Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - November 9, 2009 Homebuyers $8,000 Tax Credit Extended through April 30, 2010 The new law added several new provisions that apply to persons purchasing homes on or after November 7, 2009:
Extended Homebuyer Tax Credit Resources
Attention All Condominium and Vacant Land Practitioners! The Department of Regulation and Licensing’s Real Estate Contractual Forms Advisory Committee is working on revisions to the WB-14 Residential Condominium Offer to Purchase and has a preliminary working draft. If you have a working knowledge of condominium transactions and would like to comment on the draft – either individually or as a guest at the WRA Forms Committee’s next meeting/conference call – we would love to hear from you! Please contact Debbi Conrad at dconrad@wra.org. In addition, the DRL will next be working on the WB-13 Vacant Land Offer to Purchase. We are looking for ideas regarding what types of provisions should be included in the revised vacant land offer. If you assume that the updated WB-11 Residential Offer to Purchase is the starting point, what additions and modifications should be made to create a WB-13 uniquely suited for vacant land transactions, including everything from a residential subdivision lot to large development tracts. If you have ideas for vacant land offer provisions, please contact Debbi Conrad at dconrad@wra.org or Kevin King at kking@wra.org. 1.) Offer to Purchase - Testing The inspection contingency in the DRL-approved WB-11 Residential Offer to Purchase allows the buyer to object to any “defect(s) identified in the inspection report.” After completing a home inspection, a home inspector must submit a written report to his or her client (the buyer) that describes the condition of the inspected items, describes the condition of any item that, if not repaired, will have a significant adverse effect on the life expectancy of the item and lists any material adverse facts that a home inspector has knowledge of or has observed. Sellers do not have to allow tests unless the tests are authorized in the offer. In this case the water run against the foundation may be considered a drain tile/foundation “test” which was not approved and the seller did not have to allow it to be done. Given that the test has already been done and the results have been included in the inspection report, the seller should consult with his or her attorney to determine what effect the unauthorized test has upon the buyer’s rights under the inspection contingency. A separate issue may arise if the unauthorized “test” resulted in damage to the property. Per lines 97 – 102 of the WB-11 Residential Offer to Purchase, the buyer has the duty to restore the property to its original condition after the inspection, unless otherwise agreed with the seller. Therefore, if the home inspector damaged the property, the buyer may be responsible to the seller to pay for the damages. The home inspector is, in turn, responsible to the buyer per the terms of their contract. If the parties are unable to reach a mutually satisfactory resolution, they should be instructed to confer with legal counsel. If the amount of the damages being sought by the seller is less than $5,000, the matter may be submitted to small claims court. 2.) Offer to Purchase - Financing Contingency QUESTION: The primary offer had a financing contingency that required that a loan commitment be submitted by October 16. It was given to seller on October 19 prior to the buyer receiving any notice from the seller. The agent was notified after the fact that the seller had removed the buyer from primary position and put another offer in primary position. Was that appropriate? 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.” A buyer has a grace period past the deadline stated in the financing contingency for the submission of a loan commitment – 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 original primary offer is still alive. If another offer has been made primary, the agent must immediately contact legal counsel for advice because it would appear that the seller, who should also contact his or her attorney, has two primary offers. 3.) Trust Accounts - Earnest Money QUESTION: The following is the language in a foreclosure property addendum: “NOT WITHSTANDING CUSTOMARY PRACTICES OR ANY PROVISION OF THE CONTRACT TO THE CONTRARY, UNLESS OTHERWISE PROVIDED IN THIS COUNTERPROPOSAL OR REQUIRED BY APPLICABLE LAW, THE EARNEST MONEY SHALL BE NON-REFUNDABLE.” If the buyer has a financing contingency and is denied financing, can the REO seller keep the earnest money? Is that fair when the seller is an asset management company that will not return the earnest money? ANSWER: The parties may agree to non-refundable earnest money as a condition of the offer to purchase. If such terms are not acceptable, the buyer could counter the offer to remove the references to non-refundable earnest money or not enter into the contract. If financing is not available, the buyer may submit a Cancellation Agreement and Mutual Release and request the return of the earnest money. It would be the REO seller’s/asset manager’s decision whether to agree – they may simply not sign such a CAMR. If the parties cannot agree to a disbursement, the earnest money remains in the broker’s trust account. The parties may be referred to legal counsel for a review of the offer to purchase and legal advice regarding the transaction. 4.) Listing Contracts - Resale of Property QUESTION: If someone is buying vacant land under a land contract (has not closed yet), can the buyer list that property with a broker and sell it to someone else? ANSWER: A listing contract must be signed by someone agreeing to pay a commission, even if the signatory does not yet have actual authority to transfer the property. Any offers to purchase between the current buyer and the party to whom the property will be resold must be contingent upon the current buyer closing on the property. In order for the current buyer to be able to provide a deed to a new buyer, the current buyer will have to pay the entire balance of the land contract to the current seller. Any marketing activities physically taking place on the property prior to the closing of the land contract also require the written consent of the current seller. Such activities might include such things as survey work, showings and signs. If these guidelines are observed, a licensee may market a property for resale by the buyer. 5.) Offer to Purchase - Miscellaneous QUESTION: The broker represents the seller on an accepted offer with all contingencies satisfied. The buyer is now in the process of obtaining homeowner’s insurance. The buyer was notified that the cost of his homeowner’s insurance will be higher due to an outstanding claim submitted by the seller. Is this something that is required to be disclosed by the seller or the broker? The broker didn’t ask the question. Is it legal for the price of a new homeowner’s insurance to be impacted by the actions and insurance claims of the previous owner? The seller has a claim with the insurance company regarding the basement plumbing and snaking to the street. If so, how long is that history looked at? ANSWER: Comprehensive Loss Underwriting Exchange (CLUE) is a loss history information database developed by and used by insurance companies to share information about insurance claims, reported losses and damage, and even insurance policy inquiries with respect to properties and individuals. The CLUE Home Sellers’ Disclosure Report provides a five-year history of claims and losses associated with an individual and his or her home. The date of loss, loss type and amount paid along with general information such as the policy number, claim number and insurance company name are provided for each identified loss. The report also lists all companies that have inquired about the person’s loss history in the last two years. Seventy percent of all CLUE reports have no reported claims or paid losses – the average homeowner files an insurance claim only once every 10 years. Some sellers may not remember the details of property damage events such as water intrusions very well, so having the seller order his or her CLUE report serves as a back-up measure to double check that nothing is missed. Real estate agents and prospective buyers cannot order or obtain CLUE reports on properties. Should a prospective purchaser want a CLUE report for a property, he or she should make it a condition of his or her offer that the seller request and provide such a report. Listing agents can include provisions in the listing contract if they want to require sellers to have a CLUE report available for the listed property. READ MORE ABOUT IT: Also see the WRA’s Insurance Tips for Homebuyers @ www.wra.org/buyerinstips and the WRA’s Wisconsin Homeowner’s Insurance Resource Page @ www.wra.org/insurance. Other resources include the Consumer’s Guide to Homeowners Insurance @ oci.wi.gov/pub_list/pi-015.htm, the National Association of REALTORS® Field Guide to Insurance Availability @ www.realtor.org/libweb.nsf/pages/fg718 and the Insurance Information Institute @ www.iii.org. Debbi Conrad |