Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - July 28,
2008 1.) Offer to Purchase - Amendments The buyer drafted an offer with no mention of the kitchen appliances. The buyer and seller discussed that the buyer was going to redo the kitchen and would not want the seller's appliances so the seller sold them. At the walkthrough the buyer was upset about personal property not being on site, even though it was not in the offer. The buyer was not going to show up for closing, but agreed if they got $400 they would still close. The listing and cooperating broker and the title company agreed to give the $400. As part of the closing, the seller paid the title
company a closing fee to prepare the documents and do the closing. In a
recent transaction the title company prepared an amendment at the
closing on a WB-40 that said the buyer is buying the property "as is."
The title company presented it and reviewed it with the buyers and
sellers (the broker approved it). Does the title company have to comply
by the same rules as a real estate licensee? The buyer is upset because
the broker didn't write who presented it and drafted it. The drafting of transaction documents, such as an offer or an amendment, would need to be completed either by the parties themselves, a real estate licensee providing real estate brokerage services or an attorney. Presuming the broker did not draft the document, the broker would not be named as the drafting or presenting broker. If a title company employee or staff drafted such an amendment, without proper authority or credentials, they could be engaged in the unlicensed practice of law. The Office of the Commissioner of Insurance regulates the practice of title insurance companies. Regardless of who drafted the document, if signed and
agreed upon by the parties, it could affect their legal rights
regarding the transaction. Whether the amendment addressed the
appliances only or significantly modified the buyer's and seller's
rights by the addition of an "as is" clause would require the analysis
of independent legal counsel who could advise the parties. The broker
would be practicing competently by referring the parties to an attorney
to review the terms and conditions of the amendment. 2.) Offer to Purchase - Financing Contingency QUESTION: The seller had an accepted offer on a property and received a loan commitment from the buyer's lender. The buyer has decided to not go through with the transaction because the interest from the lender is higher than what is in the offer. Even though the listing agent has the commitment letter, the buyer said he did not authorize the higher interest rate. Does the buyer get the earnest money back? ANSWER: While it is natural to want to help the side that "deserves" it, the disbursement of trust funds, including earnest money, from a real estate trust account is controlled by rules that do not concern themselves with who is right or wrong but establish a procedure that gives everyone a fair chance to make a claim on them. The rules are found in Wis. Admin. Code § RL 18.09(1) & (2). § 18.09(1) sets up the bases upon which a broker may disburse the funds. These include agreement of the parties either in the form of cancellation and mutual release (WB 45) or the provisions dealing with earnest money in an accepted offer. § 18.09(2) establishes procedures for notice before disbursement if the matter is in dispute. The rules are fairly mechanical and do not give the broker the right to decide who deserves to receive funds. In part this is based on the need for the broker to have a way to get out of the middle of a fight without being drawn into it. Also it is based on the fact that disbursement of the funds, unless accompanied by a mutual release, does not affect the rights of the parties against one another under the offer. By learning and using the rules a broker can avoid liability for disbursing earnest money when a deal falls apart. The broker may wish to prepare a notice form for the buyer stating that the interest rate in the commitment is higher than that called for in the offer and is unacceptable and that the offer should be terminated because the financing contingency has failed. In addition the broker may wish to draft a cancellation agreement and mutual release (CAMR) returning the earnest money to buyers. If all parties sign the CAMR, the listing broker may disburse the earnest money. If the sellers refuse to sign, the broker should advise the buyers to consult an attorney for legal advice. In this case the buyer's lender may have sent the seller
the loan commitment with or without the buyer's consent. Without a
notice of unacceptability, the loan commitment provided to the seller
satisfied the financing contingency. If the parties cannot come to an
agreement the broker should advise both parties to consult an attorney. 3.) Contract Issues & Forms - Personal Property and Fixtures QUESTION: The sign outside of a commercial property has a frame on top of a brick base with panels in it. The company who was a tenant on the property wants to take the panels, which is understood. Is the frame considered a fixture? Nothing was addressed in the offer regarding the frame. ANSWER: Generally all "fixtures" of the real estate are included
in the purchase price unless specifically excluded from the contract.
(See lines 11-14 of WB-15). As the metal sign framing is physically
mounted into the brick structure, it would likely be considered a
fixture of the property. (See lines 117-120 of WB-15). However, if the
fixture is a "trade fixture of the tenant" it would generally be
excluded per the terms of the contract. (See lines 119-120 of WB-15). A
trade fixture is defined as a fixture attached to the real estate by a
tenant under a commercial lease to further his or her business and is
removable by the tenant at the end of his or her lease in most cases.
In this particular instance, the broker may wish to obtain additional
information to better evaluate the situation. For example, who
installed the sign, the tenant or the owner, and for what purpose? Most
tenants would be able to produce ownership records/invoices for the
trade fixtures they own. The broker may wish to refer her client to an
attorney for a legal opinion on the status of the contract if an
agreement can not be reached. 4.) Agency - Miscellaneous Agency QUESTION: A customer noticed a real estate sign on a property that had been taken down for several weeks. The agent and the buyer went to look at the property to identify it. The agent looked up the history on the MLS and it showed up as expired as of June 24. The agent returned to the property and spoke with the owner. The agent was told that the owners had just accepted an offer with a 90-day contingency. The seller has no current listing with other brokers and this buyer is not a protected under a prior listing. What are the agent's rights to approach the seller as a FSBO about showing the property to her buyer customers, or must she work through the previous listing agent? ANSWER: To call on a FSBO and negotiate on behalf of the buyer,
a broker needs either a one-party listing with the seller or a buyer
agency agreement with the buyer. 5.) Listing Contracts - Listing Protection QUESTION: It has recently come to the broker's attention that during the term of a recently expired listing contract, a prospect stopped by the seller's house, apparently in response to the for sale sign in the yard and chatted with the seller to the point where they discussed possible price, closing date and other purchase terms. The broker was not informed of this at the time. Can the broker sue the seller for this? ANSWER: The fact that the seller failed to notify the listing broker of the name of a potential buyer with whom the seller negotiated is a breach of contract and may give rise to a cause of action for damages. In addition, any such buyer that negotiates during the term of the listing directly with the seller by discussing the potential terms upon which the buyer might acquire an interest in the property is automatically protected for one year under the Extension of Listing section (see lines 61-65 and 220-229 of the 2008 WB-1 Residential Listing Contract). The difficulty may be in establishing that such negotiations took place directly between the buyer and seller during the term of the listing contract. 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 |