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Wisconsin REALTORŪ
November 2001
Volume 18, Number 2
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Legal Matters |
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Mold in Wisconsin Properties
By Debbie Conrad
While there are many biohazards on the minds of Americans, some
REALTORSŪ have been facing some of the problems that occur when a property is infested with toxic mold. In the following scenarios described to the Legal Hotline, it appeared that one property may be beyond saving while the other is a good candidate for remediation.
| Two air tests and one swab test performed by an Illinois home inspector in the basement of a Beloit home revealed toxic mold. One air test was taken outside of the building, to serve as the control sample and show what levels of different molds occur naturally in the area. The inside air sample showed elevated quantities of Penicillium and Aspergillus mold, indicating that these molds were colonizing in the basement and going airborne. A swab test done by the home inspector on visible black mold had high amounts of
Stachybotrys, Penicillium and Aspergillus. These are all mycotoxins -- poisonous substances or toxins produced by a few types of mold. The charge for the sampling and analysis by an out-of-state lab was $270.
An environmental contracting firm gave a bid for mold remediation. This was to include containment of the work area; removal of paneling, wall board, insulation and carpeting; air scrubbing by a machine that removes particles and destroys airborne spores from the air; application of disinfectant and HEPA vacuuming; and costs of personal protective equipment and clothing used by workers. The remediation bid was for $10,324.
How can a REALTORŪ or his or her client know if the environmental firm is qualified and if the bid is reasonable?
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REALTORSŪ and parties can certainly ask environmental contractors for credentials and resumes, but there are no lists of certified or approved mold contractors. Large environmental companies and the state lab hold training classes for proper sampling techniques, and testing can be done at most state certified labs. Contractors, however, are hard to find because this is a relatively new field. In this case, the bid does not seem to be patently unreasonable, but it would be hard to know for sure without other bids to compare it to or some other expert to confirm that their methodologies are sound.
The seller must decide whether to remediate. This home will likely never sell unless the work is done or unless a buyer is found that wants to do the work himself and rehabilitate it.
| An agent who often lists foreclosed properties has listed a house with severe water damage and a severe mold infestation. A water leak in this vacant property went unattended, permitting an extensive growth of mold. One person entering the house thought that there was a striking green/black carpet, which turned out to be the mold that has taken over the carpet. The agent has told the sellers that she will not enter this property under any circumstances and put her health in jeopardy. The agent has recommended that this house be donated to the fire department and burned down in a training drill because it is so bad. The city seems not to care and will not even look at the property because it is vacant.
The seller, Fannie Mae, has a Disclosure and Release Form which must be signed before anyone can enter the property. The form says, "Fannie Mae has been informed that as a result of a water leak, mold and/or other microscopic organisms may exist at the property and microscopic organisms and/or mold may cause physical injuries, including but not limited to allergic and/or respiratory reactions or other problems, particularly in persons with immune system problems, young children and/or elderly persons." Is this enough to cover all bases for all who will be involved in this transaction?
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The Fannie Mae waiver/disclosure form is technically accurate, but it does not seem to give enough information to make people appreciate the potential extent of the danger. In many situations, this disclosure would be sufficient, but because the environmental concern with toxic mold is relatively new, the public and even the local authorities do not have a general awareness of the problem and we do not yet have any pamphlets or brochures to distribute to consumers (although these products are under development). It may be best for everyone's protection to give a more detailed description of the problem and more information explaining the health risks involved.
Mold Liability
As more consumers are becoming aware of the dangers with toxic mold, the liability suits have begun, most aimed at insurance companies. Unfortunately, some real estate brokers have been sued too. In Arizona, a buyer sued the listing broker when he learned -- after he had bought the house - that there was a heavy mold infestation that would cost $60,000 to remediate. See the article discussing related mold liability issues at
www.realtors.org.
It should be clear to REALTORSŪ that a serious mold infestation is a material adverse fact that must be disclosed. Sellers should be disclosing known mold problems on item C15 of the real estate condition report: "I am aware of a defect caused by unsafe concentrations of, or unsafe conditions relating to, radon, radium in water supplies, lead in paint, lead in soil, lead in water supplies or plumbing system or other potentially toxic substances on the premises." Clearly toxic mold like Stachybotrys is a potentially toxic substance on the premises.
See the WRA Mold Resource Page. NAR also has a research information page - type in "mold and health issues" in the search box on the
www.onerealtorplace.com
home page.
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New Condo Law Revisions - We Need Your Input!
The Legislative Council's Condominium Law Special Study Committee has worked for over a year to create proposed
amendments to Wis. Stat. Chapter 703, the Condominium Ownership Act. The amendments cover a wide range of issues. Some of the issues debated by the committee include requiring reserve funds to pay for common element replacements, rental restrictions and dealing with units owned by absentee landlords.
By and large, the major focus of the committee was to help unit purchasers understand what they are buying and to make condominiums easier to work with - for unit owners, developers, real estate agents, and attorneys.
The committee has taken final action on a group of specific proposals to revise the condominium statutes. These proposals will be combined and soon submitted to the committee for a final vote on the whole package. A memorandum summarizing some of the proposals of most interest to
REALTORSŪ and a link to the full text of the various proposals can be found at
www.wra.org/Legal/condo_law_changes.asp
We would like your feedback on these proposals. If you specialize in condominium unit transactions, live in a condominium, develop condominiums, enjoy condominium transactions, or have any other interest in this legislation, we would like to hear from you! Please direct your feedback and any questions
by emailing Debbi Conrad or call (800) 279-1972.
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Best of the Legal Hotline
By Debbie Conrad & Tracy
Rucka
The following questions were recently asked of the Legal Hotline:
Transactional Questions
| Q. Sale of home and financing contingency. The financing contingency deadline was 21 days after acceptance, which is long past. The buyer never delivered a loan commitment until today. Did the bump notice affect the financing contingency? |
| A. Since the removal of the financing contingency was not required in the bump provision in lines 283-284 of the contract, then that condition cannot be imposed after-the-fact. The buyers can only be asked to remove those provisions or provide the documentation that is required in the offer. The seller cannot unilaterally add additional requirements at the time of the bump or put them in the bump notice.
Generally when a deadline is "time is of the essence," failure to perform by the exact deadline is a breach of contract. The loan commitment provision in the offer to purchase, however, alters this result: "If Buyer does not make timely delivery of said commitment, Seller may terminate this Offer if Seller delivers a written notice of termination to Buyer prior to Seller's actual receipt of a copy of Buyer's written loan commitment."
Applying the "time is of the essence" principle to the buyer's failure to produce a written loan commitment by the stated deadline means that there is an immediate breach. However, if the buyer can deliver the commitment to the seller prior to the seller's delivery of a termination notice, the buyer may cure the breach. Consequently, the deadline for the buyer's delivery of a copy of the loan commitment is indefinite, absent the seller's termination of offer notice. Accordingly, sellers desiring to terminate the offer based on the buyer's failure to timely produce a written loan commitment must act promptly and give the buyer a written termination notice before the seller receives a commitment from the buyer.
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| Q. Offer did not close and seller has sold property to another buyer. Now the first buyer's attorney is demanding that the listing broker return the earnest money to the first buyer. Does the listing broker have to give the buyer the earnest money? |
| A. No, the listing broker cannot disburse the earnest money without a proper written disbursement agreement signed by all of the parties. A letter from the buyer's or seller's attorney or a cancellation agreement and mutual release not signed by all of the parties are not proper disbursement agreements per Wis. Adm. Code § RL 18.09.
The listing broker may wish to write a memorandum or letter to the buyer and seller and their respective attorneys pointing out the earnest money provisions on lines 247-271 of the residential offer to purchase and explaining that this is how the earnest money disbursement must be handled. It is then up to the parties to work out their differences by negotiation or by going to small claims court.
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Charitable Gifts
| Q. Referrals and charitable contributions. If a charity refers
business to a broker, can the broker pay it a referral fee? |
| A. No, fee splitting for referrals to non-party, non-licensees is illegal. Wis. Stat. § 452.19 limits the payment of referral fees, finder fees and commission splits to Wisconsin licensees or persons lawfully and regularly engaged in real estate brokerage in another state.
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| Q. Can an agent offer a special offer to a select group of people, like the members of her church, if they work with the agent in selling or buying a property? The agent would donate a portion of the agent's commission to a charitable organization supported by the church in the client's or customer's name. If the agent offers this program to the members of her church, does she also have to offer this to everyone? Does the agent then have to advertise this openly to everyone? |
| A. Fair housing laws provide that it is unlawful to advertise with respect to the housing transactions in a manner that indicates a preference or limitation based on a protected class. If the agent wants to structure a campaign that benefits a certain charity, like her church, the agent must assure that the choice of charity does not create, to the reasonable reader, a discriminatory limitation or preference based on a protected class, such as religion.
Incentives may be offered to sellers and/or buyers to induce them to sell or purchase real estate. Seller or buyer incentives can be offered in any amount as cash or as an item of personal property such as a home warranty plan, a savings bond, a gift certificate, an appliance or some other item. Such incentives must be clearly documented in advance - prior to closing. The parties must have a clear and thorough understanding of the incentive's terms and conditions. This advance documentation of the party incentive is necessary to establish that the incentive is not a fee-splitting arrangement with a non-licensee, which would be illegal under Wisconsin law.
Standard of Practice 12-3, which interprets Article 12 of the Code of Ethics, provides that:
"REALTORSŪ shall be careful at all times to present a true picture in their advertising and representations to the public. ..." Standard of Practice 12-3 states, "The offering of premiums, prizes, merchandise discounts or other inducements to list, sell, purchase or lease is not, in itself, unethical even if receipt of the benefit is contingent on listing, selling, purchasing, or leasing through the
REALTORŪ making the offer. However, REALTORSŪ must exercise care and candor in any such advertising or other public or private representations so that any party interested in receiving or otherwise benefiting from the offer will have clear, thorough, advance understanding of all the terms and conditions of the offer. ..."
This standard assumes the omission of even one detail will cause the advertisement to present less than a true picture. This may be disputable should someone bring an ethics complaint concerning an ad for party incentives that does not contain every detail - the issue will be whether there is a true picture of the offered incentive in the ad. An ad that states, "see broker for details," however, is like a red flag waving in the face of a competitor who lives by the Standards of Practice - it may be seen as an admission that less than a true picture has been disclosed in the ad.
The advertising publications, brochures or flyers used for real estate advertising should be ones that are widely available to the public. Limiting ads to publications that are distributed to a very selected audience may violate fair housing law. For instance, if you advertise only in a publication catering to older persons, you may be discriminating against families with children. Similarly, advertising only in the agent's church bulletin may be viewed as discrimination against people with differing religious beliefs.
Depending on the content of the campaign, it may meet statutory and Code of Ethics requirements or not. Therefore, the agent should create the advertising campaign and submit it to her broker or private legal counsel for review prior to publication.
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| Q. An agent is in an office that would like to advertise that a certain percentage of the commissions they earn over three months will be donated to a charity. Can they do this? |
| A. This depends upon the agent's intent. Advertising that a portion of the agent's commission will be donated to a non-profit organization or charity in order to attract business referrals constitutes illegal fee splitting in violation of Wis. Stat. § 452.19. That statute limits the payment of referral fees, finders' fees and commission splits to other Wisconsin licensees or persons actively engaged in real estate practice in the state where they are licensed. Depending upon the circumstances, such an ad may create an advance agreement or expectation that the licensee's commission will be split with a non-licensee.
The agent could offer the donation as an incentive to sellers to list and buyers to buy. Incentives may be offered to sellers and/or buyers to induce them to sell or purchase real estate. Seller or buyer incentives can be offered in any amount as cash, an item of personal property, or a charitable donation in the person's name. Advance documentation of the party incentive is necessary to establish that the incentive is not a fee-splitting arrangement with a non-licensee, which would be illegal under Wisconsin law.
There is arguably no problem with the agent personally making charitable contributions and advertising the fact that he or she gives three percent to charity and is a nice person. This works as long as the ad is not interpreted as offering a referral fee or a party incentive.
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Home Inspections
| Q. Does a buyer have to use a registered home inspector for the home inspection? How do you know if an inspector is registered? |
| A. Pursuant to the standard inspection contingency language, the buyer may only give a notice of defects if accompanied by a written inspection report supplied by a Wisconsin registered home inspector. If another inspector completes a home inspection, the notice of defects will be ineffective. Unless the buyer and seller agree to amend the contingency language or there is time for an additional home inspection, the buyer will be obligated to purchase the property in the condition it is in.
Real estate licensees should inform buyers of the need to use properly registered inspectors. If giving a list of inspectors, the licensee should assure that each inspector is properly registered. The Department of Regulation and Licensing maintains a lists of registered inspectors at
http://drlchq.state.wi.us/plsql/chq/cred_holder_query. See
Legal Update 99.10 for more information about home inspectors and the home inspection process.
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| Q. A home inspection was performed. The buyer,
REALTORŪ, home inspector and seller were present. The seller referred to a previous inspection and said that defects noted had been corrected. The current inspection detected numerous defects that should have been detected during any previous inspection. The buyer feels that the seller did not disclose all known defects. Should a copy of the previous inspection report have been made available to the buyer? |
A. In a Real Estate Condition Report (RECR), the seller has to disclose defects if he or she has notice or knowledge of them. Having an inspection report describing numerous defects certainly constitutes notice of the defects. "Defect" means a condition that would have a significant adverse effect on the value of the property; that would significantly impair the health or safety of future occupants of the property; or that if not repaired, removed or replaced would significantly shorten or adversely affect the expected normal life of the premises.
Although the seller apparently failed to disclose numerous defects, per the agent's account of events, there is no requirement that the seller provide copies of any previous inspection reports. The seller must disclose information constituting a defect, but may do so without providing a copy of the inspection report.
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| Q. During the home inspection, the inspector made verbal comments regarding defects, but the inspector did not list them on the report. He talked about a stream running under the house that was washing out the foundation, and told the buyer that it could cost approximately $10,000 to repair. This was not included in the written report. When asked why, the home inspector said he could not prove it because it was only an assumption. |
A. Per Wis. Stat. § 440.975 and Wis. Admin. Code §§ RL 134.03 & 134.04, a home inspector is required to observe and describe a long list of items, including the foundation. The written report is not required to address the reason or cause of a defect, nor the manner or costs of any repair.
In this situation, it appears that the home inspector would be obligated to describe any foundation damage in the written report. The inspector would be more professional if he said that it was his best guess regarding the stream and the cost to fix the foundation, but this information was not legally required in the written report.
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