Where the Grass Is Green and the Statute of Limitations Is Two Years

 Cori Lamont  |    April 06, 2016

It’s funny how people have sayings about grass, such as when they say the grass is not always greener on the other side; and they are often right about that. Or they sing about Paradise City, where the grass is green. However, when discussing shortening of the statute of limitations for any profession, everyone would agree almost exclusively: shorter is better. 

This article is a continued discussion of the changes made to Wisconsin Statute Chapter 452 in the multi-part article series. Specifically, we discuss the statute of limitations in this article.
Since the last article in the March issue of Wisconsin Real Estate Magazine, one new development has taken place that impacts Chap. 452: the bill officially became law. 

On March 2, 2016, at the WRA REALTOR® & Government Day, Gov. Walker signed 2015 Wis. Act 258, formerly AB 456/SB 375. Therefore, the changes are now formally part of Wis. Stat. Chap. 452. As a reminder, this legislation substantially alters the statute that most significantly impacts your daily real estate practice. 

Let me make one point very clear: the reduction of the statute of limitations is not a free pass to do whatever you want in a real estate transaction. I don’t want anyone to misconstrue the attempt to reduce the amount of years one may be liable as an invitation to throw all common sense, ethics and respect for the law out the window. Actually, a reduced statute of limitations for real estate licensees and their firms may encourage greater scrutiny of the licensee and the firm’s actions in a real estate transaction earlier in the timeline than under the previous law.

452.142 Actions concerning licensees.

(1) Notwithstanding s. 100.18 (11) (b) 3., 893.43, 893.52, or 893.57, an action concerning any act or omission of a firm or any licensee associated with the firm relating to brokerage services shall be commenced within 2 years after whichever of the following that applies occurs first: 

  • (a) A transaction is completed or closed. 
  • (b) An agency agreement is terminated. 
  • (c) An unconsummated transaction is terminated or expires. 

(2) The period of limitation under this section may not be reduced by agreement.
(3) The period of limitation under this section does not apply to disciplinary actions initiated by the board.

What is a statute of limitations? 

A statute of limitations is the amount of time in which someone is able to file a lawsuit against someone or the amount of time that criminal action can be taken against someone.
Before the creation of Wis. Stat. § 452.142, included in the box on page 16, real estate licensees were vulnerable to litigation relating to a written contract for six years. Therefore, real estate licensees, including their firms, could be sued based upon a listing, buyer agency agreement or offer to purchase within a six-year period after a closing on a transaction or a listing or buyer agency agreement. 

Why was a six-year statute of limitations cause for concern? 

Real estate licensees are inevitably named in any lawsuit related to the transaction. Real estate companies and their agents are often brought into litigation due to the perception that they have “deep pockets” even though a company and its agent had no involvement or knowledge of the issue at the heart of the litigation. However, the company and its agent must defend their way out of the lawsuit.

The “leaky basement” common example

Five years after closing, a buyer’s basement takes on water. The buyer sues the seller, stating the seller did not disclose the leak and knew of the pre-existing condition of the basement taking on water. The buyer also sues the listing company, the listing agent and the subagent, arguing they also knew about the water issue in the basement and failed to disclose such to the buyer. 

Five years prior during the transaction, the seller did not disclose the basement water issue on the Real Estate Condition Report, and the agents said they had no knowledge of the water issue. The agents recommended the buyer have a home inspection, but the buyer refused. 

This example highlights the problem with a six-year statute of limitations: a six-year threat of possible litigation is too long. The fact that a company and its agents are susceptible to litigation six years after a transaction closes, terminates or expires creates significant uncertainty for practitioners and their companies. 

How long do other professions have? 

The statute of limitations for other professions varies. For illustration in Wisconsin, home inspectors have two years, doctors and nurses have three years, and lawyers have six years for legal malpractice.
Since Wisconsin home inspectors already have a two-year statute of limitations, the language of Wis. Stat. § 452.142 was created to substantially mirror the language and structure of Wisconsin home inspectors’ statute of limitations found in Wis. Stat. §440.977. 

What is the statute of limitations for other states? 

Other states have a shorter statute of limitations on contract claims of three years:

  • Alabama
  • Alaska
  • California
  • Colorado
  • Delaware
  • North Carolina
  • South Carolina

Other states carve out a two-year statute of limitations for professional malpractice:

  • Florida
  • Michigan
  • Nebraska 
  • New York
  • Oregon
  • Rhode Island

Wisconsin’s neighboring states, Iowa and Michigan, had a two-year malpractice statute of limitations, while Illinois specifically has a statute of limitations for real estate licensees of two years and not more than five years depending on the circumstances. Interestingly enough, our research revealed that Wisconsin will join Illinois as one of the few states that has a statute of limitations specifically relating to real estate licensees. 

While these states represent a broad spectrum of political philosophies — such as Alabama and California — each of these states believes that placing reasonable limitations on the liability maintains adequate protection for consumers. To date, as far as we are aware, none of these states has repealed or significantly modified their statutes of limitation. 

When does the statute of limitations change take effect? 

March 4, 2016. As of March 4, 2016, any contract that closes, any listing or buyer agency agreement that is entered into, or any transaction that fails to close will have a two-year statute of limitations.

When does the two-year clock start? 

The two-year time frame will start when whichever of the following that applies happens first: 

  • A transaction is completed or closed.
  • An agency agreement is terminated.
  • An unconsummated transaction is terminated or expires.

Can we reduce the two-year statute of limitations in our listing or buyer agency agreement to something shorter? 

No. The statute specifically states that the period of limitation under this section may not be reduced by agreement. 

Does this statute of limitations apply to everything? 

No. Wis. Stat. § 452.142 does not include criminal activities or fraud along with a few other specific items that licensees are not typically involved in when providing brokerage services. See Wis. Stat. § 893.93 Miscellaneous actions. 

Wis. Stat. § 452.142 does specifically identify Wis. Stat. § 100.18 advertising, Wis. Stat. § 893.43 action on a contract, Wis. Stat. § 893.52 action for injury, and Wis. Stat. § 893.57 intentional torts, including all of those as having a two-year statute of limitations. 

The two-year statute of limitations in Wis. Stat. § 452.142 applies, “concerning any act or omission of a firm or any licensee associated with the firm relating to brokerage services.” 

The intent was to say the statute of limitations under Wis. Stat. § 452.142 will be two years relating to brokerage services. “Brokerage services” is a defined term in Wis. Stat. § 452.01(3e) which means any service that requires a broker's license provided by a firm or any agent associated with the firm. 

Therefore, the statute of limitations of two years would not apply to anything the licensee or firm are doing outside the scope of brokerage services, at least not under Wis. Stat. § 452.142. 

Does the new statute of limitations change how long we have to retain transaction records? 

No. You must still retain transaction documents for three years. The change in the statute of limitations does not modify the record retention requirement of three years established in Wis. Admin. Code § REEB 15.04. 

One additionally noteworthy change made in Wis. Stat. Ch. 452 also clearly allows electronic record retention as of July 1, 2016. While this was a policy established by the Real Estate Examining Board (REEB) many years ago and arguably allowable, the administrative rule does not clearly allow or prohibit electronic record retention. Therefore, we included the permission to retain documents electronically in the changes as an additional backup until the REEB could update the administrative rule to authorize within the rule electronic record retention. 

However, keep in mind that you may want to continue to retain the documents longer for tax purposes and consumer complaints at the Department of Safety and Professional Services (DSPS). 

Does a consumer only have two years to file a complaint with the DSPS? 

No. The clock for consumer complaints at the DSPS never begins and therefore never stops. 

We will continue our series next month breaking down the changes to Wis. Stat. Ch. 452 as well as other WRA resources such as LegalTalks videos, Legal Updates, Legal Hottips and others. 

Since the statute of limitations has changed from six to two years, you may want to consult your errors and omission carrier about possible premium savings since the risk for all lawsuits is shorter.

For those who picked up on the GNR lyrical reference in this article, Axel would be proud.

Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA. 

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