WRA Legal News Weekly January 11, 2021

Top News: • Extended Moratorium and Emergency Rental Assistance • Increase Diversity with Partnership for Success • Legal Hotline Available on Sunday Afternoons

Legal Hottips: • Criteria for protected buyers • Repair of RECR defect • Discriminatory covenants • executive summary • Possible material adverse facts

Top News

Extended Eviction Moratorium and Emergency Rental Assistance In the latest COVID-19 relief act, Congress extended the Centers for Disease Control and Prevention (CDC) imposed eviction moratorium through January 31, 2021, and established a $25 billion fund to assist those who have missed rent or utility payments due to the pandemic. Grant money may be used to pay current and past due rent, utilities, home energy costs and other housing expenses incurred due to COVID-19.

The Emergency Rental Assistance Program prioritizes assistance for households that have income totaling less than half the area median household income or where an individual has been unemployed for more than 90 days. Individuals who have qualified for unemployment benefits, experienced a reduction in household income, had other financial hardship due to COVID-19, or can demonstrate a risk of homelessness or housing instability can also apply. Any assistance received will not be treated as income.

The act allows and owners to assist renters in seeking grant money and allows the landlords to apply on behalf of a renter in their dwellings. If a submits an application, the landlord must obtain the tenant’s signature either wet or electronic, provide the tenant a copy of the application and use any payments received to satisfy the tenant’s rental obligations. The specific application form and process has yet to be provided.

See New Relief for Renters at www.consumerfinance.gov/about-us/blog/new-relief-for-renters and Emergency Rental Assistance Program Information for Renters at https://home.treasury.gov/policy- issues/cares/emergency-rental-assistance-program

Increase Diversity with Partnership for Success The WRA Partnership for Success Program is designed to promote diversity within the REALTOR® membership and enhance the probability of long-term success for new minority agents. The Program offers the successful minority candidate the opportunity to have one year of REALTOR® dues and six months of MLS fees covered, and to attend practice courses and networking events. Some Program benefits are “paid forward” via cash reimbursements or community service hours within three years. Potential applicants and their sponsoring brokers can obtain the application forms and watch the videos at www.wra.org/Partnership for more information.

The Partnership for Success gives firms a way to recruit new agents and promote diversity based on race, color or national origin. Learn from Sean Lewis, the director of talent acquisition for EXIT Elite Realty, how the Partnership for Success can help you help a new agent by mentoring the agent and reducing barriers to entry such as dues and MLS fees. See Episode 23 of the Thursday Takeaways videos discussing the Program at www.wra.org/Education/Thursday_Takeaways/Thursday_Takeaways_- _Partnership_for_Success

Do you know a good candidate for the WRA’s Partnership for Success program? In Episode 24 Sean Lewis explores the application process and how you can assist your new agent through the process successfully. Visit www.wra.org/ThursdayTakeaways/Episode24.

And be sure to stay up to date on fair housing-related information by visiting the WRA Cultural Diversity in Housing Program Facebook page at www.facebook.com/CulturalDiversityInHousing.

Legal Hotline Available on Sunday Afternoons The WRA offers WRA Legal Hotline hours on Sunday afternoons from 1:00 to 4:30 p.m. As always, members can submit questions online or by phone, and request a phone call, a written response or both. The WRA knows your transactions do not stop moving on the weekend so a WRA hotline attorney is available on Sunday afternoons.

Hotline

Listing – Protected Buyers QUESTION: The broker has provided a list of protected buyers to the seller within the required time frame after listing expiration. One of the protected buyers contacted the broker and insists his name be removed from the protected buyers list because he does not believe that “negotiations” took place during the term of the listing. The broker did speak with this buyer about his potential purchase of this vacant lot, which is adjacent to where this buyer’s home is located.

The broker has been in contact with the owner/seller of the vacant lot (under broker’s former listing) and has offered to write an offer with this protected buyer. Neither the buyer nor the seller wants to cooperate with writing an offer and they continue to insist they have not been in discussion about the potential purchase of this lot. However, within days of the expiration of the broker’s listing, the broker received the call from the buyer asking why his name is on the protected buyers list that was sent to the seller.

Is there a statute or other documentation establishing the protected buyer requirement and criteria for negotiation? Also, are there any case examples that would show how the courts interpret who is or is not a protected buyer?

ANSWER: The listing contract documents the relationship between the seller and the listing firm. The buyer does not have a say in whether or not the buyer is a protected buyer. The broker may refer the seller to the terms of the listing contract. The broker has the authority to continue to provide the brokerage services to the seller with regard to properly protected buyers, including offering to draft an offer to sell.

Lines 255-271 of the WB-4 Vacant Land Listing Contract provide:

PROTECTED BUYER: Means a buyer who personally, or through any Person Acting on Behalf of Buyer, during the term of this Listing: 1) Delivers to Seller or the Firm or its agents a written offer to purchase, exchange or option on the during the term of this Listing; 2) Views the Property with Seller or negotiates directly with Seller by communicating with Seller regarding any potential terms upon which the buyer might acquire an interest in the Property; or 3) Attends an individual showing of the Property or communicates with agents of the Firm or cooperating firms regarding any potential terms upon which the buyer might acquire an interest in the Property, but only if the Firm or its agents deliver the buyer’s name to Seller, in writing, no later than three days after the earlier of expiration or termination (lines 196-204) of the Listing. The requirement in 3), to deliver the buyer’s name to Seller in writing, may be fulfilled as follows: a) If the Listing is effective only as to certain individuals who are identified in the Listing, by the identification of the individuals in the Listing; or, b) If a buyer has requested that the buyer’s identity remain confidential, by delivery of a written notice identifying the firm or agents with whom the buyer negotiated and the date(s) of any individual showings or other negotiations. A Protected Buyer also includes any Person Acting on Behalf of Buyer joined in interest with or otherwise acting on behalf of a Protected Buyer, who acquires an interest in the Property during the extension of listing period as noted on lines 191-195.

In Burkett & Associates, Inc., Century 21 v. James M. Teymer, 2009 WI App 67, the court found that the standards for determining whether negotiation has occurred are found in Sonday v. Dave Kohel Agency, Inc., 2006 WI 92 (see a case summary and link to the case opinion on page 12 of the August 2006 Legal Update, “Legislative Update 2006,” at www.wra.org/LU0608). In the Burkett case, the court noted the listing agent provided property information and the list price to the buyer on the telephone in response to his inquiry and later faxed the property data sheets, Real Estate Condition Report (RECR), survey maps and other information to the buyer at his request. This two-way communication was enough to constitute negotiation for the purposes of the listing contract definition, the court concluded. The court also remarked that, “We are not suggesting that a broker negotiates by unilaterally sending information to other parties. Here, ATC expressed an interest in the property and asked for sales information. Burkett then provided that information. This two-way communication fulfills the contract’s definition of negotiate.”

READ MORE ABOUT IT: The Burkett case is summarized on pages 1-3 of the May 2009 Legal Update, “Case Law Update,” at www.wra.org/LU0905, and the Sonday case is summarized on page 13 of the September 2007 Legal Update, “Legal Action Update 2007,” at www.wra.org/LU0709. Also see the discussion of First Weber Group v. Guyant, 2011 WI App 84, on pages 2-3 of the November 2011 Legal Update, “Case Law Update 2011,” at www.wra.org/LU1111.

Offer to Purchase – Inspection Contingency QUESTION: If a seller discloses an item as a defect on the seller’s Real Estate Condition Report and a buyer has an inspection, can the buyer ask them to fix/cure the defect? If the seller refuses, can the buyer get out of the transaction by issuing a Notice of Defects?

ANSWER: Amendment Requesting Cure After a buyer has an inspection, the buyer can always ask the seller to cure any defect by offering a WB- 40 Amendment to Offer to Purchase, even if the buyer was aware of the defect because the seller disclosed it on the seller’s RECR. The seller is not obligated, however, to accept the buyer’s amendment.

If the seller does not accept the buyer’s proposed amendment requesting a defect be cured, the next question is whether the seller had the right to cure under the Inspection Contingency.

No Right to Cure If the seller does not have a right to cure and the buyer issues a Notice of Defects that includes the known defect but also includes other defects the nature and extent of which the buyer did not have prior notice or knowledge, the offer is null and void by virtue of the other defects in the notice.

If the buyer issues a Notice of Defects that only lists the defect disclosed in the seller’s RECR, whether the offer is null and void is going to depend on whether the defect the seller disclosed is of the same nature and extent as the defect reported by the home inspector. For example, if a seller disclosed a small crack in a basement wall but the home inspector found that crack was actually a major structural issue, the item in the home inspection report is arguably not of the same nature and extent as what the seller disclosed in the RECR and thus the buyer’s Notice of Defects likely made the offer null and void.

Right to Cure If the buyer issues a Notice of Defects that includes defects in addition to the disclosed defect in the seller’s RECR, the seller may choose to cure all of the defects or may choose to cure the defects except the one that was disclosed by the seller in the seller’s RECR if the defect discovered by the home inspector was of the same nature and extent as the defect disclosed by the seller.

If the buyer issues a Notice of Defects that only lists the defect disclosed in the seller’s RECR, the question again would be whether what the home inspector found was of the same nature and extent as the issue disclosed in the seller’s RECR.

In both cases when a seller has a right to cure, the seller can choose not to cure, making the offer null and void.

READ MORE ABOUT IT: See the WRA Inspection Contingency flowchart at www.wra.org/inspectionflowchart.

Fair Housing – Protected Classes; Title Issues – Restrictions and Covenants QUESTION: Can outdated discriminatory covenants and restrictions, for example, covenants that say only Caucasian people can live in the area, be enforced?

ANSWER: A restriction that discriminates against someone who is a member of a protected class is no longer a restriction on the property because of both the United States Code and the Wisconsin fair housing rules. Fair housing law makes it illegal to discriminate on a protected class status. Such a provision is unenforceable. The Supreme Court made racial covenants and restrictions unenforceable in 1948 in the landmark Shelley v. Kramer case. But covenants remained commonplace in much of the nation until 1968, when the federal Fair Housing Act of 1968 made them explicitly illegal.

Owners of property with such restrictions may be referred to legal counsel about having the restrictions removed.

READ MORE ABOUT IT: For more information, visit the WRA’s Fair Housing and Equal Opportunity Resources page, at www.wra.org/fairhousing, and see the Legal Update 98.03, “Thirty Years After the Federal Fair Housing Act,” at www.wra.org/LU9803. On a related note, see “Mapping Prejudice” at https://mappingprejudice.umn.edu and “Mapping Prejudice in Dane County?” at www.forwardlookout.com/2019/12/mapping-prejudice-in-dane-county/29478.

Condominium – Executive Summary QUESTION: The lot the buyer is purchasing is part of a condominium land development. The buyer has received the condominium declaration documents. The statutes require that a buyer receive, within a certain number of days after acceptance and before , from the association, an executive summary. The agent has contacted the association, and they do not have one to provide. The buyer wants to proceed towards closing. Should the agent have the buyer sign a waiver and proceed towards closing?

ANSWER: The seller should request the executive summary from the association. The condominium association, by its proper representative, should complete the form. If the association does not provide the executive summary, the buyer would have five business days to either terminate the contract or request the missing document (in this case the executive summary) from the seller. If, after the buyer’s written request, the seller does not provide the executive summary, then the buyer has an additional five business days from that deadline to rescind the contract if they desire. Therefore, when a seller does not have the executive summary the buyer will have a choice: terminate the offer by rescinding the contract or accept that they do not have the executive summary and move forward.

The broker may inform the buyer of these contractual and statutory choices. The broker may do so in writing to document the conversation. There is, however, no written waiver form if a buyer chooses to proceed without receiving the executive summary.

Associations that do not have an executive summary prepared may delay the sales process for any of the unit owners and possibly cause unit owners to lose buyers. The Executive Summary form available on the WRA’s Condo Law Resources page at www.wra.org/condolaw may be used by association directors, officers or attorneys, but a REALTOR® or seller should never complete the executive summary because of the potential liability for making a mistake and overstepping the association’s role. If the association refuses to complete an executive summary, unit owners will be put at risk of losing good buyers or even being unable to successfully sell their condominium units.

READ MORE ABOUT IT: For further discussion about , see pages 5-8 and 13 of the March 2011 Legal Update, “WB- 14 Residential Condominium Offer to Purchase,” at www.wra.org/LU1103 and “The Best of the Legal Hotline: Condominium Issues” in the July 2006 Wisconsin Real Estate Magazine at www.wra.org/WREM/July06/Hotline.

Disclosure – Material Adverse Facts

QUESTION: The seller called the broker to discuss a few things then made the following statement, “I have cracked asbestos tiles in the basement.” Broker: How do you know this? Seller: Everyone who sees them tells me that’s what they are. Broker: And why are you relying on the opinion of these people? Are these people qualified professionals? Seller: One was a contractor who was just in the house, and I think the inspector from when we bought the house told us that. Broker: Do you have your inspection report or remember who did the inspection? Seller: No. Could we just put new flooring over the existing tile? Broker: I believe you’d still need to disclose the existence of the possible asbestos. Broker (in a follow up email): You have 3 options: Disclose the possibility. Buyers may or may not accept the condition, may require you to remediate, may affect the price. Or get the tiles tested. Seller: I'm comfortable not disclosing the tiles. Broker: Well seller, now that you’ve told me you have cracked asbestos tiles, my dictates that I must disclose. Seller: Oh, …. I’m not calling you a liar, but I don’t remember saying to you that I have cracked asbestos tiles. Broker: Let’s disclose it this way, “Some basement tiles are cracked. Tiles might contain asbestos.” Seller’s email this morning: I would rather it state this “Some basement tiles are cracked.” I have no problem fixing this issue if it becomes a problem. Obviously, we need to own the problem if required. I do not, however, currently see a legal nor ethical reason for disclosing something I don’t know. Unless you can show me legal requirement to disclose a “Possible,” this is currently how I would like this treated. If there is something in YOUR license or concern for yourself, I would like to see it in writing that you need to disclose a possible problem, as opposed to a known problem. If not, we can proceed as I’ve communicated here. I see no ethical, nor moral or legal obligation currently to disclose a possible. You can let me know if there is something else you think I am not seeing, but currently, this is my stance.

The broker certainly has no knowledge of any asbestos, especially since the seller is retracting her original statement. Does the broker have an obligation to disclose anything?

ANSWER: Seller Disclosures The RECR includes a location for a seller to disclose information known to the seller about asbestos or asbestos containing materials:

C3. Are you aware of the presence of asbestos or asbestos-containing materials on the property? The seller may discuss seller’s disclosure with private legal counsel.

Licensee Disclosures Whether the seller’s comments about broken asbestos tiles constitutes a fact a licensee needs to disclose as a material adverse fact is a judgment that only the licensee can make after considering all of the facts and circumstances in the situation.

If the agent, as a competent licensee knows that this fact: (1) has a significant adverse effect on the value of the property; (2) significantly reduces the structural integrity of the property; (3) presents a significant health risk to the occupants of the property or (4) is information that indicates that a party to the transaction is not able to or does not intend to meet their obligations under the contract, then the issue constitutes an adverse fact. If a party to the transaction were to so indicate, or if a competent licensee would generally recognize that this fact is of such importance that it would affect a reasonable party’s decision to enter into a contract or would affect the party’s decision about the terms of the contract, the fact is both adverse and material. If this fact is both adverse and material, then Wis. Admin. Code § REEB 24.07(2) requires the licensee to timely disclose the fact in writing to all parties to the transaction, even if the client would direct the licensee not to disclose.

If the licensee knows or is aware of information suggesting the possibility of a material adverse fact, Wis. Admin. Code § REEB 24.07(3) states that the licensee will be practicing competently if the licensee makes timely written disclosure of the information suggesting the material adverse fact to all parties to the transaction, recommends the parties obtain expert assistance to inspect or investigate for the possible material adverse fact, and, if directed by the parties, drafts appropriate inspection or investigation contingencies. The duty to disclose has priority over any duty owed to the client.

READ MORE ABOUT IT: See the October 2009 Legal Update, “Diligent Disclosure,” at www.wra.org/LU0910 and Legal Update 02.07, “Duty to Disclose,” at www.wra.org/LU0207, for further discussion of licensee disclosure obligations. Asbestos Resources • Wisconsin asbestos page: http://dhs.wisconsin.gov/asbestos/index.htm • EPA asbestos information: www.epa.gov/asbestos • August 2009 Legal Update, “Environmental Concerns 2009”: www.wra.org/LU0908 • Wis. Admin. Code Chapter DHS 159 (repealed and recreated effective May 1, 2009): https://docs.legis.wisconsin.gov/code/admin_code/dhs/110/159 Information about what to do when a homeowner finds or becomes aware of asbestos is available at www.epa.gov/asbestos/protect-your-family-exposures-asbestos#whattodo.

This WRA Legal Hottips document is provided by the WRA's Legal Affairs Department. The WRA Legal Hotline is an educational resource intended to keep the WRA abreast of legal developments affecting real estate practice in Wisconsin. The content included here should be considered a general statement of applicable legal principles. Given this format, it is impossible to fully address all potential legal issues that 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. Therefore the answers to the questions above do not constitute legal advice and should not be relied upon as legal advice in litigation, arbitration or ethics matters. Neither these answers nor the communication with the attorneys associated with the Legal Hotline is intended to create an attorney-client relationship, and no information communicated to or by the attorneys associated with the Legal Hotline will be protected by attorney-client privilege or the work product doctrine. Private counsel should be consulted if legal advice is needed or if the member or a party is involved in litigation, arbitration or ethics matters.

The WRA Legal Hotline is a members-only service in which WRA members can submit a real estate-related legal question and receive information and feedback from WRA legal department staff. Visit www.wra.org/Hotline to fill out the online question form and for complete details about this service.

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