Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - February
18, 2008 1.) Agency - Disclosure The broker disclosure to client currently required by law is now incorporated in the 2008 WB-36 Buyer Agency/Tenant Representation Agreement. Although in some markets, buyer's agents provide a copy of the Broker Disclosure to Clients to the listing broker, according to license law, a buyer's agent is not required to provide a copy of the Broker Disclosure to Clients form to the listing broker. Pursuant to Wis. Admin. Code § RL 24.07(8), the buyer's agent is required to disclose the buyer agency upon first contact with the seller or the listing broker and the buyer agency relationship is reconfirmed on line 1 of the offer to purchase. READ MORE ABOUT IT: 2.) General Real Estate - Foreclosure QUESTION: The Mortgage Forgiveness Debt Relief Act was signed into law by President Bush in December 2007. A broker has listed the home of a seller who is going into foreclosure and sheriff's sale is coming up soon. Does this new Act provide that if the seller accepts a short sale, the lender cannot give seller a 1099 for the difference between the amount of the sale price they accept and the amount the seller owes? ANSWER: Please, licensees should not give tax advice to sellers; even if they tell the seller the correct tax information the seller may get it wrong and sue the licensee for bad advice. That being said, taxpayers who lose their homes in 2007, 2008 and 2009 may not have to pay income tax on the portion of their debt to the lender that is forgiven; however, this only applies to homestead and not to second homes or investment property. The lender would likely still issue the Form 1099-C, reporting the amount of the debt forgiven in the transaction and the taxpayer would need to work with his tax professional to indicate on his tax return why the Act applies and makes that amount not taxable. READ MORE ABOUT IT: 3.) Trust Accounts - Earnest Money QUESTION: Question pertaining to a transaction written in 2006. It was extended for numerous months at a time, then monthly. Approximately 65 days ago was the closing date that was agreed to. After that time the seller did not sign any cancellation agreement and mutual release (CAMR) or extension. What are the ramifications with the earnest money? ANSWER: The listing broker cannot unilaterally decide to disburse the earnest money to the seller or to the buyer. The broker may violate Wis. Admin. Code chapter RL 18 for disbursement of funds without authority. While it is natural to want to help the side that "deserves" it, the disbursement of earnest money and other trust funds from a real estate trust account is controlled by rules that do not concern themselves with who is right or wrong, but rather establish a procedure that gives everyone a fair chance to make a claim on the funds. Wis. Admin. Code § RL 18.09(1) & (2) establish the rules allowing a broker to disburse the funds. Funds may be disbursed, for example, upon agreement of the parties in the form of a WB-45 cancellation agreement and mutual release or provisions in an accepted offer specifically authorizing disbursement of earnest money. Wis. Admin. Code § 18.09(2) establishes procedures for giving advance notice to the parties prior to a disbursement that may be in dispute. The rules are fairly mechanical and do not give the broker the right to decide who deserves to receive funds. 60 days after the scheduled closing days has past, the listing broker may choose to initiate a small claims action or seek an impartial attorney's written opinion as to who should receive the earnest money. The broker may deduct up to $250 from the earnest money for the legal fees involved in either of these alternatives. The broker also may continue to do nothing and allow the parties to find a way to resolve the earnest money dispute themselves or through their attorneys. READ MORE ABOUT IT: 4.) General Real Estate - Condominiums QUESTION: Is it legal for a condominium association to only allow two residents per unit? ANSWER: The Federal Fair Housing Amendments Act of 1988 added the new protected class of family status to persons who have the right to pursue remedies for housing discrimination based on that particular status. Family status was added to the list of protected classes under Wisconsin law in 1992. Both the federal law and state statutes provide that it is not discrimination based on family status if property owners comply with any reasonable federal, state or local regulations/ordinances which relate to the maximum number of occupants permitted to occupy a housing unit, and these standards are fair and reasonable. Neither law prohibits an owner or property manager from restricting the number of occupants so long as the number of occupants, and no other factor relating to protected classes, resulted in the restriction. Occupancy standards may be created to meet legitimate reasons: health and safety of the occupants; prevent overcrowding, etc. HUD has issued a statement of policy setting a general standard of two persons per bedroom to be used in enforcing the federal fair housing law. It will also consider several criteria to determine whether an occupancy policy is reasonable or not: 1 size and number of bedrooms; size of unit; configuration of unit; age of children; other physical limitations of the housing; and any applicable state and local laws. Occupancy standards more restrictive than two persons per bedroom are evaluated to see if they are reasonable under the circumstances. HUD also has occupancy standards for its Section 8 rentals designed to protect the government subsidy and ensure the efficient use of a rental unit: 1 children under two years of age may share a bedroom with a parent; 2 children of different sexes under 5 years of age may share a bedroom. When the oldest child reaches the age of 5, the children should occupy different bedrooms; and 3 no more than two persons should share a bedroom. In summary, owners and property managers may adopt occupancy standards so long as such standards are in compliance with reasonable federal, state or local regulations/ordinances, they relate to the number of occupants of the dwelling unit and they are not based on any other factor relating to protected classes. READ MORE ABOUT IT: 5.) Contract Issues & Forms - Approved Forms QUESTION: The broker will be listing a property zoned commercial. The improvements include a building that was operated as a bar and living quarters. The business has not been operated for many years. The residence is now vacant. Essentially, the broker will be selling 2+ acres plus the building. All property left in the bar will be included in the sale. What type of listing contract should the broker use? Does the broker only need to itemize, on a bill of sale at the time of closing, any personal property included with the sale (i.e. bar stools, tables, etc.)? ANSWER: Commercial transactions involve the sale of real estate used for retail, industrial, manufacturing, and other business purposes while business transactions will always involve the sale of the actual business operations, along with the possible transfer of leasehold or fee simple ownership rights to the real estate associated with the business. When a business opportunity or ongoing business is being sold, the proper forms to use are the WB-6 Business Listing, and the WB-16 Business Offer With Real Estate or the WB-17 Business Offer Without Real Estate. These transactions will tend to include business assets such as inventory, equipment, furniture, accounts receivable, goodwill, trade names, licenses, and personal or real property leases. These business or business opportunity transactions may or may not include the sale of an ownership interest in real estate. For example, the sale of "Bob's Supper Club" is a business transaction if it includes the kitchen equipment, furniture, liquor inventory, hand-off of the liquor and restaurant licenses, accounts, and goodwill in the club's name, regardless of whether real estate is involved in the transaction. A commercial transaction, on the other hand, will involve primarily the sale of real estate. Some items of personal property may be included, just as in residential and other transactions, but the main focus is the real estate, for example, the warehouse building. The sale of "Bob's Supper Club" would become a commercial transaction if just the real estate was being sold and Bob was moving the "Bob's Supper Club" business to a new location a few miles away. The Department of Regulation and Licensing tells licensees to use the form that requires the least amount of modification. Therefore, the easiest step is to compare the WB-5 Commercial Listing and the WB-6 Business Listing and see which form requires the lease amount of modification in this transaction. There is no right or wrong answer when it comes to which form to use. READ MORE ABOUT IT:
ATTENTION APPRAISERS The Secretary of the Department of Regulation and Licensing is in the process of filling one, possibly two, positions that will become vacant April 1 on the Real Estate Appraisers Application Advisory Committee. Any appraiser who is interested in serving on the Committee, may forward a resume and other relevant information relating to his or her appraisal experience and qualifications by February 29th to Tim Wellnitz at Tim.Wellnitz@wisconsin.gov. The function of the Committee is to review and advise
the Department on appraiser applications. If you have any questions, please contact Tim Wellnitz, Bureau Director, Bureau of Business & Design Professions, Department of Regulation & Licensing, by e-mailing Tim.Wellnitz@wisconsin.gov or by calling 608-261-4486. 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 Best of the Legal Hotline service. Debbi Conrad |