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Legal Matters
Best of the Legal Hotline - Proper Inspection
Contingency Use
by Debbi Conrad
The inspection contingency is often one of the most frustrating
provisions in the WB-11 Residential Offer to Purchase. Although
straightforward in structure, implementation of the contingency causes
confusion as real estate licensees try to respond to the wishes of the
parties.
Implementation of the inspection contingency begins when the buyer
retains a home inspector to provide a home inspection report. Upon
receipt of the report, the buyer decides whether to ask the seller to
repair any defects, or accept the home in its existing condition. The
seller then decides whether to make the repairs. If the seller does
not agree to cure the defects that the buyer finds objectionable, the
offer may become null and void.
The Standard Process (WB-11, Lines 298-315)
The standard process for the Inspection Contingency, appearing on
lines 298-315 of the WB-11, is implemented by using copies of home
inspection reports and notices. For real estate licensees, this means
the WB-41 Notice Relating to Offer to Purchase. If the buyer wishes to
object to any property condition concerns cited in the home inspection
report that fit the definition of a defect (lines 311-315), the agent
working with the buyer prepares a notice of defects on a WB-41 Notice
Relating to Offer to Purchase. A notice of defects optimally proclaims
that it is a notice of defects and then lists those items from the
home inspection report to which the buyer objects. The notice of
defects and a complete copy of the home inspection report must be
delivered to the listing broker and the seller by the applicable
deadline stated on line 301 of the offer. If not, the buyer has
accepted the property as is.
Once the seller receives the buyer's notice of defects and the copy
of the inspection report, the seller has 10 days in which to respond.
The seller can give the buyer written notice informing the buyer of
the seller's election to cure all of the defects or to not repair any
of the defects, prepared by the cooperating agent on a WB-41. Or the
seller may simply allow the ten days to lapse without a written
response. If the seller gives notice that the seller will not cure or
lets the ten days pass by, the offer is null and void.
Once a notice of defects is given, the standard process is an all
or nothing proposition for the seller. The seller must cure all the
defects listed by the buyer in the notice of defects or the seller
repairs none of them.
| Q. The broker is supposed to
deliver a copy of inspector's written report and written notice
listing defects identified in the report to which the buyer
objects. Does that mean that the cooperating broker uses the
notice form and attaches the issues that are of concern to the
buyer? |
| A. A notice of defects may be prepared on lines
10 through 34 of the WB-41 Notice Relating to Offer to Purchase.
Note that line 303 of the offer warns: "CAUTION: A proposed
amendment will not satisfy this notice requirement," so a notice
of defects drafted by a licensee must be on a WB-41. The notice
should state, "This is a notice of defects" to avoid all
possibility of confusion. The defects are then listed in the
notice (or on an attached page if additional room is necessary).
"The Buyer objects to the following defects noted in the
attached report: broken porch steps and railing, no smoke
detectors, etc." The notice and accompanying copy of the
inspection report must be delivered to the seller and the
listing broker by the deadline specified on line 301 of the
offer.
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| Q. The buyer had a
home inspection done and issued an amendment. The buyer asked
for furnace repairs that the seller is not willing to do. The
time for giving a notice of defects has passed and the buyer has
forwarded a CAMR. Should an amendment have been used or a
notice? |
| A. When a buyer proposes an amendment for repairs,
the seller has the option to accept or reject the buyer's
proposed amendment or propose a different amendment. If the
seller does not accept the amendment, the buyer is accepting the
property as is unless a notice of defects is given by the
applicable inspection contingency deadline or unless the parties
agree on another amendment. |
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| Q. The buyer gives a
notice of defects to the seller. Subsequently, the buyer changes
his mind and wants to withdraw the notice of defects. Can the
buyer do this? |
| A. The buyer cannot unilaterally withdraw the notice
of defects. The notice of defects can be withdrawn only with the
consent of the seller. One good way to do this would be by an
amendment where the parties agree that the notice of defects is
withdrawn. |
Use Of Amendments
At times the parties are not satisfied with the standard inspection
contingency process. Either party can usually take advantage of the
option of negotiating a resolution to the buyer's concerns.
Negotiation takes the parties out of the standard, all-or-nothing
inspection contingency process and gives the parties a way to reach a
mutually-acceptable resolution tailored by the parties instead of
being imposed by the standard inspection contingency provisions.
Buyers
If the buyer does not want to give a notice of defects, the buyer
may instead propose an amendment asking the seller to repair certain
items to which the buyer objects, specifying the contractor, cost or
manner in which certain conditions will be remedied.. Such an
amendment is prepared on the WB-40 Amendment to Offer to Purchase. The
amendment optimally states, "This is not a notice of defects. Seller
agrees to (perform the following repairs) (use the following
contractors and materials) (give the following credit) (establish the
following repair escrow): [give details, time frames, etc.]" The
deadline for acceptance of the amendment ideally should be earlier
than the deadline for the buyer giving a notice of defects. This will
give the buyer the option of giving a notice of defects if the seller
does not agree to the amendment proposal.
If the buyer has already submitted a notice of defects and now
wants to propose a different way to handle the situation, the
amendment should also state, "The Right to Cure provisions at lines
306-310 of the Offer are deleted and the buyer's notice of defects is
withdrawn."
Sellers
Instead of agreeing to cure any defects listed in a notice of
defects or agreeing to any proposed amendments, the seller may want to
propose an amendment indicating what work the seller is willing to do.
| Q. A notice relating to the
offer to purchase calls for a repair to be made, and states:
"Seller's right to cure defects may include a cash credit at
closing per a firm bid by a licensed contractor for the
aforementioned repair. Said bid shall be obtained by seller and
be subject to written approval of buyer prior to closing." The
buyer has signed the contractor's proposal for the work to be
performed. Should the listing agent require any further
documentation from the buyer acknowledging the contractor and
the work to be performed? |
| A. A party cannot use a notice to unilaterally change
the terms and conditions of the offer to purchase. Once the
buyer gives the seller a notice of defects, the seller must cure
the defects in a good and workmanlike manner. The buyer does not
have authority to determine which contractor or method is used
for curing the defects. If the buyer wants to have the repairs
done in a certain manner or by certain personnel, or receive a
closing credit, an amendment must be used. |
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| Q. The buyer gave a notice
of defects to the seller, who has the right to cure, but the
seller is not willing to repair all listed items. The seller
will, however, fix many of the listed defects. How should the
seller proceed? |
| A. The seller may propose an amendment listing the
items that the seller is willing to cure. It is important that
this amendment also indicate that if the buyer accepts the
amendment, the parties agree that the notice of defects is
withdrawn and/or that lines 306-310 of the offer are deleted.
This is because the buyer's notice of defects triggered the
sellers' ten-day clock. An amendment is not part of the standard
inspection contingency procedure and arguably will not stop the
clock from running. Even if the parties agree to the amendment,
the offer arguably still becomes null and void at the end of the
ten days. This unintended result is eliminated by making sure
that the amendment withdraws the notice of defects, which starts
the seller's ten-day clock, and removes the provisions which
cause the offer to become null and void.. |
Complex Procedures
If the buyer has some time to work with before the deadline for
giving a notice of defects, the buyer may start out proposing an
amendment to the seller. The amendment on the WB-40 Amendment to Offer
to Purchase proposes that the seller do the work that the buyer wants
to have done. The acceptance deadline on the amendment should be a
date that precedes the deadline for a notice of defects. That way, if
the seller does not accept the amendment, the buyer can still give the
seller a notice of defects.
| Q. The listing agent
received an amendment on her listing stating that the buyers are
giving a notice of defects, but that the notice of defects does
not apply if seller accepts the amendment proposed by the buyer
and repairs the items listed in the amendment. Is this
permissible? |
| A. Yes, the buyer may propose an amendment on the
WB-40 requesting that the seller do certain work. The acceptance
deadline on the amendment should be a date that precedes or
coincides with the deadline for a notice of defects. At the same
time, the buyer may give the seller a notice of defects on the
WB-41 that states: "This notice of defects is effective only if
the seller does not accept the buyer's amendment, dated____ and
deliver it back to the buyer on or before ____." Using this
"automatic trigger" technique is helpful if the buyer does not
have much time remaining before the deadline for the notice of
defects. |
For additional information about the use of the home inspection
contingency, including strategies and risks for the parties, see Legal
Update 99.10, "Home Inspections" at
www.wra.org/LU9910.
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FCC
Telemarketing and Fax Rule
by Debbi Conrad
President Bush signed the Do Not Call Implementation Act on March
11, 2003, to fund the establishment of the National Do Not Call
Registry. The Federal Trade Commission (FTC) then announced its
telemarketing rules revisions, which apply to interstate calls (see
the FTC Web site at
www.ftc.gov/donotcall). The FTC and the Federal Communication
Commission (FCC) have overlapping jurisdiction under the Telephone
Consumer Protection Act of 1991 (TCPA). It was expected that the FCC
would announce telemarketing rules that essentially mirrored the FTC
rules, but on June 26, 2003, the FCC unexpectedly announced federal
do-not-call rules that will apply to both intrastate (within the
state) as well as interstate (between states) calls beginning October
1, 2003. Under the FCC rules, the national do-not-call registry will
include residential and wireless telephone numbers (mobile and cell
phones). The FCC rules also create new requirements for faxed
advertisements (see the FCC Web site at
www.fcc.gov/cgb/donotcall).
In the face of new federal rules, it is important to remember that
Wisconsin's "do not call" law and regulations remain in effect because
they are, for the most part, more restrictive than the FCC rules.
Under the new federal rules, the FCC preempts or supersedes any state
telemarketing laws that are less restrictive than the FCC rules.
Because Wisconsin's laws are arguably equally or more restrictive than
the FCC rules, little will change in your daily practice. If Wisconsin
REALTORSŪ are in compliance with Wisconsin law, they will be in
substantial if not total compliance with FCC and FTC regulations as
well.
REALTORSŪ and other professionals in Wisconsin who make telephone
solicitation calls will have to comply with both the Wisconsin and the
FCC rules for in-state calls. They will have to comply with the FTC
rules, the FCC rules and the rules of the state called for interstate
calls. The two sets of federal regulations have many similarities, but
there also are some significant differences.
As a result of the FCC rules, the national "do-not-call" registry
will cover both interstate and intrastate telemarketing calls made to
residential and wireless telephone numbers. Under both the FTC and FCC
regulations, a telemarketer or seller may call a consumer with whom it
has an established business relationship for up to 18 months after the
consumer's last purchase, delivery, or payment - even if the
consumer's number is on the national "do not call" registry. In
addition, a company may call a consumer for up to three months after
the consumer makes an inquiry or submits an application to the
company. If a consumer has given a company express permission in a
signed written agreement containing the consumer's consent to be
called and the telephone number that may be called, the company may
call even if the consumer's number is on the national "do not call"
registry. However, if a consumer asks a company not to call, this
trumps any prior written consent or established business relationship.
The FCC will not require states to discontinue the use of their own
"do not call" lists once the national "do not call" registry goes into
effect on October 1, 2003. However, the TCPA prohibits a state from
using any "do not call" list that does not include the part of the
national "do not call" registry that relates to that state. Thus,
state "do not call" lists must include all the registrants on the
national database for that state. The FCC also restricts the use of
predictive dialers in an effort to reduce hang-up and dead air calls,
prohibits telemarketers from blocking caller ID information and
establishes a common-sense exemption to permit calls to friends,
family members and acquaintances.
Unsolicited Facsimile Advertisements
The TCPA prohibits the use of any telephone facsimile machine,
computer or other device to send an unsolicited advertisement to a
telephone facsimile machine. An unsolicited advertisement is defined
as "any material advertising the commercial availability or quality of
any property, goods, or services which is transmitted to any person
without that person's prior express invitation or permission." Persons
or entities sending messages via telephone facsimile machines must
identify themselves to message recipients, and transmissions must
contain the date and time sent.
Under current law, a person or company may transmit unsolicited
advertisements if there is established business relationship. Starting
August 25, 2003, however, the FCC facsimile rules will require that a
person or entity must obtain the prior express invitation or
permission of the fax recipient. This permission must be in writing,
clearly state that the recipient consents to receiving faxed
advertisements, give the recipient's fax number and include the
recipient's signature.
See the Federal Resources section on the Telemarketing Solicitation
Rules & the No Call List REALTORŪ Resource page at
www.wra.org/nocalls for
additional information (click on an topic for an expanded list of
information). Also look for further updates in WRA publications,
including specific pointers about how to best coordinate the different
sets of regulations in daily practice.
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Safety
Tips for Landlords
The Milwaukee Journal Sentinel recently reported the sad story of
an evicted drug dealer who retaliated against his landlord, resulting
in the death of the landlord's 69-year-old wife in her own kitchen (www.jsonline.com/news/metro/jul03/156156.asp).
Tim Ballering, Past President of the Apartment Association of
Southeastern Wisconsin, has offered the following safety tips in
reaction to this tragic situation:
- An owner with an office should use that address only for all
tenant and municipal disclosures.
- If you don't have an office you can use an agent for service and
use that address to fulfill the disclosure requirements. Attorneys,
onsite managers and property managers all often are used for this
purpose.
- Thoroughly screen your tenants. Drug dealers can be both
dangerous and negligent about paying rent. Prevention is the best
medicine.
- Even with good screening practices you will still have the
occasional problem tenant due to fronting (see following paragraph),
co-tenants who are not listed on the application, bad people who
have previously avoided detection and good people or their children
who turn bad later. When you get a problem tenant, don't be
confrontational.
Fronting
As more and more owners use thorough screening methods, more and
more bad tenants are having someone else with a clean criminal and
rental history apply for the apartment. Fronting undermines the entire
screening process. One of the most prevalent forms we have seen
recently is when parents front for their children who can't find a
place to live due to evictions and convictions. While fronting is
difficult to detect at the front end, you can reduce the impact by
checking a couple of weeks after the new tenant moves in to see who is
actually livin |
