Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - September 28, 2009 1.) Disclosure - Environmental & Health Issues The World Health Organization has issued a news release indicating, in a nutshell, that the new standard for radon testing should be 2.7 pCi/l instead of the Environmental Protection Agency standard of 4.0 pCi/l. What is EPA doing about this information? Which standard should be used in an offer to purchase when REALTORS® have a radon test contingency? According to this WHO press release, “WHO is suggesting that homeowners take action when radon levels exceed 2.7 pCi/L.” Current EPA recommended standards for real estate transactions are to mitigate if the measured radon concentration is above 4.0 pCi/L and to consider mitigation if the radon concentration is between 2.0 and 4.0 pCi/L. The National Association of REALTORS® has advised the WRA that the EPA standard is still operative. A WHO suggested standard has no legal or regulatory status as a binding authority. The WHO published this announcement on Sept. 23. Any action by EPA to lower the standard would require a various procedural activities and consultations with impacted stakeholders, public comment and review period, etc. READ MORE ABOUT IT: 2.) Offer to Purchase - Preclosing Occupancy/Repairs QUESTION: The parties have an accepted offer. Two days after inspection, there was a fire in the property and the damage was considerably more than 5% of the purchase price. Per line 119 of the WB-11 Residential Offer to Purchase, the sellers informed the buyers in writing of the damage and the buyers e-mailed and said that they still want to go through with the purchase. The buyers, however, still have a financing contingency. The sellers are concerned about how to address the insurance proceeds -- the damage was estimated at $192,000 and the purchase price was over $400,000. How to proceed? ANSWER: The insurance proceeds are discussed on lines 119-121 of the WB-11: “Should Buyer elect to carryout his Offer despite such damage, Buyer shall be entitled to the insurance proceeds relating to the damage to the Property, plus a credit towards the purchase price equal to the amount of Seller’s deductible on such policy.” One option to avoid the insurance proceeds discussion is for the parties to agree to a new purchase price in an amendment. Typically the new purchase price would reflect the subtraction of the insurance proceeds from the original purchase, assuming that the seller would then receive the insurance proceeds. Setting a new purchase price may also help the buyer address the issue of the property appraising for the loan amount. The amendment setting a new purchase price would likely also delete the provisions at lines 115-123 of the WB-11 because the new purchase price represents a solution to the situation other than the process set forth in the offer. If the parties do not agree to such an amendment and a new purchase price, then lines 119-121 would control the disbursement of the insurance proceeds. If the buyers do not agree to the new purchase price and the sellers fear that the buyers will cancel the contract per line 119 of the WB-11, the sellers may wish to consult an attorney about the legal consequences of the buyers’ e-mail stating their intent to proceed. However, even if the sellers would be successful in arguing the buyers waived their right to cancel the contract, the buyers may still be able to walk away based on their possible inability to obtain financing per the financing contingency given the fire situation. 3.) Mortgage Banking/Finance - General Finance QUESTION: Re: Land Contracts and the first-time homebuyer tax credit. ANSWER: Here is the new addition from the IRS on their Q and A page at http://www.irs.gov/newsroom/article/0,,id=206291,00.html. Q. Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer's payment obligations? A. If the taxpayer obtains the "benefits and burdens" of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property. (New 7/2/09) READ MORE ABOUT IT: 4.) Listing Contracts - Miscellaneous Listing Issues QUESTION: An agent has a listing and has been told by the sellers that they have been discharged in a bankruptcy. The property will be going to sheriff's sale on October 6. What is the status of the listing? ANSWER: Bankruptcy may offer relief to the distressed homeowner. Basic bankruptcy information is available online at www.uscourts.gov/bankruptcycourts/bankruptcybasics.html and at www.wiwb.uscourts.gov/Bankruptcy_Info.htm. A bankruptcy may stall or delay a foreclosure. Whether bankruptcy is a viable alternative to foreclosure is a question for the homeowner’s attorney. A homeowner who has filed bankruptcy may still be eligible for a short sale provided the bankruptcy trustee consents to the sale of the property. The agent may wish to confer with both the sellers and the trustee in bankruptcy to determine the status of the seller with respect to the home and the mortgage, and any possible sale by the seller in advance of the sheriff’s sale. 5.) Listing Contracts - Miscellaneous Listing Issues QUESTION: An agent has a listing for multiple properties. The title to the property is held in three trusts. The trustee of one trust, an attorney, had his daughter sign the listing contract as his Power of Attorney. The client passed away and now the POA has been named as trustee. Does the agent need a new listing contract, or can it be amended naming the trustee? Before the client passed away the daughter was appointed a POA. ANSWER: When the principal is an individual, the authority to market and sell a property terminates upon the death of the principal. The authority of the POA to act on behalf of a principal also terminates upon death of the principal. Generally, the authority to act on behalf of a trust is vested in a trustee. Whether a trustee can authorize a POA to bind the trust is a question for the attorney representing the trust. Regardless of how title is held, a listing contract can be signed by someone agreeing to pay a commission. However, whether the person signing the listing may or may not be someone who has, or will have, the authority to sell the property is an independent question. The terms of the trust and the authority of the trustee would need to be reviewed to determine if the broker retains a valid listing or a new listing would be required. Debbi Conrad |