Legal Update ______A WRA Publication Exclusively for the Designated REALTOR® ______

WRA 03.09 Please Route to: ______Legal Update ______A WRA Publication Exclusively for the Designated REALTOR® ______

Inside This Issue Warranties in the Offer to Purchase The standard offer to purchase con- offer to purchase, home warranties tains many warranties that address and construction warranties. The dis- 2 varying issues. Despite this, many cussion of each variety of warranty is Warranties in Real individuals involved in a real estate followed with a short section of topi- Estate Transactions transaction are not aware of the dis- cal Legal Hotline questions and tinction between a warranty and answers. other statements found in the offer to 3 purchase or in other real estate con- What is a Warranty? Title Warranties tracts and documents. A warranty is A warranty is a representation that a most simply explained as a promise particular fact concerning quantity, that a particular fact is true. quality or title in connection with a 5 Warranties benefit the parties in real sale is true. A warranty is an assurance Title Insurance estate transactions by relieving them by one party to a contract of the exis- Coverage Summary of any obligation to further investi- tence of a fact upon which the other gate a warranted fact and providing party may rely. them with a relatively straightforward 6 remedy in the event of a breach of Parties generally require reliable Anticipating Title warranty. information when entering into con- Defects tracts. A warranty permits the parties The warranties stated in a real estate to rely upon the accuracy of particu- offer to purchase affect different lar facts that are either expressly rep- aspects of the transaction. The seller’s resented or implied due to the cir- 8 warranty of good title in the offer to Quitclaim Deeds cumstances of the transaction or as a purchase, and in the deed, are critical matter of law. Express warranties are to the buyer successfully obtaining often made to induce the other party good and marketable title to the to enter into a contract. No particu- 9 property. Statements and representa- Covenants lar language is needed to create an tions concerning the physical condi- express warranty. tion of the property may also be warranties. Warranties regarding the Implied warranties are often created 11 mechanical and structural compo- by statute to further public policy Construction nents of the property and the appli- objectives such as the promotion and Warranties ances and other equipment included facilitation of commerce. in the transaction come into play with All warranties are representations, home warranties and construction but all representations are not war- warranties. 13 ranties. A warranty contains the fol- Listing Questionnaire This Legal Update overviews the lowing essential elements: Regarding Title Issues meaning of the term “warranty” and • A representation or affirmation of its application within a real estate fact transaction, closely examining the seller’s title warranties, warranty • Made contemporaneously with the WISCONSIN REALTORS® deeds, warranties relating to property contract ASSOCIATION © 2003 condition and other topics within the • Expressly stated by a party to the estate transaction typically provide Contacts contract or implied in fact or by law extensive warranties regarding title, (unless expressly disclaimed) quality or value by express contract. These warranties are found in the EDITORIAL STAFF • Under circumstances in which there DRL-approved offer to purchase Author is an expectation that the other forms, and in attorney-drafted pur- Debbi Conrad party to the contract will rely upon chase contracts. the representation Production There are no implied warranties of Laura Connolly Warranties must be supported by quality or of good title in any deeds Rick Staff consideration, so they generally must or other real estate conveyances. Tracy Rucka be made before or at the time that Warranties must be specifically stated the parties enter into a contract. in the contract, deed or in Wisconsin Warranties generally are an induce- ASSOCIATION statutes. Warranty deeds are routinely ment for a party to enter into a con- MANAGEMENT used in Wisconsin real estate transac- tract or a part of the negotiated deal. tions, except when the identity of the Chairman seller (personal representatives, Robert Weber A warranty shifts the responsibility of determining the truth of the repre- trustees, etc.) or other special circum- President sentation from the recipient to the stances makes the use of a quitclaim William E. Malkasian, CAE maker. The recipient may rely on a more appropriate. Express warranties warranted fact with no duty to con- made in an offer to purchase are generally deemed to survive the con- ADDRESS/PHONE firm the warranted fact, and the maker must indemnify the recipient if veyance. The Wisconsin the warranted fact proves to be ® Affirmative representations made by a REALTORS Association, untrue. The recipient has no inspec- 4801 Forest Run Road, seller with respect to the property tion or due diligence obligation and may legally be treated as warranties, Suite 201, Madison, may rely upon the truth of the war- WI 53704-7337 depending on the language used, ranty when performing under the subject matter and context. A buyer (608)241-2047 contract. 1-800-279-1972 is entitled to rely upon the seller’s In layman’s terms, the term “warran- affirmative representations. Once the seller has made a representation LEGAL HOTLINE: ty” is also used in a slightly different sense. Consumers are used to think- about a particular aspect of the prop- Ph (608) 242-2296 ing of a warranty as the manufactur- erty, the buyer may expect full and Fax (608) 242-2279 er’s or the seller’s promise to repair fair disclosure of all material facts Web: www.wra.org or replace goods that fail to work relating to that aspect of the proper- properly. Although this seems to be a ty, and the buyer is entitled to rely different concept, it is not when upon the representation as true, viewed from a legal perspective. The accurate and complete. The seller The information contained herein warranty is the seller’s representation may not make misleading statements is believed accurate as of 09/12/03. or reveal a half-truth that omits neg- The information is of a general that the goods are not defective and nature and should not be will operate properly over a certain ative information about the same considered by any member or period of time, absent misuse. The property condition or topic. A mere subscriber as advice on a particular seller’s agreement to replace or repair statement of opinion, on the other fact situation. Members should defective items is simply the resulting hand, will not constitute a warranty. contact the WRA Legal Hotline with specific questions or for limited remedy offered to the buyer The use of an “as is” clause does not current developments. in the event of a breach of the war- negate any express warranty arising ranty. Reproduction of this material may from the seller’s representations. The be done without further permission seller may not use an “as is” clause to if it is reproduced in its entirety. Warranties in Real Estate cover any misrepresentations, and the Partial reproduction may be done Transactions with written permission of the buyer may sue the seller for inten- Wisconsin REALTORS® Warranties generally are not implied tional or negligent misrepresentation Association Legal Department. in real estate sales contracts or con- despite the insertion of an “as is” veyance documents, but rather are provision.

WISCONSIN expressly stated. The parties to a real REALTORS® ASSOCIATION © 2003 2 Legal Update 03.09 Title Warranty be considered to vest merchantable unmarketable title if a variance title in the buyer for the purposes of Seller’s Warranty in Deed cannot be obtained. The seller’s that transaction. title warranty, as described in lines Lines 188-193 of the WB-11 resi- 188-193 of the residential offer dential offer to purchase provide, REALTOR® Practice Tips: and in Wis. Stat. § 706.10(5), “Conveyance of Title: Upon pay- The exceptions to the free and excepts matters arising from pub- ment of the purchase price, Seller clear title stated in the offer to lic building, zoning and use shall convey the Property by warran- purchase should be repeated in restrictions, provided these ty deed (or other conveyance as pro- the warranty deed. vided herein) free and clear of all restrictions do not prohibit cur- liens and encumbrances, except: Merchantable Title rent use. The seller’s warranty municipal and zoning ordinances A merchantable or marketable title is does not protect the buyer or give and agreements entered under them, a title that can be held in peace and the buyer a basis for a lawsuit recorded easements for the distribu- quiet, that is not subject to litigation against the seller based upon zon- tion of utility and municipal services, to determine its validity, that is not ing, except when the zoning pro- recorded building and use restric- subject to judicial doubt, that can be hibits current use. tions and covenants, general taxes sold without price reduction based levied in the year of closing and on the face of recorded documents, Title Commitment Coverage _____ (provided none of the forego- and which at all times could be ing prohibit present use of the forced upon an unwilling purchaser Requirements Property), which constitutes mer- in a specific performance action. A Lines 200-204 of the WB-11 resi- chantable title for purposes of this buyer wants to have good and mar- dential offer to purchase states, transaction.” ketable title so that he or she may “Provision of Merchantable Title: enjoy the property in peace without Seller shall pay all costs of providing This section of the offer indicates any legal challenges and so that the title evidence. For purposes of clos- that the seller’s warranty deed will buyer can readily sell the property ing, title evidence shall be acceptable be subject to zoning and other ordi- later. if the commitment for the required nances, utility and other municipal title insurance is delivered to Buyer’s easements, recorded building and Case Law: Zoning Violation attorney or Buyer not less than 3 use restrictions, and property taxes Makes Title Unmarketable: In business days before closing, show- for the year of closing. Venisek v. Draski, 35 Wis. 2d 38, ing title to the Property as of a date It is crucial that the title warranty 150 N.W.2d 347 (1967), the no more than 15 days before deliv- enumerated in lines 188-193 of the Wisconsin Supreme Court indi- ery of such title evidence to be mer- residential offer appear in the war- cated that if there was an existing chantable, subject only to liens ranty deed that the seller tenders to zoning ordinance violation due to which will be paid out of the pro- ceeds of closing and standard title the buyer at closing. Lines 188-193 the substandard front footage and insurance requirements and excep- state that the title is subject to an application for a variance had tions, as appropriate.” “municipal and zoning ordinances been denied, the title was unmar- and agreements entered under them, ketable. The buyer, the court This provision indicates that the title recorded easements for the distribu- observed, should not be forced to commitment provided by the title tion of utility and municipal services, complete his purchase in a specif- insurance company must show mer- recorded building and use restric- ic performance lawsuit because chantable title. Per lines 188-193, tions and covenants, general taxes merchantable title is title that is not the title defect was material and levied in the year of closing” and any subject to any other liens and substantial and the buyer was liens and encumbrances listed by the encumbrances other than zoning parties on lines 191-192, so the war- powerless to remedy it. In addi- and municipal ordinances, utility ranty deed should list these exception, the court noted, the con- and municipal easements, recorded tions in the area provided for excep- veyance might itself be illegal building and use restrictions, closing tions to warranties. Likewise, any because it violated applicable zon- year property taxes, and any liens title defect that will be an exception ing. and encumbrances listed by the par- to the seller’s warranty that title is ties on lines 191-192. In addition, free and clear of all liens and encum- The Venisek case illustrates that an this provision indicates that the title brances should be listed on lines existing zoning violation that pro- represented on the title commit- 191-192 of the offer. A warranty hibits continuation of the current ment also may be subject to liens deed that meets this description will use of the property creates an that will be paid off at closing and

Wisconsin REALTORS® Association3 Legal Update 03.09 subject to standard title insurance Schedule B-1 – Requirements for 2.Parties in Possession Exception requirements and exceptions. Thus, Closing – Owner’s Affidavit as to Liens the title warranted by the seller in Schedule B-1 of the title commit- and Possession: The title insur- the warranty deed may have fewer ment lists the title company’s ance commitment also has a stan- liens and encumbrances than the requirements for the issuance of the dard exception for “rights and title insured by the title company owner’s or lender’s title insurance claims of parties in possession not because of the title company’s stan- policy. Typical requirements shown by the public records.” dard requirements and exceptions. include: The concern here is with posses- sory interests arising from Title Insurance Policies 1. Payment of the policy premiums. unrecorded land contracts, leases, The basic function of title insurance 2. A deed from the seller of record adverse possession, or other is to guarantee marketable title. An to the buyer (proposed insured). sources that are not of record. If owner’s title insurance policy insures the owner’s affidavit indicates that the owner or other named insured 3. A mortgage from the buyer to there are no parties in possession, against loss or damage up to the the lender. this exception may be deleted. stated amount of the policy. Title 4. Payment and release of any out- 3.Exception for Easements – insurance helps protect against standing mortgages held by the Owner’s Affidavit Regarding things such as errors in public seller of record. Liens and Possession, and records, hidden title defects not dis- 5. Satisfaction of any tax liens, judg- Survey: Another standard title closed by the public records, or title exception addresses unrecorded examination errors. In addition, the ments, etc., against the seller of record. easements: “easements or claims policy also covers costs and attor- thereunder, which are not shown neys fees spent while defending a Schedule B-2 – Standard Title by the public record.” For exam- claim. The title insurance policy Insurance Commitment Exceptions ple, an adverse possession claim protects against The exceptions contained in would fall within this exception. • Title to the described real estate Schedule B-2 include the standard, The title company will remove interest being vested in another boilerplate exceptions that appear in this exception if the owner’s affi- virtually every commitment issued davit shows that no other party is • Any defect, lien or encumbrance by a title company. One or more of using any portion of the property other than those listed as excep- the standard title exceptions can without a recorded interest and if tions in Schedule B or elsewhere usually be cleared and removed from a current survey map reveals no in the policy any given title commitment by ten- apparent easements in the field. dering adequate documentation. • Lack of access rights 4. Exception for Encroachments, 1.Construction Lien Exception – Boundary Disputes, Etc. - • Unmarketable title Owner’s Affidavit as to Liens Survey Map: Another standard and Possession: This title com- exception is for “encroachments, Exceptions to Insured Title mitment exception refers to “any overlaps, boundary line disputes, Title insurance is issued after a care- lien or right to lien for services, and any other matters which ful examination of copies of the labor, or material imposed by law would be disclosed by an accurate public records. The most thorough and not shown by public record.” survey and inspection of the prem- search cannot absolutely guarantee This construction lien exception ises.” This exception may be that no title defects are present. In can be removed if the seller com- cleared with a current survey that addition to matters shown by public pletes the owner’s affidavit rou- shows no boundary problems. If records, other title problems may tinely mailed out along with the the survey shows, for example, that exist that cannot be disclosed in a title commitment. The affidavit the garage encroaches, the general search. Thus, title insurance policies asks the owner to indicate that exception will be removed and contain exceptions for the categories either: (1) no work has been done replaced with a specific exception of title problems that are not cov- on the subject property over the for the garage encroachment only. ered. The title insurer will not insure last six months, or (2) work has A current survey generally means a against loss or damage or pay costs been done by named contractors survey prepared no more than six and attorneys fees arising from any who have furnished lien waivers to 12 months prior to closing. A of the matters stated in Schedule B that are attached to the affidavit. survey as old as 10 years, however, of the title insurance policy. may be accepted, depending upon the circumstances.

Wisconsin REALTORS® Association 4 Legal Update 03.09 Title Insurance Coverage Summary Covered Items • Incompetency of persons executing deeds, even though the deed would be void if the signatory was incompetent when he or she signed; • Information shown on official maps such as planned road use; • Court proceedings where no lis pendens was filed; • Fraud and forgery; • Nondelivery of a deed or document; • Errors in public records, including mistakes in recording; • Lack of corporate authority; • Deed from a minor; • Right of access to and from the property is insured, unless specifically listed as an exception in Schedule B; • False impersonation of the true owner of the property; • Undisclosed or missing heirs; • Instruments executed under invalid or expired power of attorney; • Misinterpretations of wills; • Deeds by persons supposedly single, but in fact married; • Liens for unpaid estate, inheritance, income or gift taxes; Items Not Covered • Unpaid real estate taxes are not covered or insured • Items not of record such as zoning or a demolition order • Judgments that are not docketed and judgments with no dollar amount • Environmental law violations – if there is a notice of record relating to a violation, an exception will be added to the title commitment. Triggering notices include an environmental lien, an exclusion or restriction in a deed, or a closure affidavit indicating that an environmental problem has been remediated or cleaned up. Items Covered Only if Specially Endorsed (Extra fees likely) • Special assessments not shown in the county treasurer’s books may be insured but this often requires a special search and an additional fee • Zoning and other unrecorded land-use regulations are not covered unless there is a zoning endorsement (requires additional research and fees) Items Covered Only if Standard Exception Removed (Survey, documentation provided) • Rights of parties in possession not disclosed in the records are covered if the standard exception is removed via affidavits and survey maps • Encroachments, overlaps and boundary disputes are covered if a proper survey is provided to eliminate the standard exception • Unfiled construction liens may be covered if lien waivers are provided, other safeguards are observed and additional fees are paid • Judgments against persons with names similar to the parties will be covered if the party files an affidavit of identity 5.Exception for Post-Effective Anticipating Title Defects Title Issues” that brokers may adapt Date Liens and Encumbrances - The parties to an offer often wrong- to their needs and use for this pur- GAP Endorsements: This stan- fully assume that any title problems pose. The sample questionnaire dard exception excludes title will be covered by the title insurance appears on page 13 of this Update. insurance coverage for: “defects, policy, but the opposite may be true. liens, encumbrances, adverse In addition to the exceptions in the Legal Hotline Q & A – Title claims or other matters, if any, seller’s warranty deed, the title Warranties created, first appearing in the insurance policy will contain the A local broker has a policy to count- public records or attaching subse- standard policy exceptions, unless er all offers that do not have the fol- quent to the effective date hereof the standard exceptions have been lowing on lines 191-192, WB-11 but prior to the date the proposed removed with a current survey map, (exceptions to seller’s title): “subject insured acquires for value of owner’s affidavit or other documen- to restrictions, reservations, ease- record the estate or interest or tation. Liens and claims that may fall ments, conditions, zoning ordi- mortgage thereon covered by this within a standard title policy excep- nances, covenants, and public or Commitment.” The way to clear tion include construction liens, private rights of use or record.” Is the gap exception and provide occupants in possession, adverse this appropriate, and what impact more complete coverage for the possession, easements and claims not does this have on the transaction? buyer is to have the title insurance of record, boundary disputes, access company provide a “gap endorse- rights and submerged lands. The A broker’s legal duty is to draft the ment.” For further discussion of seller’s warranty in the deed should offer to accomplish the intent of the gap endorsements, see Legal except any such potential claims if party for whom it is being drafted. Update 96.02 (www.wra.org/ the seller is not prepared to elimi- The subject language may be inter- LU9602). nate the potential lien, claim or preted as eliminating the seller’s warranty of title by saying the buyer 6.Special Assessments Exception - encumbrance before or at closing. will accept title with any liens or Special Assessments Letters: In order to intelligently list excep- encumbrances of record. These may This standard exception with- tions to the seller’s title warranty in include adverse possession claims, holds coverage for “special taxes the offer to purchase, respond to the judgments, documents of record or assessments, if any, payable questions asked in the standard that establish encroachments, etc. with the taxes levied or to be owner’s affidavit that the title insur- These exceptions should be included levied for the current and subse- ance company will provide to the in the warranty deed by the drafter quent years.” Assessments, such seller, and provide documentation to of the deed. It is unclear why the as those for water and sewer remove standard exceptions from broker is leaving the warranty deed installations, may not show in the the title insurance policy, it is bene- language in the offer if they intend county treasurer’s records. Special ficial for the seller and listing broker to effectively eliminate all war- assessment exceptions may be to be familiar with whatever poten- ranties. A quitclaim deed would cleared with special assessment tial liens and encumbrances may be seem to be more appropriate. The letters from the municipality. present with respect to the listed broker using this language may 7.Additional Exceptions: Depend- property as early as possible. The think that title insurance will cover ing upon the facts and circum- seller and the listing broker are wise all of these types of claims, but that stances, the insurer may also to create a list of potential title will certainly not be true, particular- include exceptions for easements defects at the inception of the listing ly if the seller has knowledge of the affecting the property; mortgages so that they can determine which matter of record. affecting the property; the rights items can be resolved by closing and At the very least, disclosure to the of the public relating to roads, which items should be listed as seller and the buyer must be made highways and rights-of-way; title exceptions to the seller’s warranty of regarding the substance of this lan- and/or public rights to filled-in title. guage. The buyer should be told to lands, submerged lands and lands To this end, listing brokers may wish consult legal counsel because there below the ordinary high water to use a brief questionnaire when may be substantial title encum- mark; riparian rights; other liens listing properties that will trigger the brances that seller is not warranting and encumbrances not otherwise seller to identify potential title issues against and which may not be cov- eliminated; and lack of authorized that would not be evident from sim- ered by title insurance. The seller ingress and egress. ply examining recorded documents. should be told that this language The WRA has created a sample might materially affect the mar- “Listing Questionnaire Regarding ketability of the property because

Wisconsin REALTORS® Association 6 Legal Update 03.09 the buyer is being asked to assume has not provided the current survey start building his home until substantial risk. The parties are free map needed to remove the standard August or September. Can a deed to negotiate any title warranty lan- exception in the title insurance com- restriction be recorded stating that guage they wish, but it appears mitment. However, this does not the buyer will build his home with unlikely that the parties are agreeing mean that he is not conveying title the broker’s development company? to this approach with full knowledge free of all liens and encumbrances. of the ramifications of the language. The seller does not have a contractu- A title restriction may be drafted— al obligation to prove that there are preferably by an attorney—and An agent wrote an offer to purchase no encroachments. The seller need recorded. If this is going to be done, on a property that had been through only provide a title commitment the building restriction should be foreclosure. The listing information conforming to the title insurance noted on lines 191-192 in the in the MLS stated that the property requirements in the offer. exceptions to the seller’s title war- was to be sold “as is.” A few days ranties. after the offer was accepted, the list- There is an accepted offer on a prop- ing office sent the agent copies of erty where a possible fence encroach- Case Law: Breach of Seller’s work orders on the house. Is the buyer ment was disclosed on the RECR, Warranty Against Encum- or the seller responsible for these which was acknowledged by the buyer brances: In Estate v. Meehan, 30 work orders? prior to writing an offer. The poten- Wis. 2d 428, 141 N.W.2d 218 tial encroachment was also refer- (1966), the buyer discovered The parties should review the offer enced in the title insurance commit- three years after closing that two and other documents to determine if ment. Last week the buyer requested stone walls and a sign encroached there were any affirmative represen- that the land under the neighbor’s tations that make the seller responsi- into the highway right-of-way. fence be deeded away from the prop- The buyer sued his seller for ble for the work. Otherwise, the erty because the buyer doesn’t want breaching the warranty against buyer may be forced to comply. In to make the neighbor move the fence. encumbrances. Since the buyer addition, the issue of whether the Because of buyer’s prior knowledge work orders impact the seller’s war- of the encroachment, can the buyer bought the property for $78,000 ranty to provide “marketable title” now demand that this portion of the and sold it four years later for should be considered. The work property be removed? $110,300, the trial court rejected orders may ripen onto liens or the buyer’s claim. The buyer encumbrances that violate the sell- The parties should be referred to appealed to the Wisconsin Court er’s title warranty. legal counsel for advice regarding of Appeals. The court indicated the fence. Arguably there is no mis- that the buyer would be limited to Re: Conveyance of title, lines 188- representation because the seller dis- 194 of WB-11. A transaction is due closed the fence encroachment in nominal damages for any encum- to close tomorrow and the seller is writing. The title warranties brance in the absence of actual expected to give a warranty deed arguably were not violated unless a injury. An encroachment, the free and clear of all liens and seven-year permissive placement of court noted, amounts to an encumbrances. An attorney is ques- the fence is deemed to be an encumbrance only when it is sub- tioning the standard exception on a encroachment. An encroachment stantial. In determining whether title insurance policy for “encroach- generally connotes an illegal place- an encroachment is substantial, ments, overlaps, boundary line dis- ment of the fence, which will not be one must look at the character putes, and any other matters which the case if the neighbor located the would be disclosed by an accurate and extent of the encroachment, fence with the owner’s permission. the possibility and cost of its survey and inspection of the premis- There will be no potential adverse removal, the length of time the es.” The seller does not have a survey possession at this point because the encroachment has been in place, that is newer than six months old. fence has not been there for 20 The subdivision was originally plat- years. It may be more appropriate to and municipal acquiescence. In ted 10 years ago and the plat shows simply grant the neighbor an ease- the case of actual injury, damages no obvious boundary or encroachment or to otherwise document the are measured as the difference ment disputes. Does the attorney terms of the permissive use. between the market value of the have a valid point saying that seller property with and without the cannot convey and warrant title A broker works for a developer who encumbrance. The court affirmed because the seller cannot prove that purchases land and usually only sells the finding of no damages. there are no boundary line disputes? lots with a home purchase. A buyer wants to purchase a lot now and not In the described scenario, the seller

Wisconsin REALTORS® Association7 Legal Update 03.09 Warranty and Quitclaim use restrictions arising after the war- quitclaim deeds and do not contain ranty deed is given. Thus, it may be any warranties of title. Deeds prudent to check with appropriate The seller usually agrees in the offer public offices such as the register of Special Warranty Deeds to purchase to deliver a warranty deeds and the local offices regulat- deed to the buyer at closing. The special warranty deed is con- ing zoning, building codes, sanita- trasted with the general warranty tion, etc. to obtain certifications Warranty Deeds deed. The special warranty deed declaring that there is no violation of guarantees only against title defects In a warranty deed, the seller guar- any local, county or state zoning, created by the grantor. These deeds antees that the seller’s title is “free building, sanitary or use ordinance are not widely used in Wisconsin, and clear of all liens and encum- or regulation with respect the prop- primarily because the standard brances,” except any encumbrances erty being sold. The well and septic Wisconsin offer to purchase forms expressly mentioned in the offer and system should also be similarly certi- require conveyance by a warranty in the deed. This warranty guaran- fied. deed. tees the seller’s ownership rights, not the absence of property defects Quitclaim Deeds Legal Hotline Q & A – and not the quality of any improve- The grantor in a quitclaim deed ments to be constructed on the land. Warranty vs. Quitclaim does not guarantee ownership rights Deeds The seller’s title warranty warrants but instead merely conveys whatev- title, not fitness or quality of con- er title and rights that he or she has, A seller asked an attorney to draft struction. if any. Quitclaim deeds are not ordi- his deed and transfer return for the sale of his property. After the deed Wis. Stat. § 706.10(5) describes the narily used in typical sales transac- was returned to the listing agent, characteristics of a warranty deed: tions. the agent noted that the deed was “A conveyance by which the A quitclaim deed says in effect “If I prepared on a quitclaim deed form. grantor contracts to warrant the have any interest in the described The agent contacted the attorney land or its title shall be construed land, I convey it.” Quitclaim deeds and asked why the attorney was according to its terms, under rules may effectively be used to clear using a quitclaim deed. The attor- of law for construction of con- flaws in title. Quitclaims are also ney said that it is the only form he tracts. A conveyance by which the used between relatives when one uses now because title insurance grantor warrants the land or its heir is buying out another. warrants the title. Is the attorney title shall be construed, except as Sometimes, quitclaims may be used correct? the terms of the conveyance may where the grantor is in such poor Per line 188 of the offer to pur- otherwise provide, to include financial shape that his or her war- chase, unless modified, the seller covenants, for the benefit of the ranty is worth very little. Generally, clearly is required to provide a war- grantee, the grantee’s heirs, suc- most buyers demand a warranty ranty deed. Title insurance is not a cessors and assigns, that the deed in all transactions. substitute for the seller’s warranties grantor at the time of conveyance Wis. Stat. § 706.10(4) states, “A of title. Title companies do not is lawfully seized of the land; has quitclaim deed shall pass all of the insure a variety of situations that a good right to convey the same interest in or appurtenant to the seller, under a warranty deed, would land or its title; that the same land land described which the grantor have to address. or its title is free from all encum- could lawfully convey, but shall not ® brance; and that the grantor, the warrant or imply the existence, Can a REALTOR draft a war- grantor’s heirs and personal repre- quantity or quality of any such ranty deed? sentatives will forever guarantee interest.” and defend the title and quiet pos- A licensee with a broker’s license may draft a warranty deed if it is session of the land against all law- Personal Representative’s ful claims whatever originating incidental to a transaction where the prior to the conveyance, except as Deeds and Guardian’s Deeds broker is acting in an agency capac- the claims may arise out of open Personal representative’s deeds and ity. § RL 16.05 also provides that a and notorious rights of easement, guardian’s deeds are used by a per- licensee may also draft a deed for his or out of public building, zoning sonal representative or a guardian to or her own personal transactions, as or use restrictions.” convey property in settlement of a can any individual (although this probate estate. A guardian’s deed or may be ill-advised). The warranty deed does not warrant personal representative’s deed are against public building, zoning, or A lot owner would like to sell the lot

Wisconsin REALTORS® Association 8 Legal Update 03.09 without a warranty deed because he Warranties, sale, such as the statements in the wants to sell it as is, with no recourse RECR. Representations are often not after the sale. The broker has an Representations and included in the written contract as a engineering report that indicates Covenants contractual provision. that there is brown soil down to 13 Lines 272-74 of the WB-11 state, If warranted facts prove to be false, feet and then clay. The seller wants “The warranties, representations, there is a breach of contract and the to sell the lot as is and give buyers a and covenants made in this offer sur- recipient is entitled to recover con- copy of this report. The broker is vive closing and the conveyance of tract damages and sometimes rescis- wondering how to set this up. the property.” This language does sion or restitution. Proof is needed not create warranties of any kind nor A warranty deed is used to transfer only to show that the warranty was does it change the effective date of a title to the property free and clear of made, the warranty was materially warranty or representation, but it liens and encumbrances. Generally, broken at the time of closing, and does assure that failure to repeat the deeds are not designed to address the recipient suffered a loss as a warranty, representation, or possible defects in the physical char- result of the breach of warranty. This covenant in the deed or land con- acteristics of the land. The soils con- is typically easier than proving mis- tract at closing will not extinguish dition would not preclude the seller representation or fraud where addi- that warranty, representation or from using a warranty deed to trans- tional elements such as intent, negli- covenant. fer title. gence or justifiable reliance must also be proved. Is it legal to sell landlocked property Covenants without an ingress/egress easement Covenants are the parties’ agree- The language in form WB-11 prior to closing? If so, is there a spe- ments to act or refrain from acting, regarding conditions affecting the cial kind of deed that would be need- for example, agreements to pay property or transaction involves rep- ed? money, deliver a deed, obtain a sur- resentations rather than warranties, vey, permit a home inspection, etc. although warranties could be added. It is legal to sell landlocked property Covenants include the parties’ Where the offer contains a direct with no access easements. Such a agreements about when, how and statement that certain things are property may be conveyed by war- where performance will take place. true about the property, this likely ranty deed, subject to an exception would be legally interpreted to con- for access, or by quitclaim deed. Warranties and stitute a warranty that the things are A personal representative’s deed was Representations true, unless specifically stated as a representation of seller’s notice or presented to convey the property at Warranties and representations are knowledge. closing. The attorney for buyer is statements of fact made by one party saying that the warranty deed was with the expectation and belief that Statutory Warranties:Time- not crossed off in lines 190-193 of the the other party will rely on them vacant land offer, so the buyer is when entering into the contract. Share Warranties looking for some type of title war- Warranties and representations may Wis. Stat. § 707.53 governs warranty regarding this property. How pertain to the condition of the prop- ranties in contracts for the sale of to proceed? erty. For example, a seller is asked to time-share interests. The statute Pursuant to the offer to purchase, warrant that there are no under- provides that all affirmations of fact, the seller has agreed to transfer the ground fuel storage tanks on the models or descriptions the seller property by warranty deed, so the property. Warranties and representa- makes to the buyer with regard to personal representative should pro- tions also may relate to a corpora- the time-share create express war- vide a warranty deed. If the parties tion’s good standing under state law ranties if relied upon by the buyer. choose, they may amend the offer to or a party’s financial condition. The The statute also provides for several provide for conveyance by a person- party would warrant that it has sub- warranties of quality that are implied al representative’s deed. Generally, mitted accurate financial statements against the developer or a person personal representatives will convey or that is has paid all taxes due on selling the time share who is in the with a personal representative’s deed time. business for selling real estate for the person’s own account. These or quitclaim deed because the per- A representation may be distinguished sonal representative is not sufficient- implied warranties of quality include from an express warranty in a contract warranties that the units will be in a ly familiar with the history of the of sale. A representation is a statement property to give a warranty deed. condition as good as they were at of a party’s notice or knowledge, made the time of the purchase contract, during negotiations leading to the that the unit and common amenities

Wisconsin REALTORS® Association9 Legal Update 03.09 are suitable for ordinary use, free of tion. An “as is” clause does not that the uncompleted items in the defective materials, constructed in remove the seller’s title warranties. home were not defects under the accordance with the law, sound engi- inspection contingency. The buyers neering standards and in a workman- Generally, an “as is” clause alerts the did not close because these repairs like manner, and that the existing buyer that he or she is responsible to were not done – the accepted offer use of the unit is lawful. The statute determine the condition of the prop- stated that these items must be fixed. also provides that all subsequent erty being purchased. The use of an owners of the time-share are entitled “as is” clause, however, does not The seller’s failure to comply with to rely upon the developer’s implied necessarily mean that the seller may the covenants in the offer is arguably warranties of quality. still not need to make some disclo- a breach and the buyer would have sures about the property. the remedies found at lines 111-113 Legal Hotline Q & A – of the WB-11 residential offer to First, the seller has the duty to exer- purchase. These are contractual obli- Warranties, Representations cise ordinary care in refraining from gations unrelated to the inspection and Covenants any act which would cause foresee- contingency. able harm to another or create an A broker received an offer where unreasonable risk to others. Second, A seller has a pending sale, but the lines 328-330 had been modified to the seller may be liable for misrepre- seller wants out of the transaction. read, “Seller accepts this offer and sentation if he or she actively con- The offer provides that the seller is to the conveyance of the property. Seller ceals a defect or prevents a buyer provide a well inspection and water agrees to convey the property on the from investigating the property and test within 10 days of the appraisal terms and conditions as set forth discovering the defect. Third, the results. The appraisal has been herein and acknowledges receipt of a seller may be liable if he or she delayed so the seller chose to wait on copy of this offer.” The buyer struck makes false affirmative statements providing a water test. The seller is out the phrase in the preprinted about the property. Finally, the seller claiming that since he is not obligat- form that states, “warranties, repre- may be liable if he or she fails to dis- ed to provide water test until after sentations and covenants made in close material conditions that the appraisal is done, the contract will this offer survive closing.” What does buyer is in a poor position to discov- expire prior to him doing this. Will this mean? er. Thus, the use of an “as is” clause the offer automatically become null This means that the buyer cannot is not always going to be an escape and void? automatically rely on the offer provi- for the seller from all property con- The seller’s obligations to provide sions after closing, and the seller’s dition disclosures. reports of the well inspection and warranties regarding title may not be From the licensee’s standpoint, Wis. water test may, due to the timing of brought forward and merged into Admin. Code § RL 24.07 requires the appraisal, be due after closing. the deed. This modification would that licensees perform reasonably However, sellers obligations under tend to benefit the seller and be a competent and diligent property the offer (covenants) survive closing disadvantage to the buyer. This inspections and disclose material and seller will be obligated to pro- modification is consistent with an facts and potential adverse facts to vide the buyer with these reports “as is” offer, where the buyer takes the parties in writing. This is not within 10 days of the appraisal the property as it is without war- waived in “as is” sales. In fact, where results, even if this deadline is after ranties or representations by the sell- the buyer is purchasing “as is” it is closing. The fact that the seller’s er. very important for the buyer to obligations come due after closing Seller is selling the property “as is.” know the condition of the property. has no impact on the seller’s duty to An offer was presented, but it did Generally, the buyer uses property close or the enforceability of the not reference the “as is” condition. inspection contingencies in the offer contract. How should the listing agent refer- to purchase, but this does not excuse An offer states that “the seller war- ence the “as is” condition in a count- the licensee from his or her duty to rants to the buyer that the premises er-offer? assure that all known material defects are disclosed in writing to are not located in a floodplain.” The All representations and warranties the buyer, and that any affirmative sellers are concerned about accepting concerning the condition of the statements are in fact true. this offer this way. What exactly does property should be deleted, and the “warrant” mean? Should the sellers offer should be identified as “as is”, The buyers in a transaction received counter, stating that to the best of without warranties or representa- a letter from the seller’s attorney say- their knowledge it is not in a flood- tions regarding the property condi- ing they are going to be sued for spe- plain, but the buyer is welcome to get cific performance. The letter said a flood certification?

Wisconsin REALTORS® Association 10 Legal Update 03.09 A warranty is a promise or assurance typical home warranty contract pro- ty in the listing, it is similar to when by a party that the fact contained in vision. The parties fill in the cost of the seller offers a freestanding stove the warranty is one upon which the the home warranty and indicate or other personal property—it is not other party may rely. If found to be whether the cost will be paid by the included in the transaction unless it incorrect or untrue, the party mak- seller or the buyer and whether the is included in the offer. The seller ing the warranty would be responsi- listing broker or the cooperative has no independent obligation to ble for all losses sustained. This broker will actually provide the war- provide the home warranty for the would be true even if the seller had ranty plan. The buyer is advised that buyer unless the contract obligates no actual knowledge about the loca- a home inspection may detect condi- the seller to do so. tion of the floodplain. If seller is not tions not covered by the warranty 100 percent sure that the property is plan, and that the broker recom- What is the mandatory warranty not in a floodplain, seller may mends that the parties consider a that builder must provide when sell- counter out the floodplain warranty home warranty program. ing a newly constructed home? language or amend the offer to The state of Wisconsin has no make seller’s representations based Legal Hotline Q & A – Home required mandatory warranty on on actual personal knowledge. Warranties new construction unless the home The seller’s attorney is advising the Re: WRA Addendum A - home was custom-built under contract seller to not complete the RECR warranty clause. The home warran- with the buyer (see following because the attorney does not want ty provision, as countered and “Construction Warranties” section). his client to make any warranties. accepted, provides that the seller is to Many builders will, however, pro- The RECR says that it is not a war- provide the home warranty and the vide a one-year builder’s home warranty of any kind, so why would the buyer is to pay the cost. The buyer has ranty. This issue should be negotiat- attorney say this? decided that they don’t want the ed and made part of the offer. warranty, so they are not going to Although the RECR is not a direct pay for it. May the buyer simply Construction Warranties representation of property condi- refuse the warranty be declining to A warranty is implied if the seller has tions, it arguably is a warranty as to pay for it? constructed or renovated improve- the seller’s knowledge about the ments on the property for the The home warranty provision is a condition of the property. If the sell- buyer’s specified use or occupancy part of the contract. The buyer has a er does misrepresent what he knows under Wis. Stat. § 706.10(6). This contractual obligation to pay for the about the property condition at the statutory warranty may be altered if warranty and the seller has a con- time he completes the RECR, the the seller gives express warranties to tractual obligation to arrange to buyer may potentially sue for mis- the contrary. Because most real have the warranty for the buyer. If representation. estate construction is done pursuant the buyer does not pay for the war- to written contracts, this statutory ranty, the buyer will be in breach of Home Warranties warranty has limited application. It the contract. The covenant to pur- A home warranty is a combination of will benefit a buyer where the seller chase the warranty benefited both a warranty and protection program has agreed to make certain improve- the seller and the buyer and was, offered to homebuyers by builders ments as an inducement for the sale, therefore, unlike a contingency sole- and sellers. A home warranty pro- or when the contracts do not con- ly benefiting the buyer that the vides coverage for the breakdown of tain clear warranty provisions or dis- buyer can unilaterally waive. a home’s major appliances and sys- claimers. tems under circumstances not usual- A property data sheet indicates that Wis. Stat. § 706.10(7) creates an ly covered under a homeowner’s the seller will provide a home war- implied warranty, “In the absence of insurance policy. A home warranty ranty. The buyer wrote her offer to an express or necessarily implied entails a service agreement for the purchase with the expectation that provision to the contrary, a con- properties’ vital mechanical systems she would receive the home warran- veyance evidencing a transaction and appliances, typically including ty. However, the home warranty was under which the grantor undertakes the heating system, water heater, not addressed in the offer. At closing, to improve the premises so as to plumbing, electrical, garage door however, the seller refused to provide equip them for grantee’s specified opener, garbage disposal, central air any home warranty because the use and occupancy, or to procure conditioning or evaporative cooler, buyer did not ask for it in the offer. such improvement under grantor’s and even the doorbell. Is this correct? direction or control, shall imply a The WRA Addendum A contains a When a seller offers a home warran- covenant that such improvement

Wisconsin REALTORS® Association11 Legal Update 03.09 shall be performed in a workmanlike Wisconsin Court of Appeals. unwilling to follow earlier cases manner, and shall be reasonably ade- holding that contractors were not The court examined the implied quate to equip the premises for such liable for injury or damage arising warranty of fitness for intended use and occupancy.” from negligent construction after use that the trial court had recog- completion of the work and Case Law: Implied Warranty nized in situations where the sell- acceptance by the buyer. Instead, of Fitness from Builder/Seller: er of the house is also the builder. the court concluded that the law In Shisler v. Frank (Ct. App. 1998, There is no published Wisconsin does not preclude recovery for No. 97-2310, unpublished), three decision that has previously recog- damages resulting from the negli- separate buyers each bought a nized such an implied warranty in gence of a builder/seller. A pur- condominium unit from the gen- a real estate transaction. There is, chaser can sue a builder/seller for eral contractor who had built however, Wisconsin case law that the negligent construction of a them. After closing, the unit pur- holds that there is an implied war- home where the defect is latent chasers found that the basement ranty of habitability in residential and not readily observable by the in each of the condominium units leases (Pines v. Perssion), and that buyer; the buyer reasonably flooded when it rained and that an owner can sue the builder for assumes that the condition does the water carried in mud and sand damages resulting from negligent (or does not) exist; the builder has as well as water. The unit owners construction (Fisher v. Simon). special knowledge or means of tried many times to get the seller After examining case law from knowledge not available to the to address this problem. When he other states where the courts have buyer; and the condition is mate- was unresponsive, the owners held that an implied warranty aris- rial—it influences whether the obtained bids from waterproofing es from the builder/seller’s sale of transaction is concluded at all or contractors. Eventually they had new homes, the court of appeals at the same price. one waterproofing contractor held that there is an implied war- waterproof all three basements, ranty of fitness for intended use in Legal Hotline Q & A – and wrote to the seller asking for the contract for the purchase of a Construction Warranties reimbursement for that total cost home or a condominium unit A licensee recently sold a new home ($4,100). When the seller refused from the builder/seller. for a builder. The builder refuses to to pay them, the unit owners sued Accordingly, the court affirmed the seller in small claims court. correct defects to the new home. Isn’t the judgments of the trial court in there a law in Wisconsin that auto- The court found that there was an favor of the condominium unit matically gives the new owner a implied warranty of suitability for owners. warranty, whether in writing or implied? purpose in the common (case) Case Law: Builder Liability law, that there was such a warran- for Latent Defects Caused by Wis. Stat. § 706.10(7) provides lim- ty in the purchase contract for a Negligent Construction: Within ited protection for certain buyers. new home, and that the seller had one year of the buyers’ purchase The statute sets forth an implied breached that implied warranty. of the spec home from the covenant that a house was built in a People who own homes with builder/seller, cracks developed in workmanlike manner and is suitable basements can reasonably expect the basement floor and water for the buyers’ use and occupancy. Note that this section only applies to to be able to use unfinished areas seeped in. The buyers sued the cases where a builder has been hired of the basement for storage, and builder, alleging that the builder to not have sand, mud and water to build a particular house for the had negligently backfilled around buyer. Other buyers will need to coming in the basement after the exterior of the basement leav- speak to the builder or their attorney every rainstorm. These are health ing open spaces where pockets of to address issues that arise after the hazards, and the moisture can water accumulated, eventually purchase of a new home. cause wood to rot, thus under- causing the basement cracks from Is there any regulation, law, etc. mining the integrity of the build- hydrostatic pressure. ing. The trial court held in favor that a builder will provide a war- of the unit purchasers and award- The Wisconsin Supreme Court in ranty for a certain amount of time? ed them a total of $4,975. The Fisher v. Simon, 15 Wis.2d 207, No. There is no such law in builder/seller appealed to the 112 N.W.2d 705 (1961), was Wisconsin, at least not for all new

Wisconsin REALTORS® Association 12 Legal Update 03.09 construction buyers. Buyers may protect against title defects beyond the seller’s Subscribe themselves by obtaining a home warran- knowledge and control. Assisting buyers ty policy/program. Buyers are also pro- to secure appropriate home warranties tected by the terms of the offer to pur- and construction warranties helps pro- This Legal Update and other chase. If a buyer purchases a custom tect homebuyers against defective Updates beginning with home from a builder, Wis. Stat. § improvements and appliances and cre- 706.10(7) provides an implied covenant ates satisfied consumers. 92.01 can be found in the that the house was built in a workman- members-only legal section like manner and is suitable for the of the WRA Web site at: buyer’s use and occupancy. A builder http://www.wra.org. may also be sued for damages resulting from defective construction. Wis. Stat. § A subscription to the Legal 893.89 (online at Update is included in all http://www.legis.state. association Designated wi.us/statutes/Stat0893.pdf) imposes a ® statute of limitations on the buyer’s abil- REALTOR dues. ® ity to recover for injuries and property Designated REALTORS damage caused by building defects. receive a monthly publication package including the What are the responsibilities of home- Legal Update, and other builders regarding guaranteeing/war- industry-related materials. ranting new construction? A broker has several different people who build or REALTORS® and Affiliate have built spec homes. Since they are members may subscribe to building a spec home and not custom the Designated homes for someone else, do they have to REALTOR® publication give a warranty? The broker has a few spec homes listed and has told buyers to package for $30 annually. have a home inspection if they have con- Non-member subscription cerns about condition, construction, etc. rate for the package is One buyer seems to feel the builder/sell- $130 annually. Member er is obligated to give a warranty with subscription price for the the home and that a warranty automat- Legal Update is $25, ically comes with the home. non-member price is $75. The implied warranty in Wis. Stat. § Each subscription includes 706.10 applies only to custom-built 12 monthly issues. homes and does not apply to spec Contact the Wisconsin homes. Warranties on “spec homes” are ® negotiable. REALTORS Association to subscribe:

Conclusion 4801 Forest Run Road, By becoming better acquainted with the Suite 201, Madison, various offer to purchase provisions WI, 53704-7337 involving warranties, REALTORS® can more effectively assist the parties to real (608) 241-2047 estate transactions and protect their 1-800-279-1972 interests. Ensuring that the title excep- www.wra.org tions stated in the offer to purchase match those reiterated in the warranty deed protects the seller from warranting