Property Damage After Acceptance Prior to Closing

An easy to happen and complex to navigate situation licensees address is property damage after acceptance and prior to closing.  The WB-11 Residential offer to Purchase begins to address this on lines 206-215. In compliance with Wis. Stat 706.12, unless this provision is not part of the Offer, the parties have expressly agreed to who has responsibility (buyer or seller) to repair the damage and under what conditions the contract may be terminated and parties released.

WRA on Damage after Acceptance
When the licensees become aware of damage which occurred after acceptance and prior to closing decisions have to be made regarding disclosure, damage assessment, repairs, closing date, and resolution.  The prudent licensee will be careful to direct their clients to legal counsel to interpret their rights and obligations, and to their insurance companies to determine their coverage. The parties will look to the provisions of the Offer to determine the avenue they will take to move forward or to separate.

Attorneys may advise their clients to maintain their right to remain silent on the new condition, make the necessary repair and proceed to closing.  Because  the buyer may have recession rights when they receive an amendment to the RECR with previously undisclosed conditions, sellers may be advised by their attorney to not amend the RECR or issue a new RECR.  Even though a seller may not have disclosure obligations, the licensees do. A Disclosure of Material Adverse Fact form is available for licensees to disclose conditions they are aware of.

Occupancy May Change Everything

Buyer pre-closing occupancy is a condition which may alter the buyer’s rights and seller’s obligations for repairs, expenses, and resolutions.  Pre-closing occupancy is a seriously risky proposition. The Addendum O (Occupancy Agreement) has been modified to make it easier for licensees and parties to incorporate occupancy provisions into offers.  I wonder if that’s a good idea considering the complexity of the issues involved with occupancy. Anything which contributes to parties avoiding consulting their lawyer is not an advantage to their safety. Just my opinion.

Water Everywhere

It happened here in 2008 and it will happen again. Spring is flood season in Wisconsin. Frozen ground, rain, melting snow, clogged drainage sewers, rising river levels are the perfect storm conditions for property damage after acceptance and prior to closing. It’s never too soon to sharpen your skills in the disclosure of defects and conditions responsibilities.  Heavy rain is the forecast for today through tomorrow.


Duty to Disclose Conditions

Wisconsin real estate buyers are well protected in the house buying transaction. At least they are protected to the extent the Seller and licensees comply with their duty to disclose conditions which may adversely affect the transaction or the property.

Sellers of 1 to 4 family residential properties are required to complete a Real Estate Condition Report (RECR) and provide the report to the Buyer within 10 days of the accepted offer. It’s not illegal for a transaction to close without the RECR being provided. Instead, the law extends rescission rights to the buyer who does not timely receive a RECR.

A buyer who does not receive a RECR, and used the Wisconsin approved offer to purchase form will have affirmative statements from the seller representing they have no notice or knowledge of specific conditions which may be defects or material to the transaction. Unless the provisions are deleted or a counter offer is prepared to override the affirmative condition statements in the Offer, much of what is on the RECR is addressed by the seller in their acceptance of the Offer.

If the Seller declines to adequately complete the RECR the licensee still has an obligation to disclose to the seller and the buyer adverse conditions he/she is aware of from a limited inspection of the  property.

A consequence of this hyper active seller’s market may be a loss of attention to disclosure obligations. I’ve heard attorneys say their post closing complaint cases have increased in the last two years. I’m not surprised. Whether a person resents having been pressured to pay more or accept conditions without an opportunity to do discovery, adverse conditions, the extent of which are unknown until after closing are likely to bring the buyer and seller together again, and this time with lawyers instead of real estate licensees.

Suggestion:  Sellers who correct, prior to listing, and fully disclose adverse  conditions are better protected from a claim of failure to adequately disclose. I understand some people will shy away from a home with a condition report acknowledging defects, even those which have been repaired.  It’s safe to say the person who would not consider the house because of a known condition would be a prime candidate for suing a seller who didn’t disclose. Licensees who complete a pre-listing inspection of the property and document their findings in writing will have what they need to conduct an appropriate pre-listing discussion of the property condition with the seller.

Seriously Talking About Drinking Water

It took the Flint, Michigan lead contaminated water crisis to dramatically change the conversation from passive to serious in a hurry. The scientific, educational, and public safety communities will provide the research evidence to keep pressure on state and local governments, and utilities to effectively mitigate lead levels in water. The EPA has established action levels for remediation.

Attention is focused on old and deteriorating lead water lines serving communities . Wisconsin identified 5 counties with high risk lead levels and allocated limited funds to those counties replace public and private lead service lines. The other 67 counties are not lead free. They just aren’t in the top 5 as identified so far. In Dane County, the city of Madison has been sharing the cost of replacing lead service to homes since 2001. (By sharing, the City rebates the homeowner $1000.00 of a typical $3,000 bill.) Mount Horeb was in the news this year. A sample of homes in target areas of the Village showed 16% of the homes with higher than safety standard levels of lead in their drinking water.

Estimates for replacing lead lines put the cost at $3,000 to $5,000 per house. Obviously State and Local governments have a significant price to consider as they  write public policy to comply with EPA 15 Parts Per Billion action level directive.

As real estate licensees in the lead-in-the-water discussion, our place is not to be a referee or judge. We will see differing opinions on risk. We will hear debates of the merits of pipe replacement. Expect to hear no-fear opinions from the municipalities and water utilities. Our role is to assist the parties in reaching an agreement THEY are satisfied with, and their satisfaction of the risk of lead poisoning can not include our opinions of the evidence or the science.

Homes built prior to the 1940’s are the ones most likely to have lead pipes coming into the house from the street. It’s not always easy to see the lead pipe, but inspectors may have clues to look for. A water test for lead won’t show the a lead pipe exists, but it might provide some evidence that the water is relatively safe.

As a plan of action, consider a test by a licensed plumber done in compliance with EPA rules. Homeowners may avoid delays, surprises, and difficult negotiating positions by testing for lead in the water before offering the house for sale. Maybe we will see more home buyers requesting water tests for these older homes. Assisting the parties in knowing the rules of proper testing will always be safe and prudent practice.






Broker Liability for Misrepresentation

Cases and Lessons from Wisconsin Courts provided by the WRA in the October 2016 issue of The Wisconsin Real Estate Magazine could keep you out of harms way.  Intentional fraud is one way to be found liable but deception is not required to be liable.  Being negligent  or failing the expectation of strict responsibility (A licensee is expected to know better or the law was specific in my obligation and I failed to be responsible) will put us on the wrong side of liability just as well.

If it hasn’t happened yet, it will happen where an owner balks at disclosing and asks you for your advice on disclosure.  Case Study #1 in the feature article makes it clear and simple—Disclosure is the way to go.  Case Study #2 we see too much of. As-is is no protection for seller or brokers. There  is no way to wash hands of liability for saying take it as is when an adverse fact is known.

The WRA legal division has a finger on the pulse of Wisconsin real estate law issues. Take time to read their Cases and adopt their advice. Maybe share the Case Studies with your clients.  You will never regret disclosure.