER 2009-46 A Temporary Guidance for Condominium Policy: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-46aml.pdf
• MORTGAGEE LETTER 2009-46 B: Condominium Approval Process for Single Family Housing: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-46bml.pdf
These changes mean it will be easier than ever before to purchase a condominium using FHA funding. Check with a mortgage professional to determine whether FHA is a good option for a particular purchase.
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1.) Listing Contracts - Listing Protection; Listing Contracts - Termination/Withdrawal
QUESTION:
During the listing contract an offer to purchase was written but the buyer and seller could not come to terms. The seller cancelled the listing. The property is now listed with another broker. The buyer wants to submit another offer. Is this buyer protected with the original broker if the original broker and seller signed a Cancellation Agreement and Mutual Release (CAMR) instead of expiring the listing on an amendment?
ANSWER:
Buyers may be protected for listing protection in one of four ways. If (1) the buyer submitted a written offer to purchase or (2) negotiated directly with the seller, the listing protection is automatic and the first listing broker would not have been required to perform any additional steps to protect the buyer for the override period. If, during the term of the listing (3) the buyer attended an individual showing or (4) “negotiated” with a broker, the buyer will be protected only if the listing broker delivered the buyer's name to the seller no later than three days after the expiration of the first listing contract. “Negotiated,” for these purposes, means that the buyer discussed the potential terms upon which the buyer might acquire an interest in the property. Therefore, it appears that the buyer in question is qualified for listing protection due to the submission of the written offer during the term of the prior listing contract, prior to the cancellation of the listing contract.
Depending on the nature of the termination, a notice, amendment or CAMR may be used for responding to the seller and documenting the termination. The WB-42 Amendment to Listing Contract may be used if the seller and listing broker have an agreement to amend (shorten in the case of early termination) the expiration date in the listing contract.
If a listing broker does not agree to amend the listing and is merely acknowledging the seller’s termination, a notice is appropriate. The listing broker may wish to work with his or her attorney regarding the language of the notice to ensure that any remedies available as a result of a seller’s potential bad-faith termination are preserved (i.e., include language that the broker retains all legal rights under the contract and law stemming from the seller’s breach).
If the seller and the listing broker agree to waive all rights under the listing, including listing protection, damages for bad-faith termination, the right to collect commission if earned, etc., a WB-45 CAMR may be used if properly modified to meet the parties’ intent.
The seller and prior listing broker will need to review the exact terms of the termination agreement with respect to the prior listing contract to determine if listing broker retained the right of listing protection. The parties should be referred to their respective legal counsel if they legal questions.
READ MORE ABOUT IT:
More information about termination of listings is available in the September 2006 Broker Supervision Newsletter @ www.wra.org/BSNsept06. See pages 8-10 of the February 2004 Legal Update, “Listing Procedures for the Prudent Broker,” @ www.wra.org/LU0402 for further discussion of listing protection issues.
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2.) General Real Estate - Miscellaneous Issues
QUESTION:
The agent is working with a client who wants to put an offer in on a short sale property in the city of Madison. This home was assessed at $523,900 last year, and has taxes over $11,000/year on it. A market analysis indicates this home is extremely overvalued. There is no guarantee that a lower purchase price will provide compelling enough evidence to get the tax burden adjusted, but the agent is wondering how common this scenario is and if owners have been successful in getting these adjustments made. Does the county consider the previous mortgage on a property? This home was refinanced three years ago with an ARM. The buyer is ready to write an offer, but the agent would like to give him good advice. The house is on a very large lot but needs some updating (new roof alone will cost $25,000 to $30,000). Any permits might flag an even further tax increase.
ANSWER:
As a licensee the agent may not represent that she is an expert on assessments and the appeal process and in no way should indicate that the purchasers will be successful in the reduction of the taxes.
Property owners do have the ability to object or appeal their property’s assessed value during a specific window of time during each year. The following is an excerpt from the Wisconsin Department of Revenue’s Property Assessment Appeal Guide for Wisconsin Real Property Owners, a guide that helps the public better understand the assessment process, including how to appeal an assessment:
What is the most compelling evidence I can present to the Board of Review?
Under state law the best indicator of market value is a recent arm’s-length sale of a property, provided it is in line with recent arm’s-length sales of reasonably comparable property. Sales should be recent; those several years old may not reflect current market conditions. Sales must be arm’s-length. There should be no relationship between the buyer and seller that affects the sales price. For example, sales between relatives are typically not arm’s-length sales. In addition, the following conditions are necessary for a sale to be considered a market value sale:
1. The property must have been available on the open market for a period of time typical of the turnover time for that type of property.
2. Both buyer and seller must be knowledgeable about the real
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3.) General Real Estate - Foreclosure
QUESTION:
The broker is working with a service member who bought his house in 2003. He was transferred out of state in 2007. After failing to sell the property he rented it. Even after the rental income he must pay an additional $500 a month to cover costs. Right now he is receiving top rent for the property so increasing the rent will not work. It is becoming a financial burden for him. The broker’s market analysis showed he would loose about $40,000 if he tries to sell it today. Currently there is a VA Loan and Navy Federal Loan on the property. Would these circumstances qualify him for a short sale? Any suggestions besides taking a $40,000 loss, which he cannot afford?
ANSWER:
One of the first steps the owner should take is to contact his mortgage holders and lay out the facts. A number of potential resolutions may be available.
READ MORE ABOUT IT:
For more information, please see the March 2009 Legal Update entitled “Working with Distressed Sales” @ www.wra.org/LU0903.
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4.) Disclosure - Underground/Aboveground Storage Tanks (USTs/ASTs)
QUESTION:
The owner of a farmette has passed away and her son is the trustee. They want to sell the property as-is and there is an underground storage tank (UST). The trustee/son does not want to deal with it. What are the guidelines for this? Does the tank have to be closed or removed? What are the rules/regulations as far as tank size?
ANSWER:
An out of service UST used for storing heating oil or an out of service UST of 1,100 gallons or less used for storing motor fuel for noncommercial purposes is required by Wisconsin law to be registered and closed (usually removed) by a certified tank professional. According to the Department of Commerce (DComm), which administers the UST regulations, a certified UST remover can give estimates for the work needed to be done to comply with the UST regulations, handle the notifications and paperwork required, remove and properly dispose of the UST and generally see that the job is done properly. A list certified tank removers may be found at: http://apps.commerce.wi.gov/SB_Credential/SB_CredentialApp/SearchByCredType?specCode=23&cmd=Search
If the UST is removed without complying with the UST regulations, licensees will generally be obligated to disclose this fact to all parties pursuant to Wis. Admin. Code § RL 24.07(2), and buyer financing may be jeopardized without expert confirmation that there was no leakage or contamination from the improperly removed UST.
READ MORE ABOUT IT:
• Please see the DComm UST Closure page at: http://commerce.wi.gov/ER/ER-BST-Closure.html
• DComm has a Real Estate Agent’s Web page regarding USTs and ASTs at www.commerce.state.wi.us/ER/ER-BST-RealEstatePage.html.
• AST/UST tank specialist districts and contact information may also be viewed at http://commerce.wi.gov/ER/pdf/bst/Forms_FM/ER-BST-Fm-9687TankerMap.pdf.
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5.) Disclosure - Inspection Reports
QUESTION:
An agent is working with a buyer who has an accepted offer. He had the home inspection done and found mold during the inspection. He also had a radon test done. Radon came back at 8.0. The buyer’s lender wants these both conditions mitigated before the appraisal is done. The cooperating agent talked with the listing agent and he wants the buyer to pay for these and then will credit the buyer at closing. He said that if this transaction falls through the next buyer may not have a radon inspection and the inspection may not reveal mold. He said he did not have to disclose this information to the next potential buyers. Is he correct?
ANSWER:
No. If a 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 he or she 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 pages 15 and 21 of the October 2009 Legal Update, “Diligent Disclosures” @ www.wra.org/LU0910.
Legal Hottips - January 4, 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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WISHING YOU ALL A VERY HAPPY AND SUCCESSFUL NEW YEAR IN 2010!
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1.) Office Management - General Office Management
QUESTION:
When an agent changes brokers what are the legal guidelines to follow regarding payment of E&O Insurance? As an example: an agent ends affiliation with the first broker on November 30th. No E&O Insurance has been paid to the first broker to date. A prior agreement between the agent and the broker decided how payment would be made had the agent stayed with the broker. If September 1st is the starting date of the upcoming year’s coverage and November 30th was the agent's last day, does the agent owe the broker a pro-rated amount for those 91 days, or is the broker due the full year’s charges?
ANSWER:
E&O insurance is designed to provide comprehensive professional liability insurance coverage for real estate salespersons and brokers. In essence it’s malpractice insurance for the real estate professional. E&O insurance provides coverage for errors and omissions of real estate brokers and agents in providing advice or other services to their customers or clients. The insurance is intended to protect brokers and agents against liability claims or lawsuits for damages caused by errors (something they did) or omissions (something they failed to do).
The agent should review the independent contractor agreement, office policy and the errors and omissions policy. The terms and conditions of these agreements hopefully will indicate the agent’s responsibility for insurance coverage and costs. The agent may work with the former broker or office manager to resolve coverage issues. There generally are two forms of E&O coverage typically held by real estate agents: claims made and tail coverage. Most E&O insurance policies cover claims made during the life of the policy, regardless of when the alleged injury occurred. The broker here may be requiring “tail coverage” which would protect the broker from a lawsuit concerning transactions involving the agent prior to the agent’s departure. Additionally, the agent may refer to the errors and omissions policy to determine what coverage is in place, what coverage is available and the costs there of.
READ MORE ABOUT IT:
See the April 2004 Broker Supervision Newsletter, “Errors and Omissions Insurance: No Office Should Go Without It,” @ https://www.wra.org/pdf/online_publications/Broker_Supervision/BSN042004.pdf for more information about E&O insurance. A helpful brochure regarding E & O insurance is available @ http://bit.ly/6qkXdl.
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2.) Licensing Issues - Out-Of-State Property Negotiations
QUESTION:
Re: Out-of-state purchases. The agent is a buyer’s agent for someone who lives in Wisconsin. He has asked the agent if he can represent him in a large purchase of land in Wyoming. Can the agent do this?
ANSWER:
It has been the understanding of the WRA that a Wisconsin real estate license permits an individual to negotiate with another, for a commission, money or other thing of value, the sale, purchase, rental or exchange of an interest in real estate. Wisconsin, and 23 other states (including Minnesota), according to the National Association of REALTORS®, are classified as physical location states. That means that a licensee from another state may work on a transaction involving property in Wisconsin and receive commission as long as the licensee remains physically in the state where he or she is licensed. The licensee from another state may not visit the property in Wisconsin or negotiate face-to-face in Wisconsin.
Each state's laws control the real estate license activities that occur within that state. To determine exactly what is permitted in a transaction involving a property located in another state requires an analysis of those laws. NAR's recent report regarding license portability can be reviewed regarding Wyoming law (see www.realtor.org/rmomag.NSF/pages/lawjuly05?OpenDocument). The licensee would be best served if his or her attorney reviewed Wyoming real estate license law and determined if the Wisconsin licensee’s participation in the contemplated transaction would be allowed under Wyoming law.
If permitted under Wyoming law, all of the Wisconsin licensee's work in negotiating the sale must be conducted in Wisconsin. Out-of-state work (for example, showings) must be conducted by a Wyoming licensee if the broker is not also licensed in Wyoming.
A recent unpublished Wisconsin Court of Appeals District IV decision has indicated that one would have to be licensed in the state where the property is located to engage in a transaction for the sale of the property (at least as it relates to Wisconsin and Iowa, the states that were involved in the case). The Court noted that the Iowa law that the parties presented to the Court did not relieve a broker working in a transaction for the purchase of an Iowa property from needing to have an Iowa real estate license, even if the Wisconsin broker’s actions might be allowed under Wisconsin law.
READ MORE ABOUT IT:
To read the case, see Restaino Bunbury & Associates, Inc. v. Assisted Living Concepts, Inc. (Ct. App. No. 2008AP2334, 2009) @ http://www.wisbar.org/res/capp/2009/2008ap002334.htm.
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3.) Commissions - Entitlement
QUESTION:
If an agent leaves a company and sends his or her license back into the state prior to a property closing, can the agent still be paid a commission?
ANSWER:
Licensees often ask how they may collect commissions on listings obtained and offers written while they were previously affiliated with a broker/employer. One key consideration may be whether the agent was licensed with a broker when the brokerage services that earned the commission were performed. In many cases, the entitlement to a commission after termination will depend upon the terms and conditions of the agent’s independent contractor agreement with the broker/employer or the office policy and procedures manual. The terminated agent may enforce these written agreements in court. If the previous broker/employer had no written agreements or policies, then the agent may need to prove the past practices of the broker/employer or the prevailing industry practice in court.
Wis. Stat. § 452.19 permits a broker to pay referral fees and finders fees to other Wisconsin licensees as long as that person’s license is active and regardless of the fact that the person holds a salesperson’s license or an inactive license (rather than a broker’s license). The fact that the person is not currently employed by a broker is not relevant. Pursuant to Wis. Stat. § 452.14(3)(f), any commission or referral fee received by an employed salesperson (whether licensed as a broker or a salesperson) in connection with a real estate transaction may be received by the salesperson only from the salesperson's employing broker. A non-employed or inactive salesperson, however, can make a referral and receive a fee.
READ MORE ABOUT IT:
For more information, see page 10 of the March 2008 Legal Update entitled “Running a Real Estate Office” @ www.wra.org/LU0803.
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4.) Offer to Purchase - Signatures
QUESTION:
Apparently in this transaction, the agent permitted the girlfriend to sign the counter-offer on behalf of her boyfriend (both are named buyers in the offer to purchase). It is unclear whether or not there was an appropriate express authorization, as required under Wis. Stat. § 706.03(1m), from the boyfriend to the girlfriend (it appears that there was at least a verbal consent). Now the boyfriend no longer wants to buy the property and he is asserting that he never signed the counter-offer. The agent did not disclose to the listing agent that there may not have been proper authorization for the girlfriend to sign on behalf of the boyfriend. The sellers are currently considering their potential options against the buyers. What is the agent's potential exposure?
ANSWER:
It may be prudent for the agent to consult with her broker and legal counsel. Authority to sign for another should be given in writing, preferably notarized, with the fullest, most detailed as possible instructions from the party authorizing it. In executing documents, the signing party should comply with § 706.03(1m), which provides that the party's name (in this case, the boyfriend’s name) appear with an indication of the authority of the signing party (here, the girlfriend) - such as “[name of boyfriend] by [name of girlfriend], as authorized agent” or “[name of girlfriend] as agent on behalf of name of boyfriend]”). Whenever someone signs on behalf of another, care must be taken to establish the authority of the person who is signing to do so.
READ MORE ABOUT IT:
See “Best of the Legal Hotline - Contract Laws: Who Signs What?” in the February 2004 edition of the Wisconsin Real Estate Magazine @ http://news.wra.org/story.asp?a=721 and pages 2-5 of the May 2004 Legal Update, “Avoiding Liability When Signing and Making Referrals” @ www.wra.org/LU0405.
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5.) Contract Issues & Forms - Approved Forms
QUESTION:
A builder constructed a duplex. He later converted the units to condominiums through a condominium declaration. A buyer seeks to purchase both units for their personal use and would be the sole member of the “association.” The broker presumes a WB-14 Residential Condominium Offer to Purchase should be used but could the WB-11 Residential Offer to Purchase be used for this purchase?
ANSWER:
A licensee should use whichever DRL-approved form best matches the transaction with the fewest number of changes or modifications. There is no right or wrong answer. It is a matter of the licensee's judgment as to what form best fits the individual circumstances. Obviously many condominium feature and documentation references would be missing if the WB-11 were used instead of the WB-14.
READ MORE ABOUT IT:
For further discussion of the rules for forms use, see page 10 of the September 2006 Legal Update, “Contract Law Basics” @ www.wra.org/LU0609.
Legal Hottips - January 11, 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
________________________________________
Mandatory HUD Settlement Cost Booklet
The U.S. Department of Housing and Urban Development (HUD) has released a settlement cost booklet, Shopping for Your Home Loan that provides a comprehensive guide to the home buying process. As part of the Real Estate Settlement Procedures Act (RESPA), lenders are required to give this booklet to consumers within three days of applying for a mortgage.
The booklet also explains how interest rates, points, fees, and pre-payment penalties affect a mortgage payment, helps to troubleshoot loan and loan servicing problems after closing, gives advice to avoid foreclosure and discusses refinancing and a home equity borrowing. It also gives a line-by-line break down of the Good Faith Estimate (GFE) that estimates a buyer’s settlement charges.
See HUD’s Settlement Cost Booklet Shopping for Your Home Loan at http://www.hud.gov/offices/hsg/ramh/res/Settlement-Booklet-January-6-REVISED.pdf. The buyers in transactions will be receiving this and they may ask you questions, so every REALTOR® would be wise to make a copy of the booklet and become familiar with its provisions!
HUD is requiring that loan originators (lenders) provide borrowers with a standard GFE that clearly discloses key loan terms and closing costs and that closing agents provide borrowers with a new HUD-1 settlement statement. These new RESPA regulations went into effect January 1, 2010.
A copy of the new GFE is at http://www.hud.gov/offices/hsg/ramh/res/gfestimate.pdf and a copy of the new HUD-1 is at http://www.hud.gov/offices/hsg/ramh/res/hud1.pdf.
Instructions for the completion of these forms and additional HUD and RESPA information is available at http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm. For the new RESPA rule FAQs, visit http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf.
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Right Tools, Right Now - Extended into 2010
The National Association of REALTORS® ‘Right Tools, Right Now’ initiative is back in 2010 to help you and your business find continued success. In the coming year, you'll find even more great FREE or AT-COST offers, updates to existing NAR products and resources, plus valuable tips on how to make the most of Right Tools, Right Now. Visit www.REALTOR.org/RightTools and learn something new! New offers added monthly!
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1.) General Real Estate - Zoning/Land Use
QUESTION:
Mr. Seller sold his property to the buyers in 2006. There were two garages on the property at the time of the sale. In 2009 the buyers discovered that Mr. Seller had pulled a permit for only one garage about 27 years ago and built the second garage without a permit. Mr. Seller was contacted; he admitted that he did not pull the permit for the second garage and he tried to get a variance for the garage, but the municipality denied it. Is there a law that grandfathers the secondary garage? The municipality wants the buyers to remove the secondary garage because of zoning laws.
ANSWER:
The structure may be permitted to remain as a legal nonconforming structure (i.e. grandfathered) if the structure was in existence prior to the enactment of the zoning/ordinance preventing the construction of the second garage. The buyers should be encouraged to contact an attorney to review the facts in question as well as the local ordinances to consider all their options. Further, the attorney may assist in the appeal process for the variance if such action would be deemed prudent.
READ MORE ABOUT IT:
For additional information regarding variances and zoning law, see the November 2005 Legal Update, “Zoning Law Developments” @ www.wra.org/LU0511.
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2.) Disclosure - Environmental & Health Issues
QUESTION:
A prospective seller has a home built in the early to mid 1900’s and apparently has asbestos wrapped pipes. No test has been done and the seller refuses to test materials for confirmation of the presence of asbestos containing materials (ACM). The broker wishes to take the listing however the seller wishes to remove all possible asbestos himself.
1) Would the listing broker have any duty to disclose to possible buyers if the seller removes materials that are not definitely known to be asbestos but are likely to be “ACM?”
2) Would the seller have any duty to disclose if the seller, not a ‘credentialed’ asbestos removal professional, removed these materials?
3) Does any possible disclosure requirement depend upon whether the property is an owner-occupied ‘primary residence’ as opposed to property containing rental units?
ANSWER:
1) The newly revised asbestos rules in Wis. Admin. Code Chapter DHS 159, effective May 1, 2009, affects many different workers in Wisconsin. Asbestos-Containing Material (ACM) is now defined as (1) material or product containing more than 1 percent of asbestos and (2) material meeting the definition of suspect ACM. Suspect ACM means (1) vermiculite insulation, unless a recommended EPA sampling and analysis protocol specific to vermicu¬lite insulation proves that it does not contain asbestos and (2) any untested materials used in or on building com¬ponents with the exception of metal, glass, wood and fiberglass. Everything else is suspect ACM unless tested and found to not contain more than 1 percent asbestos. There is no EPA protocol for sampling and analyzing vermiculite insulation at this time, so it is assumed to contain asbestos. Therefore the material in the seller’s property is classified as ACM.
Whether presence of ACM 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.
2) A real estate licensee may not give a seller legal advice regarding disclosure of potential ACM hazards or the completion of a Real Estate Condition Report. The broker may refer the seller to private legal counsel regarding the seller’s disclosure duty regardless of whether the seller has or has removed any ACMs.
3) Individual certification is not required for homeowners who engage in an asbestos abatement activity or asbestos management activity when performed by the owner on his or her own single-family, non-rental residential property that is occupied or intended to be occupied solely by the owner’s family. Nonetheless the broker may wish to suggest that the owner consider use qualified persons to remove the pipe wrap because an owner may unintentionally create a hazard when an activity disturbs asbestos and is not conducted using safety protocols.
READ MORE ABOUT IT:
For more information regarding asbestos see the Wisconsin Asbestos page @ http://dhs.wisconsin.gov/asbestos/index.htm, the EPA Asbestos information @ www.epa.gov/asbestos, Wis. Admin. Code Chapter DHS 159 (repealed and recreated effec¬tive May 1, 2009) @ www.legis.state.wi.us/rsb/code/dhs/dhs159.pdf and the August 2009 Legal Update, “Environmental Concerns 2009” @ www.wra.org/LU0908.
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3.) Offer to Purchase - Licensed Purchasers
QUESTION:
The broker has a property listed and an agent wants to look at it for himself. Would the agent write his own offer or would the broker have to write it for him? It is broker's understanding that buyer/licensees cannot receive a commission. Is this correct?
ANSWER:
When acting as a buyer of real estate, the licensee is a principal or party in the transaction and not the agent for anyone. Therefore, the buyer/licensee cannot collect a commission from the seller because the buyer/licensee cannot perform services on behalf of the seller with undivided loyalty when the licensee has his or her own interest as the buyer at stake. It is also inconsistent for a buyer/licensee to act as his or her own agent and collect a commission for representing him or herself. Instead, a buyer/licensee can negotiate a buyer’s incentive to be paid by the listing broker or the seller. This incentive can be for the amount of the co-broke commission which would otherwise be paid to the selling broker in the transaction or any other amount agreed to by the listing broker or seller and the buyer/licensee.
The buyer's incentive should be properly documented in writing before closing, preferably before the offer to purchase is executed. An incentive from the listing broker should be documented in a separate letter or memo because it is a separate agreement between the licensee/buyer and the listing broker. Under the DRL's interpretation of Wis. Admin. Code § RL 24.05(4), the seller also must consent in writing to this incentive no later than the time that the offer is accepted, so a recitation in the offer regarding the incentive from the listing broker to the licensee/buyer may be the most efficient way to meet this requirement and avoid any possible DRL enforcement actions.
READ MORE ABOUT IT:
For more information, see pages 12-13 of the March 2008 Legal Update entitled “Running a Real Estate Office” @ www.wra.org/LU0803.
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4.) Offer to Purchase - Earnest Money
QUESTION:
Question regarding the new WB-11 Residential Offer to Purchase (2010), line 43. If this box is marked “n/a” does this then preclude mailing the earnest money?
ANSWER:
No. Unless the language is struck, line 11 of the new WB-11 allows for earnest money to be mailed. Lines 34-55 of the offer are for delivery of documents and written notices only.
READ MORE ABOUT IT:
For further discussion of the earnest money provision, see page 3 of the November 2009 Legal Update, “WB-11 Residential Offer to Purchase – 2010 Edition” @ www.wra.org/LU0911.
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5.) Office Management - General Office Management
QUESTION:
The broker’s company has one broker and three agents. There are no paid employees. What workplace posters is the broker obliged to post, if any?
Legal Hottips - March 1, 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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IRS Clarifies What's Needed to Claim Tax Credit
The Internal Revenue Service has clarified which documentation taxpayers need to submit to claim the $8,000 first-time and $6,500 repeat homebuyer tax credit. The new IRS policy clarified documentation that taxpayers need to submit to successfully obtain either credit:
* A fully executed IRS Form 5405 (available at http://www.irs.gov/pub/irs-pdf/f5405.pdf) on which taxpayers provide information supporting their claim of eligibility, including income and home purchase date.
* A copy of the HUD-1 Settlement Statement or other closing or settlement statement that proves the transaction took place. The IRS said the statement should show "all parties' names and signatures, property address, sales price and date of purchase." However, the IRS is not demanding that all parties’ signatures be on the HUD-1 settlement document in areas where requiring both the buyer and the seller to sign the document isn’t common. "In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law. … The IRS encourages those buyers to sign the settlement statement prior to attaching it to the tax return.”
For repeat buyers, the IRS is seeking documentation that home buyers have lived in the previous property for a consecutive five of the past eight years. Proof can include property tax records, home owner insurance records, or mortgage interest statements.
Because of the increased documentation and monitoring, IRS processing will take four to eight weeks. Don't expect your check overnight.
NAR Basics: http://www.realtor.org/home_buyers_and_sellers/2009_first_time_home_buyer_tax_credit
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Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA)
AFIDA requires any foreign person who:
• Acquires or transfers any interest other than a security interest in agricultural land to submit a completed form FSA-153 to the Secretary of Agriculture (via the FSA office) within 90 days after the date of acquisition or transfer, or;
• Holds any interest, other than a security interest, in agricultural land on February 1, 1979, should have submitted a report, to the Secretary not later than August 1, 1979.
The information required by the Secretary should be reported on form FSA-153, which is available online at http://forms.sc.egov.usda.gov/efcommon/eFileServices/Forms/FSA0153_010524V02.pdf or from local county FSA offices. A copy of this form should be given to clients who are foreign persons owning, acquiring or transferring agricultural land in the U.S. or its territories or possessions. For AFIDA purposes, agricultural land is defined as any land used for farming, ranching or timber production, if the land is more than 10 acres in size or if the land is 10 acres or less and in the aggregate producing gross annual receipts of more than $1,000 from the sale of farm, ranch, or timber products in total. Disclosure reports are also required when there are changes in land use. For example, reports are required when land use changes from nonagricultural to agricultural or from agricultural to nonagricultural. Foreign investors must also file a report when there is a change in the status of ownership such as owner changes from foreign to non-foreign, from non-foreign to foreign or from foreign to foreign.
Completed forms must be submitted to the local county FSA office. Any foreign person who did not submit this form or knowingly submitted a report that was incomplete, misleading or false is subject to civil penalty of up to 25 percent of the fair market value of the agricultural land on the date the penalty is assessed.
These forms are analyzed by the USDA agency staff to develop reports for the Secretary for issue to Congress and the agricultural department in each State. Completed forms and analysis are available for public inspection at the Department of Agriculture located in the District of Columbia.
Any questions concerning the AFIDA and the FSA-153 form can be directed to the local FSA offices. FSA contact information is available at http://www.fsa.usda.gov/FSA/stateOffices?area=stoffice&subject=landing&topic=landing.
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1.) Listing Contracts - Presentation of Offers
QUESTION:
The seller has provided paperwork to be used for all sales; a modified offer with a special addendum (property is in receivership). The seller has indicated that the buyer is not allowed to cross out or modify any language. The listing broker has verbally stated that agents are not to write offers for less than asking price or to add free items to the offer to purchase even when the buyer requests such items be added.
A buyer (via their attorney) has threatened to have the agent’s license revoked because agent would not write an offer for the buyer for less than the asking price and would not revise the wording in the seller’ paperwork. Does the agent have to write, as well as modify as buyer requested, all contracts for buyers - even though the seller instructed them not to? Must there be written instructions? Does the listing contract have to state that the agent is not allowed to modify the paperwork or write for less than asking price?
The listing broker has provided a letter on the seller’s letterhead stating that the agent is not to accept offers for less than asking price. Can the agent show this letter to buyers and other agents in order to keep from having to write less than asking price offers or cross out language in paperwork that the buyer does not agree with?
ANSWER:
Wis. Admin. Code § RL 24.13 -- Drafting and submission of offers, provides:
(1) REFUSAL PROHIBITED. Licensees shall not refuse to draft or submit any offer to purchase, exchange agreement or option contract proposal to the owner unless the terms of the offer, exchange agreement or option would be contrary to specific instructions of the owner.
The Cooperation, Access to Property or Offer Presentation section in the WB-1 Residential Listing contract allows a seller to provide specific written instructions for showings and submission of offers. In this section, the seller agrees that the broker will cooperate and work with other agents, including subagents and buyer's brokers, except as specified in the blank line near the end of this section. Technically, according to Wis. Admin. Code § 24.13(1), the seller’s direction to limit submission of offers does not have to be in writing. However, to assure compliance with the seller’s instructions, placing these instructions in the listing or an amendment thereto would be appropriate way to document the seller’s directions.
Upon the direction of the seller, the listing broker may communicate the seller’s requirements to cooperating agents so that they and the buyers may understand the reason the listing agent will not draft or submit an offer per the buyer’s instructions. The buyer may have an attorney draft an offer per their specifications; however, the listing agent is still not required to submit it to the seller if submission is contrary to the seller’s instructions.
READ MORE ABOUT IT:
See pages 4-5 of the October 2007 Legal Update, “WB-1 Listing Contract -- 2008 Revisions,” @ www.wra.org/LU0710 for more information.
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2.) Commissions - Procuring Cause
QUESTION:
The broker has a closing on Monday. The broker has been informed by another broker, who is not the selling broker, that they will be contesting the commission to be paid to the selling broker on the basis of procuring cause. First, the broker plans to hold the selling broker’s commission until arbitration or legal resolution between other 2 brokers. Is this permissible? The broker is doing this to avoid possibly paying out 2 commissions! Second, what information may the broker share with contesting broker (not selling broker) once this transaction closes?
ANSWER:
The listing broker may consider it prudent to hold the cooperative commission until either the brokers contesting it either submit their mutual written agreement as to the disbursement of this commission or an arbitration panel from the local REALOTR® association issues a decision resolving the dispute. If the listing broker were to pay one broker and the arbitration panel concluded the other should have been paid, the listing broker must then pay the second selling broker and would be left to try to get the first selling commission paid back. The listing broker may inform the brokers of his intent to hold the money until they resolve the issue, but any information beyond what is available on the public record would be deemed confidential as to the transaction itself.
READ MORE ABOUT IT:
For further discussion of procuring cause, see Legal Update 02.04, “What is Procuring Cause?” @ www.wra.org/LU0204.
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3.) Offer to Purchase - Presentation
QUESTION:
The agent has a feeling that an offer the agent wrote was never presented to the seller. The agent has requested a copy of the last page of the offer to purchase and the other REALTOR® has yet to send it and said the agent will have it when the time is right.
Is it required by law to supply the agent with this paperwork, with the date and time it was presented, and who it was presented by, with the seller’s initials? The buyers are very upset and the agent cannot even ensure them that it was presented to the seller.
ANSWER:
There is no requirement that sellers respond to all offers to purchase, so the agent would not necessarily be legally entitled to a copy of the rejected offer to purchase. However, Wis. Admin. Code § RL 24.13(2)(b) reads: “Licensees shall present promptly all offers received to the seller or seller's agent for consideration. Licensees shall not withhold any offer from presentation pending the seller's action on an offer previously presented.”
Wis. Admin. Code § RL 24.13(4) provides, “NOTIFICATION OF ACTION TO BUYERS. Licensees shall promptly inform prospective buyers whether the seller has accepted, rejected or countered their written offer to purchase, and shall immediately provide a written statement concerning the date and time when an offer was rejected or that an offer had expired without acceptance when such a statement is requested by a prospective buyer, a buyer's agent or a selling broker.” If the agent has made such a request and the other REALTOR® does not respond promptly with a written statement, a complaint may be filed with the DRL for violation of this rule. If the agent believes that the offer was not presented, the agent may want to contact the other REALTOR®’s broker.
READ MORE ABOUT IT:
See page 4 of Legal Update 98.08, “REALTOR® Grab Bag” @ www.wra.org/LU9808.
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4.) Agency - Disclosure
QUESTION:
The WB-15 Residential Condominium Offer to Purchase has language that has not been updated as has the WB-11 Residential Offer to Purchase. For example, line 1 on the WB-11 has “(agent of the buyer)(agent of the seller/listing broker)(agent of buyer and seller).” The WB-14 states “(agent of the seller)(agent of the buyer)(dual agent).” There are other items that are different also. Can agents use the WB-14 as it is without making changes until the forms are updated?
ANSWER:
The 9-1-00 version of the WB-14 Residential Condominium Offer to Purchase is the current Wisconsin state-approved form. The Real Estate Contractual Forms Advisory Committee of Department of Regulation and Licensing is currently working on updating the WB-14. Until the new form is available for use, licensees should use the existing form and modify it as necessary.
The purpose of the disclosure on line 1 of the DRL-approved offer to purchase is to reconfirm the agency status of the agent drafting the offer, in other words, clarifying whom the agent represents in the transaction. Until the DRL-approved offer to purchase forms are updated to reflect the revised agency law provisions, agents must do the best they can with the existing offer forms. Completion of Line 1 is based upon the agency representation of the agent drafting the offer: whose interests does the drafting agent represent?
• Offer Drafted by Subagent: The subagent is an agent of the listing broker and also owes limited duties to the seller. Line 1 of the offer may appropriately be completed to indicate that the agent drafting the offer is an “agent of seller.”
• Offer Drafted by Designated Agent: When a designated agent drafts an offer, that agent is participating in a designated agency representation relationship, but at the same time has an agency relationship with one party or the other. If the agent drafting the offer is a designated agent who has a buyer agency agreement with the buyer, that agent is representing the buyer in the same manner that he or she would if that agent was a buyer’s agent from a different broker/company. A designated agent representing the buyer may complete Line 1 to indicate that he or she is an “agent of buyer.”
• Offer Drafted by Agent in Multiple Representation without Designated Agency: When an agent in a multiple representation without designated agency drafts the offer, that agent cannot advocate for the buyer or represent the buyer’s interests in a manner that places the interests of the buyer ahead of the interests of the seller. This agent may complete Line 1 to indicate that he or she is a “dual agent.”
READ MORE ABOUT IT:
See page 13 of the June 2006 Legal Update, “Revised Agency Law Implementation” @ www.wra.org/LU0606 for further discussion.
Legal Hottips - March 8, 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
________________________________________
Working with the Updated WB-11 Residential Offer to Purchase
Since many REALTORS® are just beginning to work with the revised WB-11 Residential Offer to Purchase (mandatory use date March 1, 2010), Hottips will focus on WB-11 issues over the next few weeks. The process of forms development will be reviewed. Some of the new provisions will also be examined, looking at the “whys” for the change and giving pointers for getting the maximum advantage from the form.
In the big picture, the new WB-11 is not drastically different. At the same time a few WB-11 provisions have undergone some exciting substantive changes to help bring the offer up to date with current practice and improve ease of use. Many revisions simply add enhancements to the language from the prior version from 1999 to clarify and update some of the provisions already in place that generally seem to be working well. Other revisions attempt to resolve some of the grey issues that have popped up occasionally in the past.
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1.) Contract Issues & Forms - Approved Forms
QUESTION:
How was the revised WB-11 Residential Offer to Purchase developed?
ANSWER:
Pursuant to state statute, the Department of Regulation Licensing prepares and approves real estate contract forms for use by real estate licensees. Most of the discussion and debate on revisions to the new forms takes place at the public meetings of the DRL Real Estate Contractual Forms Advisory Committee. Established under Wis. Stat. Ch. 452, the Advisory Committee reviews proposed changes to DRL-approved forms and reports to the DRL Real Estate Board and to DRL Secretary Celia Jackson. The Advisory Committee is appointed for one-year terms by Secretary Jackson and is comprised of attorneys and real estate licensees, including REALTOR® members.
In addition, the Wisconsin REALTORS® Association Forms Committee has reviewed drafts of the forms and provided valuable proposals recommendations to the Advisory Committee – many of which have been adopted into the forms. The WRA Forms Committee has approximately 40 attorneys and REALTORS® -- from across the state and including practitioners from various types of practices -- working on proposals to update and improve the approved forms.
At the end of the day it is a group-drafting effort with many different voices contributing to the discussion that concludes with the revisions to the forms that are approved by the DRL Secretary.
READ MORE ABOUT IT:
For information about the DRL Real Estate Contractual Forms Advisory Committee, go to http://online.drl.wi.gov/boards/BoardMembers.aspx?aid=57 and see Wis. Stat. § 452.06(1) @ http://www.legis.state.wi.us/statutes/Stat0452.pdf.
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2.) Contract Issues & Forms - Approved Forms
QUESTION:
The new WB-11 residential offer to purchase has some white spaces on some of the pages, particularly at the bottom of even-numbered pages. There also were similar white spaces in the revised listing contracts and the buyer agency agreement. Why is this space there and can a licensee use these spaces to add additional terms and conditions to the state-approved forms?
ANSWER:
The type size is a bit larger in these forms to make them easier to read, but this also makes the forms longer – there is a trade-off. Material in smaller type is more likely to be missed or ignored; larger type makes forms more consumer-friendly and facilitates legibility when the forms are faxed or copied.
The layout was designed to accommodate carbon forms and/or other paper forms that produce multiple copies when filled in: the odd-numbered pages have blank lines to fill in, boxes to check and items where one or more items must be stricken while the even-numbered pages contain only text. Practitioners and consumers want to use the multi-copy carbonless forms and the DRL has respected this need. There are more items requiring completion than items that are only text so that is why there are some white spaces.
An additional factor is that under Secretary Celia Jackson, the DRL has endeavored to have the forms formatted and finalized within the DRL and the Department of Administration instead of using outside forms layout and production resources and assistance as was done in the past.
When using DRL-approved forms, REALTORS® must be aware that they are prohibited from altering the forms and must place additional material in the blank lines provided on the approved forms or use addenda. Wis. Admin. Code § RL 16.06(1) prohibits the altering of DRL-approved forms – by placing blank lines containing inserted provisions between provisions of the approved form text or adding text in existing white spaces – in such a way as to create the appearance and implication that the changes are approved by the DRL. Licensees should use the blank lines provided in the approved forms or attach an addendum as authorized under § RL 16.06 (4) and (5) when additional provisions or language is desired to reflect the contractual intent of the parties.
READ MORE ABOUT IT:
Review the DRL rules for licensees’ use of forms @ http://www.legis.state.wi.us/rsb/code/rl/rl016.pdf.
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3.) Title Issues - Miscellaneous Title Issues
QUESTION:
Are gap endorsements mandatory in the new offer? What happens if the seller’s title company won’t provide one?
ANSWER:
The Gap Endorsement was promoted from a caution at the end of the Provision of Merchantable title subsection in the 1999 offer to its own subsection on lines 346-350 of the revised WB-11. In this era of foreclosures and short sales and sellers in distress, it is increasingly important that the buyer receives the maximum available protection against any liens, judgments, foreclosures, other lawsuits or other liens and encumbrances creeping onto title between the date of the title commitment and closing. If a gap endorsement or equivalent gap coverage is available, the Gap Endorsement subsection requires that the seller provide this protection to the buyer. The parties are to indicate who pays for the gap endorsement or equivalent gap coverage by using a STRIKE ONE feature at lines 346-347.
This new language recognizes that gap endorsements may not always be available from the title companies, for example, for estates or foreclosures/short sales. The financial and legal status of the seller and the property may present too great a risk. Whatever the reason, if the gap endorsement is not available, the buyer can follow the procedures in the Title Acceptable for Closing subsection and/or amend the offer to provide for some other mutually agreed upon resolution. The Gap Endorsement provisions will give the parties and their attorneys incentive to find another way to address gap period issues. For instance, the attorneys and the title company might arrange to close in escrow. If there are new liens that cannot be removed, the buyer should, in the estimation of the DRL, and does have the option to terminate the transaction. Needless to say, it is critical that the buyer obtain legal counsel to ensure that the buyer does not unknowingly buy property encumbered by the seller’s liens and encumbrances.
READ MORE ABOUT IT:
For further discussion of gap endorsement issues, see the June 2009 Wisconsin Real Estate Magazine, “Short Sales and Title Insurance,” @ http://news.wra.org/story.asp?a=1133 and Legal Update 96.02, “Title Insurance,” @ www.wra.org/LU9602.
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4.) Offer to Purchase - Tax Proration
QUESTION:
What was added to the Closing Prorations section and why?
ANSWER:
The Closing Prorations section on lines 117-137 of the 2010 Offer has been substantially expanded in order to assist the parties in agreeing upon suitable proration formulas for closing. This is an area that often results in confusion as well as a fair number of complaints to the DRL. The DRL wants the parties and licensees to recognize the importance of these calculations and better understand that there are multiple choices – the first alternative won’t always be the best.
Often questions to the WRA Legal Hotline would ask “When a proration is calculated, what value is used – the value at the time of the offer to purchase, the value at the time of closing, some other value?” The revised offer adds language to indicate that prorations at closing (i.e., real estate taxes, rents, property owner’s association assessments, etc.) will be based on the values as of the date of closing. This is the goal whenever possible. As always, if there are meters to be read for utitlities -- or if the parties wish to use a different number for prorations – the parties should provide for alternate ways to obtain acceptable proration values as they do now, either in the additional provisions, an addendum.
Lines 121-123 of the 2010 Offer add a definition for “net general real estate taxes” to the 1999 offer language. This is helpful because there is no statutory definition or other commonly known definition for this term.
Lines 124-129 offer the parties four, instead of two, options for a tax proration formula. The first choice is the “net general real estate taxes for the preceding year, or the current year if available,” which is essentially the same as the default language in the 1999 Offer. The fourth tax proration option in the revised offer is to insert your own tax proration provision in the provided blank line, again the same as in the 1999 offer. In between there are two added choices: is “current assessment times current mill rate (current means as of the date of closing)” and “sale price, multiplied by the municipality area-wide percent of fair market value used by the assessor in the prior year, or current year if known, multiplied by current mill rate.”
A more straightforward caution appears on lines 130-133 of the updated WB-11 to warn buyers of different circumstances where the property taxes may change dramatically. The DRL believes it is important that the parties understand that the property taxes may undergo a significant change by the time the tax bill comes at year’s end so that they can negotiate an equitable proration.
Lastly on lines 134-137 is a new re-proration provision used in addenda in many areas of the state with reported success. The re-proration provision allows the parties to adjust the at-closing proration based on the actual tax bill. This is intended as a safeguard against the possibility that unanticipated factors might change the parties’ tax proration in unintended way, in other words, a security blanket for the parties.
READ MORE ABOUT IT:
For additional discussion of assessments and proration challenges, see “Property Tax Proration
What is Fair?” in the February 2007 edition of the Wisconsin Real Estate Magazine, online at http://news.wra.org/story.asp?a=655. For further discussion of new construction scenarios, see “Tax Proration for New Construction & Divided Parcels: Make Sure All Parties Pay Their Fair Share” in the June 2005 edition of the Wisconsin Real Estate Magazine, online at http://news.wra.org/story.asp?a=196.
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5.) Offer to Purchase - Closing Issues
QUESTION:
The new offer to purchase clearly states that closing is to be at seller’s choice of place. The new WRA Addendum A states that the place of closing is the buyer’s choice. If you were going to change the offer to buyer’s choice, is it sufficient to cross out and attach an Addendum A? Or, would you still need to state this in the additional provisions?
ANSWER:
The Closing provision on lines 115-116 of the WB-11 provides that the closing place will be selected by the seller, quite different from the provision in the 1999 offer that indicated that the place of closing was to be selected by the buyer’s mortgagee or another party named on the blank line in that form.
During the residential offer revision process it became apparent that in the Milwaukee area most closings occur at the place selected by the lender, while in the Madison market most closings occur at the title company. Many transactions in vacation areas for second homes or recreational properties close at the best place available, which may include an attorney’s office or the broker’s office.
The Closing provision in the 2010 WB-11 states that the closing is “at the place selected by Seller, unless otherwise agreed by the Parties in writing.” Those who find the new provision unsuitable for their transaction, market or practice preference may provide otherwise in additional provisions, on lines 24-25 of the WRA updated Addendum A or in another addendum. Addendum A offers the parties alternative choices in a format that asks the drafter to strike and complete lines 24-25 of Addendum A as is applicable. The choices offered are to have the closing at (1) the place selected by the buyer’s lender, (2)the place selected by the buyer or (3) another place written into the blank line included on line 25 of Addendum A. Using this provision gives the parties a full range of alternatives.
READ MORE ABOUT IT:
See pages 4-5 of the January 2010 Legal Update, “Updating Addendum A, Addendum O and Property Condition Reports” @ www.wra.org/LU1001 for further discussion.
Legal Hottips - March 15, 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
________________________________________
Working with the Updated WB-11 Residential Offer to Purchase
Since many REALTORS® are just beginning to work with the revised WB-11 Residential Offer to Purchase (mandatory use date March 1, 2010), the Legal Hottips will focus on WB-11 issues over the next few weeks. The process of forms development will be reviewed. Some of the new provisions will also be examined, looking at the “whys” for the change and giving pointers for getting the maximum advantage from the form.
In the big picture, the new WB-11 is not drastically different. At the same time a few WB-11 provisions have undergone some exciting substantive changes to help bring the offer up to date with current practice and improve ease of use. Many revisions simply add enhancements to the language from the prior version from 1999 to clarify and update some of the provisions already in place that generally seem to be working well. Other revisions attempt to resolve some of the grey issues that have popped up in the past.
________________________________________
1.) Contract Issues & Forms - Approved Forms
QUESTION:
What are some of the ways that the new WB-11 is different from its predecessor?
ANSWER:
Many exciting improvements were made to help licensees and consumers engage in successful transactions. These improvements bring better clarity and understanding to the contract for the mutual benefit of both the parties and the agents. Some of the more significant changes to the WB-11 include:
1. Inspection Contingency: Three-Part Inspection Process (lines 413-435). The buyer may have a home inspection and an inspection of specific property components or features. If the written inspection reports recommend follow-up inspections, these may also be performed provided this all occurs within the stated deadline. The revisions bring much greater clarity about what inspections can be done and under what timeline.
2. E-Mail Delivery (lines 46-55). The ability to deliver transactions documents via e-mail (once the proper consumer consents required by law have been given) brings the transaction into the modern world where the parties to transactions often rely heavily on electronic media.
3. Appraisal Contingency (lines 266-274). The buyer now has the ability to protect him or herself against the possibility of delivering a loan commitment to the seller and becoming committed to buy the home only to find out later that the appraisal is less than the purchase price and the lender is now denying the loan. The appraisal contingency saves the buyer from this fate.
4. Gap Endorsements (lines 346-350). In this era of distressed sellers and foreclosures it is critical that the buyer receive the maximum title protection available.
5. Tax Proration Choices (lines 121-137). The parties have clearer cautionary language and additional potential formulas for property tax prorations, something that is very important for new construction or in areas where there have been be reassessments.
6. Written Delivery Instructions for Loan Commitments (lines 237-248). This provision safeguards against the delivery of a loan commitment to a seller in cases where the buyer has never seen or approved the loan commitment nor directed that it be delivered to the seller.
7. Distribution of Information (lines 275-280). This section authorizes the distribution of information about the transaction that often will be needed by appraisers and assessors. Authorizing the needed information will serve to improve the accuracy and validity of appraisals, assessments and property valuations.
8. Line 1 Agency Models (lines 1-2). The updated line 1 accurately reflects the different agency models in language that the parties can appreciate. In simple terms, line 1 tells the parties which party or parties the agent drafting the offer is oriented to.
9. Sex Offender Registry Information (lines 304-306). This important information is now in the offer so that buyers can find information about any convicted sex offenders in the area.
10. Buyers and Their Agents May Attend Inspections and Testing (line 404). This right will help promote better understanding on the part of the buyers – it is easier to understand if the buyer can see first hand what the inspector describes in the written report.
READ MORE ABOUT IT:
For further discussion of the revisions to the WB-11, go to https://www.wra.org/Legal/forms_update.htm and watch the line-by-line explanation video and review the November 2009 Legal Update, “WB-11 Residential Offer to Purchase – 2010 Edition” @ www.wra.org/LU0911.
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2.) Offer to Purchase - Financing Contingency
QUESTION:
If the buyer does not check the box for a Financing Contingency, does that mean that the buyer’s offer is a cash offer?
ANSWER:
The 2010 Offer includes a new provision on lines 259-265 that automatically applies if the buyer does not include a Financing Contingency. Many times with the 1999 Offer, agents and sellers became frustrated when the buyer did not include a Financing Contingency in the offer. The agents and sellers would assume that it was a cash offer and become upset when they later realized that the buyer was still seeking mortgage funding. The DRL sought to minimize misunderstandings of this nature by including the If This Offer is Not Contingent on Financing provision on lines 259-265 of the 2010 Offer. This provision will help parties and licensees understand that all offers without Financing Contingencies are not necessarily “cash offers.”
If the buyer is making a cash offer, on the other hand, the seller wants assurances that the buyer will have the money to close if there will be no mortgage loan. The DRL included a provision that requires that the buyer, within seven days of acceptance, provide written evidence from a financial institution or a third party in control of the funds that the buyer will have the amount required for the purchase available at closing. This provision was modeled after an addendum provision in use in one area of the state. If the buyer does not provide this proof of funds evidence, the seller may terminate the offer. If a buyer has any problems making arrangements and obtaining the needed evidence from his or her bank, attorney, trustee or other third party, the buyer may need to work with the seller to find a mutually agreeable manner of confirming the purchase funds.
The If This Offer is Not Contingent on Financing provision also acknowledges that buyers may choose to obtain mortgage financing from a lender even though they did not include a Financing Contingency, but they will not enjoy the benefits and protections of the Financing Contingency. If the buyer wishes to have a Financing Contingency, they would need to check the box at line 219 and complete the financing provisions. The language does permit the buyer to have the property appraised, so the seller must give the appraiser access to the property, but that does not mean that there is an Appraisal Contingency. If the buyer wishes to have an Appraisal Contingency, he or she would need to check the box at line 266.
READ MORE ABOUT IT:
For further discussion of the financing contingency provisions, see pages 10-12 of the November 2009 Legal Update, “WB-11 Residential Offer to Purchase – 2010 Edition” @ www.wra.org/LU0911.
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3.) Offer to Purchase - Delivery
QUESTION:
How does an agent include e-mail as a form of delivery in the revised offer to purchase?
ANSWER:
The “Best of the Legal Hotline” article regarding Electronic Delivery in the November 2008 Wisconsin Real Estate Magazine @ http://news.wra.org/story.asp?a=1005 points out is that when it comes to consumers, a party’s consent to the use of e-mail and electronic documents and signatures is a two-step process.
1) Delivery language needs to be incorporated into the offer, which is easily achieved in the revised WB-11 Residential Offer to Purchase by checking the e-mail delivery box.
2) If a party is a consumer, they first have to receive disclosures like those stated in the “Consent for Use of Electronic Documents and Signatures in Consumer Real Estate Transactions.” This consent may be found @ www.wra.org/ecommerce. Select the Word document entitled “Consent for Use of Electronic Documents and Signatures in Consumer Real Estate Transactions” under the third bullet – “2008 Forms for Electronic Commerce NEW!”
The most straightforward way to approach the execution of the consent is to save this Word document to your desktop and customize with your company information and contact information. When you need to send this via e-mail, open the e-mail and Word document, the agent then copies the Word document into the body of the e-mail. This Word document has been created so it automatically embeds or attaches a separate Word document and PDF. Then send the e-mail to the consumer. The consumer receives the e-mail, opens us the attachments to confirm they can view them, hits reply and then scrolls to the bottom of that e-mail and types in their name and e-mail address. After they have done those steps, they will send the consent back. At this time electronic consent has been accomplished.
READ MORE ABOUT IT:
Review the February 2008 Legal Update, “Electronic Commerce and E-Mail Delivery,” @ www.wra.org/LU0802. Also see “E-Mail Delivery: Working with Consumer Consents to Deliver Electronic Documents” in the May 2008 Wisconsin Real Estate Magazine @ http://news.wra.org/story.asp?a=922.
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4.) Offer to Purchase - Counter-Offers
QUESTION:
In the event of a multiple offer situation and prior to delivery and acceptance, can a buyer's agent change particular terms of a WB-11 Residential Offer to Purchase submitted to the seller by using a WB-44 Counter-Offer? The broker has a listing, an offer was submitted, told the agent and the buyer submitted a counter-offer on their own offer, can they do this?
ANSWER:
Yes, the counter-offer is the appropriate form for a party to use to modify the terms of an offer before acceptance and binding acceptance. A party may initiate a counter-offer with regard to his or her own offer or his or her own counter-offer. The negotiations do not have to go back and forth: buyer, seller, buyer, seller, etc. There may be an offer by the buyer, a counter-offer by the buyer, a counter-offer by the seller, etc.
READ MORE ABOUT IT:
For further information about counter-offers, see pages 6-7 of Legal Update 01.11, “Best of the Legal Hotline – Offer to Purchase Issues,” @ www.wra.org/LU0111 and pages 8-9 of the September 2006 Legal Update, “Contract Law Basics,” @ www.wra.org/LU0609.
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5.) Offer to Purchase - Closing Issues
QUESTION:
Please clarify the meaning of lines 31-33 of the new WB-11 Residential Offer to Purchase.
ANSWER:
The new WB-11 Residential Offer to Purchase now states in one location that any offer provisions that are optional need to have an “X” marked in the box preceding the provision or it will not be included in the offer. Instead of repeating the instructions for completing provisions with check boxes, the directions appear only once, directly before the first series of check boxes in the WB-11. Lines 31-33 provide:
OPTIONAL PROVISIONS Terms of this Offer that are preceded by an OPEN BOX (□) are part of this offer ONLY if the box is marked such as with an “X.” They are not part of this offer if marked N/A or are left blank.
Legal Hottips - March 22, 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.) Mortgage Banking/Finance - General Finance
QUESTION:
Two questions about the homebuyers tax credit. First, if it is a short sale situation, does the bank need to accept the offer by April 30th or just the seller? Second, the buyers/sellers will have lived in their home 5 years on May 30th. If they have an accepted offer by April 30th on a new home, and sell their current home by June 30th will they still get the $6,500.00 or do they have to have lived in their home for 5 years by April 30th to qualify?
ANSWER:
The Hotline and the agent cannot provide tax advice to consumers; the agent should refer the party to his or her tax advisor, legal counsel and or the Internal Revenue Service for information regarding the tax implications of the particular situation and transaction.
Although the offer to purchase is conditioned upon the lender’s approval of a short sale, the lender is not a party to the offer to purchase. The offer defines acceptance as when all buyers and sellers have signed the offer and binding acceptance when that document is delivered. The Hotline, however, has not seen any specific IRS confirmation of this analysis.
The following are excerpts from the IRS Instructions for Form 5405, online at http://www.irs.gov/pub/irs-pdf/i5405.pdf:
Long-time resident of the same main home. You are considered a long-time resident of the same main home if you meet all of the following requirements.
1. You (and your spouse if married) previously owned and used the same main home as your main home for any 5-consecutive-year period during the 8-year period ending on the date you purchased your new main home.
2. You purchased your new main home located in the United States:
a. After November 6, 2009, and before May 1, 2010, or
b. After April 30, 2010, and before July 1, 2010, and you entered into a binding contract before May 1, 2010, to purchase the property before July 1, 2010.
3. None of the following apply.
a. The purchase price of the home is more than $800,000. This rule applies to homes purchased after November 6, 2009.
b. Your modified adjusted gross income is:
i. $95,000 or more ($170,000 or more if married filing jointly) and you purchased your home before November 7, 2009, or
ii. $145,000 or more ($245,000 or more if married filing jointly) and you purchased your home after November 6, 2009.
c. You can be claimed as a dependent on another person's tax return. This rule applies to homes purchased after November 6, 2009.
d. You (and your spouse if married) are under age 18 on the date of purchase. This rule applies to homes purchased after November 6, 2009.
e. You are a nonresident alien.
f. Your home is located outside the United States.
g. You sell the home, or it ceases to be your main home, before the end of the year in which you purchased it. This rule does not apply if you are a member of the uniformed services or Foreign Service, or an employee of the intelligence community on qualified official extended duty and you sell the home, or it ceases to be your main home, after 2008. You can claim the credit on the return for the year of purchase or choose to claim it on your return for the year before the year in which you purchased the home if you otherwise qualify for the credit.
h. You acquired the home by gift or inheritance.
i. You acquired your home from a related person. This includes:
i. Your spouse, ancestors (parents, grandparents, etc.), or lineal descendants (children, grandchildren, etc.).
ii. A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation.
iii. A partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.
j. You acquired your home after November 6, 2009, from a person related to your spouse. This includes your spouse's ancestors or lineal descendants (for example your parents-in-law or your stepchildren), and any relationships described in i above that your spouse has.
READ MORE ABOUT IT:
For additional information, see the Wisconsin Homebuyer site at http://www.wisconsinhomebuyer.org/, NAR’s The Basics: Extended Home Buyer Tax Credit 2009/2010 online at http://www.realtor.org/home_buyers_and_sellers/2009_first_time_home_buyer_tax_credit and the Internal Revenue Service at http://www.irs.gov/newsroom/article/0,,id=204671,00.html. These resources offer examples of fact situations, filing options and other details.
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2.) Offer to Purchase - Inspection Contingency
QUESTION:
There is an accepted offer on one of the broker’s listings from a buyer working with a co-broke agent. Following the home inspection but prior to the inspection deadline, the co-broke agent submitted a “Notice of Defects” (on a proper Notice form), listing numerous defects that were listed in the inspection report. Along with the Notice of Defects was a proposed amendment listing only a few of the defects to be corrected. Nowhere in the proposed amendment was there any language indicating that by agreeing to the amendment that the buyer would waive the Inspection Contingency, which still has several days left. The co-broke agent claims that even when an amendment is proposed that the contract requires her to also send a Notice of Defects. How to proceed?
ANSWER:
The offer to purchase does not require that a notice of defects accompany an amendment.
Buyers have the opportunity to propose an amendment, if they choose, or they just deliver the Notice of Defects. The contract does not require a buyer to provide both although a buyer may choose to do so. The contract does, however, require any action by the buyer be completed before the deadline for the inspection contingency runs out.
A proposed amendment is different than the Notice of Defects. When a Notice of Defects is provided by the buyer, the parties then look to the right to cure provision in the contract regarding the next step. The amendment does not kick in the right to cure provision, which is why the offer makes the statement that a proposed amendment is not a Notice of Defects. Requesting an amendment is different than, and independent from, giving a notice of defects. Once the buyer delivers a Notice of Defects to the seller, the Notice can be “withdrawn” only with the mutual consent of the buyer and the seller. The buyer cannot withdraw the Notice of Defects unilaterally. Therefore, delivery of the Notice of Defects is a very important step and must be done with full knowledge of the potential consequences.
READ MORE ABOUT IT:
To read more about home inspection contingency issues, please see the February 2007 WRA Broker Supervision Newsletter, “Proper Use of the Home Inspection Contingency,” online at www.wra.org/bsnFeb07 and the August 2004 Legal Update, “Effective Home Inspections,” at www.wra.org/LU0408.
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3.) Advertising - Miscellaneous Advertising Issues
QUESTION:
Can a broker possibly incur liability for the installation of a post sign? What is the state law regarding Digger's Hotline and does it apply to any digging by post installers?
ANSWER:
Wis. Stat. § 182.0175 defines excavation as follows; “‘Excavation’ means any operation in which earth, rock or other material in or on the ground is moved, removed or otherwise displaced by means of any tools, equipment or explosives and includes grading, trenching, digging, ditching, drilling, augering, tunneling, scraping, cable or pipe plowing and driving and means any operation by which a structure or mass of material is wrecked, razed, rended, moved or removed.” The statute continues to define excavator as someone who engages in excavation.
Depending on the process and placement of a real estate sign, the activity may require communication with Diggers Hotline and waiting until the property is marked. According to the statutes, an excavator is responsible to learn the location of any transmission facilities in and near the area where the excavation is to be conducted, then plan the excavation to avoid interference with transmission facilities.
READ MORE ABOUT IT:
The full text of Wis. Stat. Ch. 182 is available @ http://www.legis.state.wi.us/statutes/Stat0182.pdf.
Diggers Hotline has online information @ http://www.diggershotline.com.
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4.) 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 more information, please go to http://www.irs.gov/newsroom/article/0,,id=206291,00.html and www.wisconsinhomebuyer.org.
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5.) Contract Issues & Forms - Miscellaneous Contract Issues
QUESTION:
The broker has a farm with 300 acres listed and a gentleman called about doing a § 1031 exchange for his land in Illinois and the rest would be cash. Does the broker send him to a lawyer to write up the offer because his land is in another state and the broker does not hold a license in that state or can the broker write up the offer on a WB-35 because it is an exchange? The broker has already advised him to talk to a tax person to make sure his land qualifies for the § 1031 exchange.
Second Question: the seller and the buyers want to do an exchange, the seller has two vacant lots and the buyer has a condominium. Does the broker write this up on a WB-35?
ANSWER:
In the first scenario, the agent should encourage the parties to have an attorney involved since the transaction involves properties in Illinois and Wisconsin. Licensees are permitted to complete the state-approved forms, which would include the WB-35 Simultaneous Exchange Agreement.
In the second scenario if the broker feels confident and knowledgeable to participate, then most likely the WB-35 would be the appropriate form to draft. However, whenever involved in an § 1031 exchange the broker should strongly encourage the parties to seek the advice of both a tax advisor and an attorney.
READ MORE ABOUT IT:
Pointers for using the WB-35 may be found in Legal Update 00.05, “Revised WB-24 Option to Purchase and WB-35 Simultaneous Exchange Agreement,” online at www.wra.org/LU0005.
Legal Hottips - March 29, 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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Lead-Safe Renovation Rule
Guidelines for Wisconsin Rental Property Owners and Managers
The Wisconsin Department of Health Services (DHS) was approved by the U.S. EPA to administer and enforce the Lead-Safe Renovation program in Wisconsin.
Safe renovation of old housing is the best way to protect Wisconsin children from lead poisoning. Property maintenance personnel and renovators who are not trained in lead-safe work practices risk exposing themselves and occupants to lead at the job site and exposing their own families by bringing lead dust home on their work clothes.
The Law: Beginning April 22, 2010, renovation work will be regulated when performed for compensation in a dwelling or child-occupied facility built before 1978 and it disturbs 6 sq. ft. or more of paint per room, 20 sq. ft. or more of exterior paint, or involves windows. This includes rental property owners and management companies and their employees.
By April 22, 2010, a rental property owner/management company must:
1. Become a Certified Lead-Safe Company or hire only certified companies to do paint disturbing work covered under the regulation.
• To become a certified company, apply to DHS.
• Lead-Safe Company certification is $75 and is valid for 2 years.
• To find a Certified Lead-Safe Company or to download a company application form, go to www.dhs.wi.gov/lead.
2. Have at least one Certified Lead-Safe Renovator on staff or hire a Certified Lead-Safe Company that has a Certified Lead-Safe Renovator.
• To become certified, a person must complete required training and apply to DHS for certification.
• Lead-Safe Renovator certification is $50 and is valid for 2 years.
• Each renovation project must have a certified Lead-Safe Renovator in charge.
Training required for Lead-Safe Renovators:
• 1-day Lead-Safe Renovation Initial Course.
• Persons who completed a Lead-Safe Work course in Wisconsin before August 2009 may take a 4-hour Lead-Safe Renovator Refresher Course to qualify.
• Refresher training is required every 4 years.
• Go to www.dhs.wi.gov/lead to find approved trainers, or call 608-261-6876.
Resources:
• Lead-Safe Renovation Rule FAQs: http://dhs.wisconsin.gov/lead/RenovatorRule/FAQ%20Sheet%203-8-10.pdf
• DHS Lead-Safe Renovation Rule Web page: http://dhs.wisconsin.gov/lead/RenovatorRule/index.htm
• Lead Paint Renovation Rule Compliance Guide: This compliance guide provides information for REALTORS® on the EPA's new Renovation, Repair and Painting Rule, including Webinars, videos, FAQs and more: http://www.realtor.org/government_affairs/lead_paint_main
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Carbon Monoxide Alarms
Carbon monoxide alarms must be installed in most existing residential buildings with three or more units by April 1. For more information, see the brochure @ http://commerce.wi.gov/SB/docs/SB-PubCarbMonoBroch209.pdf
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1.) Contract Issues & Forms - Approved Forms
QUESTION:
The broker has been asked by a Canadian company to list their manufacturing facility here in Wisconsin and they provided me their drafted listing contract. Can the broker sign and use their contract or must the broker use the WB-15 Commercial Listing Contract?
ANSWER:
A Wisconsin broker may sign any listing contract -- if just signing any form may be used. However, if the broker must fill the contract out, a DRL-approved listing must be used.
Wis. Admin. Code § RL 16.02(5) prohibits the “use” of unapproved forms, but “use” is defined to mean completion of a form by filing in the blanks. If the broker signs a listing contract presented by the seller to the broker on an unapproved form the broker is not “using” it under the rules by signing the contract. The broker should realize if accepted - it can form a binding contract and the broker will be bound to the terms and conditions contained in the listing contract. The broker’s legal counsel may be required to interpret any nonstandard provisions.
READ MORE ABOUT IT:
See the text of Wis. Admin. Code Chapter RL 16 regarding the rules for “Forms Use and Legal Advice,” @ http://www.legis.state.wi.us/rsb/code/rl/rl016.pdf.
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2.) Offer to Purchase - Delivery
QUESTION:
On the new offer there is a place to check a box for e-mails. If the box is checked and an e-mail address is listed, are there any other documents that are required?
ANSWER:
If it is a consumer transaction, the electronic consent process would need to be completed before checking the box on the new offer. Lines 47-49 of the WB-11 state: “If this is a consumer transaction where the property being purchased is used primarily for personal, family or household purposes, each consumer providing an e-mail address below has first consented electronically to the use of electronic documents, e-mail delivery and electronic signatures in the transaction, as required by federal law.” Both disclosure and consent are required by the federal E-Sign law before conducting electronic transactions. Remember that the requirement is for electronic consent from the consumer by e-mail or other electronic means.
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.
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3.) Offer to Purchase - Financing Contingency
QUESTION:
With the new contingency regarding financing, does the buyer need to do an actual notice to submit along with the loan commitment or is signing the loan commitment good enough?
ANSWER:
Lines 240 to 243 of the revised (2010) WB-11 Residential Offer to Purchase state in part: “Buyer and Seller agree that delivery of a copy of any written loan commitment to Seller (even if subject to conditions) shall satisfy Buyer’s financing contingency if, after review of the loan commitment, Buyer has directed, in writing, delivery of the loan commitment. Buyer’s written direction shall accompany the loan commitment.”
Since the writing must contain language directing the loan commitment to be delivered to the seller, a signature, by itself, on the loan commitment would not be sufficient to meet that requirement, because it contains no such instruction.
READ MORE ABOUT IT:
For further discussion of the financing contingency provisions, see pages 10-12 of the November 2009 Legal Update, “WB-11 Residential Offer to Purchase – 2010 Edition” @ www.wra.org/LU0911.
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4.) Commissions - Miscellaneous Commission Issues
QUESTION:
Re: commission for buyer’s agent/sub-agent stated in the MLS for short sales. What if the lender does not agree with the commission stated in the listing contract? What language should be put in the listing? Also, does it need to be stated in broker-to-broker comments in MLS?
ANSWER:
The listing contract sets the compensation the seller pays to the listing broker. In some short sale transactions the seller’s lender may only approve a short sale if the broker reduces the commission. The listing contract would then need to be amended by the broker and the seller to reflect the reduction.
Standard of Practice 3-2 of the REALTOR® Code of Ethics requires REALTORS® to timely communicate any change of compensation for cooperative services to other REALTORS® prior to the time such REALTOR® produces an offer to purchase the property. Therefore, an offer of compensation generally cannot be unilaterally changed by the listing broker after the offer to purchase has been submitted.
Pursuant to a National Association of REALTORS® policy, the MLS must give participants the ability to disclose to other participants any potential for a short sale (it is the listing broker’s decision whether or not to use this opportunity unless the MLS adopts an additional rule mandating disclosure when the participant knows the transaction is a potential short sale).
MLSs may, as a matter of local discretion, require listing brokers to disclose potential short sales when they know a transaction is a potential short sale. In any instance where a listing broker discloses a potential short sale, the listing broker may, as a matter of local discretion, also be permitted to communicate to other participants how any reduction in the gross commission established in the listing contract required by the lender as a condition of approving the sale will be apportioned between listing and cooperating brokers. There is no standard language; the listing broker must communicate to the cooperating broker how any reduction will be allocated.
All confidential disclosures and confidential information related to short sales must be communicated through dedicated fields or confidential “remarks” available only to participants and subscribers (and not to consumers).
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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5.) Offer to Purchase - Closing Issues
QUESTION:
The buyer wants to have the hardwood flooring refinished before closing. The buyer is hiring the contractor. How does the agent protect the seller from liability, possible damage, lien waivers and the failure to close? Are there any other items the agent would need to address? Are there any forms available for this or should the agent draw up an amendment?
ANSWER:
The buyer and seller may negotiate to allow the buyer’s workmen to engage in work prior to closing. There are risks for both the buyers and sellers in such situations. The broker has identified some of the potential areas of risk that may arise when work is completed before closing. The parties may negotiate to allocate the risks or have legal counsel draft appropriate contract modifications. Another approach is to use/and modify an Addendum O since the access for the work is a variety of a limited occupancy.
READ MORE ABOUT IT:
See the January 2010 Legal Update, “Updating Addendum A, Addendum O and Property Condition Reports” online at www.wra.org/LU1001 for more information regarding Addendum O.
Legal Hottips - April 5, 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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Regulators Issue Guidance to Allow Loan Closings during National Flood Insurance Program Lapse
Congress has recessed without extending authority for the National Flood Insurance Program (NFIP) which expired on March 28, 2010. By law, flood insurance is required for the purchase of real estate in a 100-year floodplain. However, insurers may not issue new or renewal policies or increase the coverage of existing policies backed by the NFIP while it's expired.
When Congress returns on April 12, NAR will encourage them to act swiftly to reauthorize and extend the NFIP, and insist that the reauthorization should be made retroactive to March 28, 2010, so that any properties that are flooded during this lapse will be covered by the program.
Six of the nation's largest lending authorities have issued guidance to administer the federal flood insurance regulations during the current National Flood Insurance Program (NFIP) lapse in authority (see below). Although each lending authority notes considerations, the consensus is, in most cases, loan closings may still occur during the NFIP lapse with verification of the submission of a NFIP flood policy application and premium payment submission to the insurance provider. Lenders should follow all normal flood risk evaluations prior to closing and establish follow up practices to monitor full compliance upon the re-authorization of the NFIP program. Lenders should become familiar with and follow the specific guidance offered by their lending authority.
FEMA, which administers the NFIP, issued guidance that:
• Existing flood insurance polices that were in effect on March 28 (when NFIP expired) will remain in effect and would not be affected.
• While new flood policies may not be issued after that date, new policies for which payment was received or in case of loan closings, the application was dated on or before March 28 -- will be issued.
• Also renewal policies may not be issued until the NFIP is extended; however, there is a 30-day grace period during which the policy remains in effect following its expiration date.
• Buyers may also “assume” the seller's existing policy without having to re-issue it (NFIP Manual, Page GR 15): “D. Assignment: A property owner's flood insurance building policy may be assigned in writing to a purchaser of the insured property upon transfer of title without the written consent of the NFIP. Policies on buildings in the course of construction and policies insuring contents only may not be assigned.” Source: http://www.fema.gov/pdf/nfip/manual201005/03gr.pdf
ANSWER:
No. Any purchase of a principal residence (or interest in a principal residence) from a related party such as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Due to the relationship of mother and daughter, she cannot qualify for the credit on any portion of the home that she purchases from her mother, even if she is a first-time homebuyer.
Because the Hotline and the agent cannot provide tax advice, the agent should refer the party to his or her tax advisor, legal counsel and the IRS Web site.
READ MORE ABOUT IT:
More information may be found on the IRS Instructions for Form 5405, online @ www.irs.gov/pub/irs-pdf/i5405.pdf: For additional information, see the Wisconsin Homebuyer site @ www.wisconsinhomebuyer.org/, NAR’s The Basics: Extended Home Buyer Tax Credit 2009/2010 online @ www.realtor.org/home_buyers_and_sellers/2009_first_time_home_buyer_tax_credit and the Internal Revenue Service at www.irs.gov/newsroom/article/0,,id=204671,00.html. These resources offer examples of fact situations, filing options and other details.
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2.) Fair Housing - Miscellaneous
QUESTION:
May a client have the right to restrict children from accompanying parents during showings? The client is not refusing to sell to buyers with children, but is restricting having the children in the house at showings. The client is concerned about their valuable possessions in the 3-story Victorian property.
ANSWER:
The listing contract provides that the seller accepts responsibility for preparing the property to minimize likelihood of injury, damage and/or loss of personal property. The listing also provides that the seller and broker will not discriminate against any prospective buyer on account of race, color, sex, sexual orientation, disability, religion, national origin, marital status, lawful source of income, age, ancestry, familial status or in any unlawful manner.
Section 804(c) of the federal Fair Housing Act makes it unlawful to make, print or publish any notice, statement or advertisement with respect to the sale or rental of a dwelling that indicates a preference, limitation or discrimination based on race, color, religion, sex, handicap, familial status or national origin, or an intention to make any such preference, limitation or discrimination. Fair housing law makes it illegal to discriminate on a protected class status; children are included as a protected class under familial status. The sellers cannot discriminate based on the fact that a potential buyer has children. Prohibiting the attendance of children at showings could be evidence of an unlawful preference or limitation that discriminates against families with children. The seller may consult with his or her legal counsel regarding fair housing law.
As a real estate licensee, a broker cannot engage in conduct that would discriminate based on a protected class status. Wis. Admin. Code § RL 24.03(1) provides that “DISCRIMINATION PROHIBITED. Licensees may not discriminate against, nor deny equal services to, nor be a party to any plan or agreement to discriminate against any person in any manner unlawful under applicable federal, state or local fair housing law.” The note following this rule references the federal Fair Housing Act and the Wisconsin open housing law found in Wis. Stat. §106.50. A broker may consider refusing to provide brokerage services to a client requesting activity that limits equal services to families with children.
READ MORE ABOUT IT:
For more information, visit the Fair Housing/Equal Opportunity REALTOR® Resource page, @ www.wra.org/fairhousing, and see the Legal Update 98.03, “Thirty Years After the Fair Housing Act,” @ www.wra.org/LU9803.
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3.) Commissions - Incentives
QUESTION:
The seller wants to advertise $3,500 back to a buyer at closing and would like the agent to put this in the first line in the MLS. Can this be done?
ANSWER:
The seller may authorize the broker to advertise incentives on lines 19-20 of the 2008 WB-1 Residential Listing Contract. When discussing either buyer or broker incentives, it is in best interest of the broker to explain completely to the seller how incentives may be paid and to whom.
Standard of Practice 12-3 of the REALTOR® Code of Ethics provides that: “REALTORS® shall be careful at all times to present a true picture in their advertising and representations to the public. ...” Standard of Practice 12-3 states “The offering of premiums, prizes, merchandise discounts or other inducements to list, sell, purchase, or lease is not, in itself, unethical even if receipt of the benefit is contingent on listing, selling, purchasing, or leasing through the REALTOR® making the offer. However, REALTORS® must exercise care and candor in any such advertising or other public or private representations so that any party interested in receiving or otherwise benefiting from the offer will have clear, thorough, advance understanding of all the terms and conditions of the offer. ...”
This standard assumes the omission of even one detail may cause the advertisement to present less than a true picture. This may be disputable should someone bring an ethics complaint concerning an ad for party incentives that does not contain every detail – the issue will be whether there is a true picture of the offered incentive in the ad. An ad that states, “See broker for details,” however, is like a red flag waving in the face of a competitor who closely reads by the Standards of Practice – it may be seen as an admission that less than a true picture has been disclosed in the ad. In addition, incentives would need to be disclosed to the buyer’s lender/underwriter to avoid claims of mortgage fraud.
Finally the listing agent should check with their local MLS office on what is permitted and how much space is available to advertise the incentive. When listing brokers advertise the seller’s incentive, such as in the remarks section of the MLS or in other promotional materials, they should specify that the seller is offering the incentive. This may help avoid liability in the event the seller reneges and help shield the broker from improper advertising claims. The offer should include the incentive as a contract provision between the buyer and the seller to make sure the lender and underwriter are fully informed and that there are no side deals that have not been disclosed to the secured lender.
READ MORE ABOUT IT:
The October 2006 Broker Supervision Newsletter @ www.wra.org/BSNOct06 addresses selling incentives offered either by brokers or sellers.
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4.) Trust Accounts - Miscellaneous Trust Accounts
QUESTION:
A broker has multiple legal entities. May a broker have one trust account for all of its legal entities, or must each entity have its own trust account?
ANSWER:
According to the trust account rules in Wis. Admin. Code chapter RL 18, a trust account must be opened when a broker receives real estate trust funds. The name on each account is the name appearing on the broker’s license or a trade name filed with the DRL. The DRL application for trust account provides that a broker/owner of a sole proprietorship or a business representative of a business entity must register a trust account. The form requires the broker to identify what type of business entity and name the business entity exactly as licensed.
The DRL has indicated that each legal entity must have its own trust account. Presuming there are separate legal entities, each with a real estate business entity license would have its own separate trust account. If, however, the broker has one legal entity with multiple locations the broker may have one single trust account (one central account) or multiple trust accounts (one for each location).
READ MORE ABOUT IT:
See the Consent to Examine and Audit Trust Account form (trust account registration form) @ http://drl.wi.gov/docview.asp?docid=319&locid=0.
Legal Hottips - April 12, 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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Right Tools, Right Now - Fair Housing Resources at No-Cost!
This April, make the most of Fair Housing Month by learning more about fair housing regulations and housing discrimination issues. FREE resources from NAR’s Right Tools, Right Now include the ‘Fair Housing Sales: Pocket Guide,’ ‘Fair Housing Rental: Pocket Guide’ and ‘Fair Housing Handbook.’ Visit www.realtor.org/RightTools for more information.
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NAR Field Guide to Fair Housing
Real Estate professionals must be constantly vigilant regarding Fair Housing Laws. This field guide, updated in March 2010, provides resources, links, case law and more on this important topic. Also included are free fair housing REALTOR® resources including NAR’s 2010 Fair Housing Poster. Visit http://www.realtor.org/library/library/fg705
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Mailbox Available for FHA Condo Questions
FHA is making an online mailbox available for all condominium inquiries. If you have an inquiry, send it to CondoProjectApprovalInquiries@hud.gov. The agency says it will try to answer questions in two days. Any condo inquiries directed to the FHA Homeownership Centers or the Resource Center will be redirected to this mailbox.
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Fannie and Freddie Update HVCC FAQs
Fannie Mae and Freddie Mac have updated the FAQs on the Home Valuation Code of Conduct (HVCC). The companies say the two FAQs are substantively similar although they differ in style and structure. Access the latest version of the Fannie Mae FAQS @ https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf and the Freddie Mac FAQS @ http://www.freddiemac.com/singlefamily/hvcc_faq.html#10
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1.) Mortgage Banking/Finance - General Finance
QUESTION:
At what point is a short sale considered accepted with regards to the homebuyer tax credit?
ANSWER:
Recent communication from legal counsel from the National Association of REALTORS® states that the NAR tax lobbying staff in Washington, D.C. has confirmed that the IRS has not issued any guidance regarding the question of what constitutes a sufficiently binding contract for purposes of the credit. Although NAR intend to urge the IRS to offer some input of the matter, they do not anticipate that they will do so.
READ MORE ABOUT IT:
More information may be found on the IRS Instructions for Form 5405, @ www.irs.gov/pub/irs-pdf/i5405.pdf: 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. These resources offer examples of fact situations, filing options and other details.
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2.) Contract Issues & Forms - Miscellaneous Contract Issues
QUESTION:
The broker has a listing; there is an accepted cash offer closing this week. The broker got the buyer’s social security number at acceptance. The next day he called me and said he is a non-US resident and is not sure he can purchase property in the United States. The home will be his residence in the United States, not an investment because he is here on a student visa from the UK. Can he indeed purchase this home?
ANSWER:
It may be prudent to refer the buyer to immigration law and tax experts regarding his specific needs in a real estate transaction. For non-resident buyers, the issues that may need to be addressed relate to real estate transfer return and limitations. Non-resident buyers also cannot own more than 640 acres in Wisconsin, not likely to be an issue with a home purchase.
A person who has been lawfully admitted to the United States for permanent residence (green card) or under other immigration categories that authorize employment in the United States must have a social security number (SS#). If the person is not eligible for a SS#, the IRS will issue an individual tax identification number (ITIN) for tax purposes.
The Guidelines for Real Estate Transfer Fee and Return, published by the Wisconsin Department of Revenue, indicate that the social security numbers of the both the grantor and grantee generally are required on the transfer return. There is an exception, however, for persons who are not United States citizens when they purchase property. If the buyer is not otherwise legally required to have a SS# or an ITIN, the buyer may simply state “nonresident alien” in the SS# box on the transfer return.
READ MORE ABOUT IT:
To determine whether a buyer needs to have a SS# or an ITIN, the buyer may wish to review the Internal Revenue Services (IRS) Publication 519, U.S. Tax Guide for Aliens, @ www.irs.gov/pub/irs-pdf/p519.pdf. The statutory limit on property ownership for non-resident aliens is found in Wis. Stat. § 710.01-.02 @ http://www.legis.state.wi.us/statutes/Stat0710.pdf.
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3.) Disclosure - Misrepresentation
QUESTION:
An agent listed a property on November 29, 2009. The seller gave the listing agent inaccurate information: the agent was told the property had central air conditioning. Now an offer has been accepted and the agent found out there is no central air. A home inspection also revealed that the furnace has a carbon monoxide problem. The buyer submitted an amendment to the offer requesting that the furnace be replaced and that central air be installed. The seller is willing to replace the furnace, but is not willing to put in central air. Should the agent submit a notice to the buyer stating the property description had a mistake and the property does not have central air conditioning?
ANSWER:
It would appear the seller and the brokers have made inaccurate statements regarding air conditioning on the property. The broker may provide a written statement to the parties stating the property does not include central air and refer the parties to their respective attorneys. The broker may also wish to update the marketing materials and the MLS sheet to reflect no central air.
The broker needs to present the amendment to the seller for his or her consideration. The broker may assist the parties to investigate or determine the costs of installing air-conditioning in the property. Once this has been determined, the buyer and the seller can negotiate an amendment to the offer if they can come to an agreement.
If the parties are unable to resolve this issue, the agents may elect to pay part of the costs because it is possible that Wisconsin licensees can be found liable to a buyer for making inaccurate statements which appear to the buyer to have been made from the broker's own personal knowledge. Wisconsin law provides that an inexperienced buyer is generally entitled to rely on the factual statements made by a professional. Accordingly, when a broker receives data from the seller, the city treasurer's office, or another third party and restates the information in the MLS data sheet or in other advertising as if it were fact, the broker may be responsible for the accuracy of the information. REALTORS® are recommended to specifically attribute data used in advertisements, such as acreage, square footage, and assessed values, to its source, and/or use general disclaimers.
The agents may consult with their brokers to determine whether the individual agents should contribute or whether the company might help subsidize the costs of installing the central air conditioning.
READ MORE ABOUT IT:
More information about disclaimers and attributing the source of representations, see the February 2006 Legal Update, “Real Estate Advertising,” @ www.wra.org/LU0602.
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4.) Commissions - Miscellaneous Commission Issues
QUESTION:
The broker has an office policy letter that went out to all the brokers in the MLS with whom the broker would like to split commission 50/50. For those who did not choose to sign it, the following schedule would apply: If the MLS says 2.5% you will be compensated 2.0%, etc. The board office told the broker that this is how to handle it. A cooperating broker said that the broker still owes them what is posted in MLS regardless of what the policy letter says. The cooperating broker said commission must be addressed in writing for each separate transaction and that the policy letter could not cover all of the company’s transactions. This is a broker who did not sign the policy letter. Please advise.
ANSWER:
Whether a policy letter is effective to modify the MLS offer of compensation must be determined on a case-by-case basis or letter-by-letter basis. An MLS Participant may modify its MLS offer of compensation with a policy letter. Whether it is done unilaterally, or bilaterally with the cooperating broker’s consent, depends on what type of modification is being made. The offer of compensation in the MLS may be changed by a unilateral policy letter that states a different compensation percentage or dollar amount for the cooperating broke. If the change is stated in terms of something other than a percentage of the gross sale price or a dollar amount, then a bilateral policy letter signed by both brokers would be needed to change the MLS offer of compensation.
A unilateral policy letter could apply to all future transactions, depending on the terms, conditions and content of the policy letter. It would not be necessary to send a policy letter for each individual transaction if the policy letter plainly states its applicability to all future transactions between the two MLS Participants.
It appears the underlying issue here is whether the policy letter was effective to modify the MLS offer of compensation. An additional consideration is whether the MLS Participant has communicated the existence of the letter to all of the agents in the broker’s company. If the brokers are unable to resolve this matter the cooperating broker may request REALTOR® mediation or arbitration services.
READ MORE ABOUT IT:
More information about policy letters is available in Legal Update 02.01 “Getting Paid Outside the MLS” @ www.wra.org/LU0201.
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5.) Offer to Purchase - Contingencies
QUESTION:
An agent has a listing with an accepted offer to build a house for a buyer. The buyer stated in offer that he was getting an FHA loan. Now 6 weeks later the buyer gave the seller the FHA Amendatory Clause document to sign off on and the seller/builder says he doesn't want to sign it, even though he says it will appraise out -- he said he should have been given that clause language at the time of the offer. The agent told the seller if he doesn’t sign the lender probably won't be able to give the buyer the FHA loan. He still thinks he doesn't have to sign off on it. The agent is not familiar with this FHA Clause -- have only ever had one transaction with FHA financing and doesn't remember this form being part of the offer. Is the agent supposed to give this form with the offer? The buyer’s agent didn’t give it to the listing office until six weeks later.
ANSWER:
According to HUD policy for single family home loans, a purchaser must be provided a written statement of the appraised value of the property before the sale of the property. Because an appraisal typically will not be obtained before the offer is negotiated, any offer should contain -- or be amended to contain -- a provision that allows the buyer to terminate the offer if the property fails to appraise at the contract price. The FHA Amendatory Clause may be included in the original offer or in an amendment to the offer. (The broker may refer to the GMAR Addendum A for sample language.) If the seller refuses to sign the amendment, the buyer may seek alternative financing or the transaction may fail. The parties may be referred to private legal counsel with questions regarding their legal rights and obligations.
READ MORE ABOUT IT:
Read the full text of this HUD policy @ http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/96-37ml.txt.
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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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2010 Designation Guide Available
A new 2010 version of the Designation Guide is now available for purchase through the WRA. The Designation Guide is a single source of information that sorts through 27 of the industries most sought after designations. The Guide is great reference book for both new and experienced REALTORS®, listing all of the information you need when making a decision about pursuing a designation. This includes not only the general educational requirements and whether or not an exam is required, but also estimated cost of courses, the availability of continuing education credit, application fees and annual membership dues to maintain a designation, and more. Cost of the Guide is $7.00 (includes shipping and tax). To order your copy, visit: www.wra.org/Products/index.asp
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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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provides that every independent contractor is an employee for purposes of workers' compensation - with one exception. If an independent contractor maintains a separate business with his or her own office, materials and facilities, holds a federal employer identification number, and meets the other seven criteria listed in the statutes, the employer will not be responsible for providing workers' compensation for this person. While it may seem that there are some real estate agents operating on such a truly independent, almost free-lance basis, the DWD has taken the position the all real estate licensees working for a broker are employees for purposes of worker’s compensation. Accordingly, any brokers seeking to take the position that their sales staff are independent contractors for worker’s compensation purposes may wish to confirm that all the criteria of the exception have been met, and get a formal opinion from a tax attorney or one familiar with this law regarding the status of the broker’s sales force for purposes of worker's compensation, before not paying for workers' compensation insurance for independent contractor salespeople.