Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - May 18, 2009 Tax Credit Can Be Used for Down Payment Previously, most buyers wouldn't receive the funds until after they filed their tax return, and that deterred some people from using the credit. The NATIONAL ASSOCIATION OF REALTORS® has been calling for the change. "We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment," Donovan says. He says FHA's approved lenders will be permitted to "monetize" the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table. For more information, visit http://www.wisconsinhomebuyer.org/. 1.) Disclosure - Material Adverse Facts Wis. Stat. § 709.035 requires the sellers to amend the Real Estate Condition Report (RECR) prior to the acceptance of a contract if the sellers obtain information or become aware of any condition that would change a response on their RECR. The sellers may choose to attach a copy of an inspection report or test results to the RECR to accomplish disclosure for future transactions. If the sellers amend the RECR for this transaction, it would give the buyer the right to rescind the offer to purchase. If the seller does not amend the RECR, the broker in the transaction has a duty to disclose material adverse facts to the parties, in writing and in a timely manner. If the sellers fail to disclose the nitrate test results, the licensee is required to disclose material adverse facts. The broker may refer to Legal Update 02.12, online at www.wra.org/LU0212, or ZipForm for a sample material adverse fact disclosure letter. The presence of the higher nitrate level may be treated as a mutual mistake of fact because neither party apparently was aware of this at the time when the offer was written and accepted. When both parties are mistaken as to a basic factual assumption on which the contract was made and the mistake has a material effect on their performances, the contract is voidable by the party adversely affected. Under this theory, both parties must have been mistaken. A mistake by only one of the parties makes a contract voidable only if the party who causes the mistake has reason to know the other party is proceeding based on that mistake. The mistake must be based upon a past or present fact. 2.) Offer to Purchase - Earnest Money QUESTION: If an offer to purchase is written with non-refundable earnest money, can the offer state to have the non-refundable earnest money paid directly to the seller instead of being held in broker's trust account? ANSWER: Yes, so long as the offer to purchase is so modified and the parties agree. 3.) Listing Contracts - Miscellaneous Listing Issues QUESTION: If agents from two different companies are co-listing a property, should they each have a listing contract or should there be one listing contract naming both agents? ANSWER: A co-listing, with seller's consent, is permissible. However, each broker should have a very clear written understanding of what is expected of each, including commission and areas of liability. A co-listing may be prepared with one contract signed by the seller and both brokers or with each broker having their own listing contract. An agreement between brokers regarding their respective responsibilities should also be created. This agreement establishes the respective duties, obligations, responsibilities, costs, etc. between the two brokers and indicates how commission will be divided. It is important to protect the seller from paying any potential double commission. Note that some MLS's will not accept certain co-listings. The broker should first check to see whether this would violate the rules of any MLS or listing service the brokers intend to use. 4.) Listing Contracts - Exclusive Agency QUESTION: The broker wants to place signs in FSBO yards with the seller's phone number, the broker's office logo and phone number, and a lender's logo and phone number. The broker would be listing the property in order to offer an MLS listing program. Is this legal? If not, what provisions have to be made? ANSWER: First, it will be necessary to execute an exclusive agency listing agreement with the seller. In an exclusive agency listing, the property is listed with only one listing broker, but the seller retains the right to sell the property by him or herself without owing a commission to the broker. To modify the 2008 WB-1 Residential Listing Contract-Exclusive Right to Sell to produce an exclusive agency listing, the following items should be modified or deleted: 1) delete he phrase "right to sell" from the title and line 1 of the Listing and insert in its place the word "agency," 2) add a provision under Additional Provisions on lines 242-250 to the effect that "Broker's commission is not earned based on lines 40-49 of the Commission section if the offer accepted, option granted or exchange agreement entered into by Seller is with a purchaser procured by Seller;" and 3) delete the words "by Seller" from line 46 in the Commission section. Second, in the MLS, the broker will need to disclose that this listing contains a variable commission. Standard of Practice 3-4 of the REALTOR® Code of Ethics provides that REALTORS®, acting as listing brokers, have an affirmative obligation to disclose the existence of dual or variable rate commission arrangements (i.e., listings where one amount of commission is payable if the listing broker's firm is the procuring cause of sale and a different amount of commission is payable if the sale results through the efforts of the seller or a cooperating broker). The listing broker shall, as soon as practical, disclose the existence of such arrangements to potential cooperating brokers and shall, in response to inquiries from cooperating brokers, disclose the differential that would result in a cooperative transaction or in a sale that results through the efforts of the seller/landlord. If the cooperating broker is a buyer's agent, the buyer's agent must disclose such information to their buyer/client before the client makes an offer to purchase. There is a concern over the described for sale sign - having both FSBO and the brokerage agency on the sign is likely to create confusion with public as well as other brokers. The broker may wish to consider two signs - one for the FSBO contact information and one for the real estate company. Alternatively, some brokerage models offering a service similar to the one described have a broker real estate sign with the seller's telephone number on the sign rider. The lender advertisement on the sign likely will not violate RESPA regulations provided the lender pays an appropriate advertising fee - no less/no more. If the lender's advertisement takes up approximately 1/4 of the sign, then the lender should be paying 1/4 of the cost. 5.) Offer to Purchase - Acceptance QUESTION: The agent's broker and another broker have a co-listing contract on a foreclosure property through a sheriff's sale. Would it be unethical for the agent to submit an offer, since the agent's office has a listing contract? ANSWER: Wis. Admin. Code § RL 24.13(3)(b) states that, "A listing broker or the listing broker's employee may not submit his or her own offer to purchase a property which the broker has listed if the broker or broker's employee has knowledge of the terms of any pending offer, except that a broker may arrange for a guaranteed sale at the time of listing." Under this rule, a licensee must have knowledge of the terms and conditions of the third party offer before he or she is forbidden from submitting his or her own offer. This means that the licensee in the listing office can know that the listing agent received an offer to purchase, but still may submit his or her own offer to purchase as long as the licensee doesn't know what terms and conditions are in the first offer. Note that many companies have established more restrictive company rules on this process in order to avoid the appearance of impropriety.
Debbi Conrad |