Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - March 16, 2009 1.) General Real Estate - Foreclosure The seller may not elevate the secondary offer without consideration of the terms and conditions of the primary offer. The seller should work each contract through on its own merits. If the lender approved the primary offer subject to a $221,000 purchase price and the WRA Addendum SSO was incorporated into the primary offer, the seller may initiate an amendment with the primary buyer to amend the price to $221,000. The Addendum SSO provides that if the lender conditions the approval upon modification of the offer, the modifications are not binding upon the buyer and the seller unless the parties mutually consent. If the primary buyer agrees to the amendment, the primary transaction may then proceed with the lender's approval. The seller may provide an amendment increasing the purchase price and a Cancellation Agreement and Mutual Release (CAMR) simultaneously to the primary buyer. This will allow the buyer to choose whether to increase the price and proceed with transaction or sign the CAMR and terminate the offer. If the primary buyer elects to terminate the transaction and signs the CAMR, the seller may elevate the secondary offer to primary position. 2.) Disclosure - Real Estate Condition Report QUESTION: Re: Land contract vendor who is getting the property back because the land contract vendee has failed to perform on the land contract. She had not lived in the property for two years. Must she complete a Chapter 709 Real Estate Condition Report (RECR)? ANSWER: When the property is coming back from the land contract vendee to the vendor, the vendee would complete a RECR unless the conveyance back to the land contract vendor is exempt. It is not clear exactly how this is being done, most likely via an affidavit because the vendee abandoned the property. This transfer may be exempt from the RECR if there is a conveyance back to the land contract vendor that is:
meets another exemption. When the land contract vendor gets the property back from the vendee, if she plans to sell it again, she would be expected to complete a RECR. If the property is sold "as is," the seller may decide to forego completion of a RECR. All sellers subject to Chapter 709, whether broker-assisted or FSBO, must complete a Chapter 709 RECR or risk rescission of the offer to purchase. Chapter 709 generally applies to all persons who transfer real estate containing one to four dwelling units, including condominium units, time share property, living quarters in a commercial property, etc. Chapter 709 does not apply to (1) personal representatives, trustees, conservators and other fiduciaries appointed by or subject to supervision by the court, but only if those persons have never occupied the property (Note this does not include powers of attorneys); (2) real estate which has not been inhabited, e.g. new construction; and (3) transfers exempt from the real estate transfer fee, e.g. between spouses, foreclosures, probate transfers, etc. There is no exemption from the Chapter 709 seller disclosure law based solely on the fact that the owner does not live in the property. Such owners might include the owner of a rental duplex or a bank that has acquired a home by foreclosure. A seller in this position can either (a) complete the RECR to the best of his or her knowledge, (b) retain a professional to provide an inspection report to be used as the basis for completing the RECR, (c) refuse to complete the RECR and sell "as is", risking buyer rescission, or (d) refuse to complete the RECR and sell "as is", refusing to accept any offers from buyers who do not waive their Chapter 709 rescission rights. 3.) Offer to Purchase - Financing Contingency QUESTION: The buyer has a financing contingency that is expiring but no loan commitment has been given to the seller. Even though the financing contingency has expired, additional earnest money has been given to the seller and a number of amendments to the offer to purchase have been signed by both parties. The buyer has not been able to secure financing. Is the buyer still obligated to purchase property? Does the buyer forfeit his earnest money? ANSWER: Lines 171-172 of the WB-11 Residential Offer to Purchase provide, "SELLER TERMINATION RIGHTS: If Buyer does not make timely delivery of said commitment, Seller may terminate this Offer if Seller delivers a written notice of termination to Buyer prior to Seller's actual receipt of a copy of Buyer's written loan commitment." The buyer will continue to have a grace period - the buyer can still submit a loan commitment that will be considered timely as long as the seller does not first deliver a notice of termination to the buyer. Therefore, the financing contingency is not removed and the offer is still alive. If the seller decides to send notice terminating the offer, unless the language in the amendments states otherwise, or unless the buyer has not acted with due diligence and in good faith, the earnest money would be returned to the buyer. 4.) Title Issues - Miscellaneous Title Issues QUESTION: The agent has a listing and the seller wants to list it as having a third bedroom, which is in a rec room with a bed and it has windows. The agent put "lower level/third bedroom" and then stated "third bedroom may not be up to code." The seller wants that statement off of the MLS. If the agent takes this off, can the agent be held liable at all if the bedroom doesn't meet code? ANSWER: Yes, the agent may be held liable for misrepresentations made in the MLS. To determine whether the basement room can be a legal bedroom will depend on the year the home was built and the applicable code requirements. Therefore, to determine if a basement room is a legal bedroom the agent should contact the Wisconsin Department of Commerce at 608-266-7391(or, the Department will answer questions submitted by fax at 608-267-9566). Additionally, the local building inspector should be contacted to determine if any additional local regulations or zoning requirements would apply to the property. Until a final determination is made about basement rooms, the agent is advised to market the rooms in basement as "rooms used as bedrooms" rather than additional bedrooms to protect the agent from misrepresentation of the number of bedrooms. Additionally, the agent may work with the seller to determine if proper permits were issued for the work done in the basement. If it is determined that the rooms are not consistent with applicable building codes, the disclosure should be made in the MLS. The fact that the use of the basement room is inconsistent with local ordinances should also be noted in the exceptions to merchantable title in the offer and potentially in the deed. 5.) Commissions - Offers of Compensation QUESTION: A MLS profile sheet states in the remarks section: "Broker's commission shall be 6% if co-brokered; 4.95% if buyer procured by the listing broker." Is this legal? ANSWER: For this property, the listing broker apparently has a variable commission agreement with the seller. Such agreements are lawful. Pursuant to MLS rules and the Code of Ethics, the listing broker has a duty to disclose the existence of a variable commission and, if asked, the differential that would result in a cooperative transaction as compared to a sale resulting from the efforts of the listing broker. In making this disclosure, the listing broker should not disclose the gross commission amounts agreed upon in the listing contract. Rather than disclosing 6% and 4.95% as above, the appropriate method for the listing broker is to disclose that there is a commission differential equal to 1.05% of the sales price for offers procured by cooperating brokers versus offers procured by the listing broker. Additionally, this disclosure should not be made in the public remarks section of the MLS profile sheet but should be in the private broker-to-broker remarks section. READ MORE ABOUT IT: Debbi Conrad |