Wisconsin REALTORS® Association - Legal Hotline Hottips
Legal Hottips - December 14, 2009 1.) Offer to Purchase - Contingencies No, the revised WB-11 has been approved in its final form by the Secretary of the Department of Regulation and Licensing, and it does not contain an attorney approval clause. The new form was available for optional use as of November 1, 2009 and has a mandatory use date of March 1, 2010. Although there is no attorney approval contingency in the WB-11, attorney involvement is encouraged throughout the form: the new WB-11 recommends in three separate places that the parties consult with their attorneys. That is not surprising given that Wis. Admin. Code § RL 16.05(1) prohibits licensees from giving advice or opinions concerning the legal rights or obligations of the parties to a transaction, the legal effect of a specific contract or conveyance or title to a property. Licensees may, however, give a general explanation of the provisions of an approved form, such as the WB-11, to the parties to a transaction at the time of completing the form or when delivering an approved from for a party’s acceptance [§ RL 16.05(2)]. Licensees may not discourage any person from retaining an attorney [§ RL 24.06(2)]. As REALTORS® we take it one step farther. Under Article 13 of the Code of Ethics, REALTORS® shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it Licensees may certainly include attorney approval contingencies in additional provisions or in offer addenda, but these provisions must be drafted with specificity and contain sufficient detail to withstand judicial scrutiny. If an attorney-approval contingency is at the sole discretion and judgment of the attorney or the buyer, this may render the contract unenforceable as an illusory contract. An attorney-approval provision that will withstand judicial scrutiny will likely need to limit the attorney’s review to specified legal aspects of the contract, and may specify a procedure similar to the one outlined in the standard inspection contingency: the attorney renders a written report of legal defects (legal description, title, provisions sufficiently definite to be enforceable, etc.), the party gives a notice of defects stating to which defects the party objects and what changes should be made to make the contract acceptable, and the other party has a right to cure – all with definite deadlines. The contingency cannot give the attorney or the buyer wide-open discretion to back out of the offer for any reason or for no reason at all. There must be definite standards. 2.) Offer to Purchase - Financing Contingency QUESTION: In the new WB-11 Residential Offer to Purchase, it states at lines 240-244: “Buyer and Seller agree that delivery of a copy of any written loan commitment to Seller (even if subject to conditions) shall satisfy Buyer’s financing contingency if, after review of the loan commitment, Buyer has directed, in writing, delivery of the loan commitment. Buyer’s written direction shall accompany the loan commitment. Deliver shall not satisfy this contingency if accompanied by a notice of unacceptability.” If the offer to purchase is in the name of two buyers, do both have to sign the authorization to deliver the loan commitment? ANSWER: Yes. Wis. Stat. § 706.02(1) states that all documents conveying an interest in a property, including the offer to purchase and the deed or land contract, is not valid unless signed by or on behalf of each of the parties. This arguably includes amendments, counter-offers, notices and the written directive authorizing delivery of a loan commitment to the seller. If both buyers do not agree to the loan commitment terms, there would be no good reason to allow only one buyer to have the power to submit it to the seller. The contract is with both buyers and both buyers must agree to any such fundamental aspect of the purchase. There is no authority in the WB-11 for only one buyer to sign the written directive authorizing delivery of the loan commitment to the seller. One party may be able to sign on behalf of the other but that would require a power of attorney. 3.) Contract Issues & Forms - Approved Forms QUESTION: The new WB-11 residential offer to purchase has some white spaces on some of the pages, particularly at the bottom of some of the even-numbered pages. Can a licensee use these spaces to add additional terms and conditions into the state-approved form? ANSWER: No, when using DRL-approved forms, REALTORS® must be aware that they are prohibited from altering the forms and must place additional material in the blank lines provided on the approved forms or use addenda. Wis. Admin. Code § RL 16.06(1) prohibits the altering of DRL-approved forms – by placing blank lines containing inserted provisions between provisions of the approved form text or adding text in existing white spaces – in such a way as to create the appearance and implication that the changes are approved by the DRL. Licensees should use the blank lines provided in the approved forms or attach an addendum as authorized under § RL 16.06 (4) and (5) when additional provisions or language is desired to reflect the contractual intent of the parties. READ MORE ABOUT IT: 4.) Commissions - Procuring Cause QUESTION: The broker has been approached by a friend who has recently looked at a property with different agent. The friend has no agency agreement with this other agent, however, she showed him several houses, including the subject property. For whatever reason, the friend has decided that he doesn't want to work with this other agent any longer and asked the broker if he would help the friend write an offer on this house that he has seen once with the other agent. The friend plans on signing a buyer agency agreement with the broker, thus making the friend the broker’s client prior to writing the offer. How does all this impact procuring cause analysis on this property? ANSWER: The issue in this question is procuring cause: who caused the buyer to make the offer that resulted in the sale of the property? There is no one act which determines procuring cause - it can only be answered by a full, knowledgeable consideration of all the facts of the case. If the brokers cannot negotiate an acceptable settlement, the dispute should be submitted to the local association for mediation or arbitration. A buyer agency agreement does not supersede or dictate procuring cause. The fact that the other agent already showed the subject property to this buyer could give rise to procuring cause. However, Arbitration Panels will consider whether the first broker did anything to cause the purchaser to reasonably conclude that the first broker had lost interest or disengaged from the transaction (abandonment). In other instances, a purchaser, despite reasonable efforts by the broker to maintain ongoing contact, may seek assistance from another broker. The panel will want to consider why the purchaser “abandoned” the first broker and whether that broker engaged in conduct which caused the purchaser to terminate the relationship (estrangement). This can be caused, among other things, by words or actions. Panels will want to consider whether such conduct caused a break in the series of events leading to the transaction and whether the successful transaction was actually brought about through the initiation of a separate, subsequent series of events by the second broker. One way to address the issue without arbitration is to speak with the original broker and see if some compensation agreement can be reached, i.e. a split of the commission, should the transaction successfully close. 5.) Offer to Purchase - Inspection Contingency QUESTION: The broker wrote an offer on the property. The offer was accepted and a home inspection was conducted. The seller refused to sign the amendment proposed by the buyer, so the buyer gave a notice of defects. There is a seller right to cure. Within the 10 days the seller has to decide whether to cure the defects and inform the buyer of the decision, the seller proposed an amendment to the buyer. Can the seller do that? ANSWER: Yes. During the seller’s 10-day response time period the seller may offer the buyer an amendment to propose a different way to address the defects that concerned the buyer. In such a case the terms of the amendment may describe techniques, materials, contractors and timing with regard to the seller repairing or replacing certain items (as opposed to the seller curing the defects in a good and workmanlike manner). The amendment should include language that the buyer and seller agree that the buyer’s notice of defects is withdrawn if the amendment is accepted. The withdrawal of the notice of defects is required because the offer to purchase provides that if the seller does not elect to cure, the offer will become null and void by the passage of 10 days after the buyer delivers the notice of defects. Debbi Conrad |