The Best of the Legal Hotline: Condition Report Renovations


 Tracy Rucka  |    August 06, 2014
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Renovation overview 

What triggered the statutory changes, and what changes need to be included in reports? 

The legislature has once again made changes to the mandatory content of the Real Estate Condition Report (RECR) and the Vacant Land Disclosure Report (VLDR). The statutory changes relate to underground storage tank (UST) regulations and dam disclosures. The regulation of USTs has shifted from the Department of Safety and Professional Services to the Department of Agriculture Trade and Consumer Protection, necessitating a department name change. On a more substantive note, given the nature of dams and the expense and maintenance necessary, sellers are now required to disclose certain information about dams as follows: 

‚Äú C.9m. I am aware that a dam is totally or partially located on the property or that an ownership in a dam that is not located on the property will be transferred with the property because it is owned collectively by members of a homeowners association, lake district, or similar group. (If ‚Äúyes,‚ÄĚ contact the Wisconsin Department of Natural Resources to find out if dam transfer requirements or agency orders apply.)‚ÄĚ

In addition to the statutory required changes, the WRA RECR includes an educational reminder about the newly adopted Wis. Stat. ¬ß 101.983(3) elevator and dumbwaiter inspections. This law provides: ‚ÄúInspections; individual residential dwelling units. If the owner and a prospective buyer of an individual residential dwelling unit that is served by a dumbwaiter or an elevator enter into a contract of sale for the unit that includes a provision requiring that the dumbwaiter or elevator be inspected, the inspection shall be performed by an elevator inspector licensed under s. 101.985 (3).‚ÄĚ In other words, if the offer to purchase calls for an inspection of an elevator or a dumbwaiter in a residential property, the inspection must be conducted by an elevator inspector licensed by the DSPS. Accordingly, the following information is contained in the WRA condition report forms:¬†

‚ÄúNote: Any sales contract provision requiring the inspection of a residential dumbwaiter or elevator must be performed by a state-licensed elevator inspector.‚ÄĚ

Applicability

What WRA forms are impacted by these changes? 

The following four forms have been affected by the condition report revisions:

  • WRA-CR Real Estate Condition Report (2-page)¬†
  • WRA-SCR Real Estate Condition Report (3-page)¬†
  • WRA-F Real Estate Condition Report ‚Äď Farm¬†
  • WRA-VLDR Vacant Land Disclosure Report¬†

Revised versions of the RECR and VLDR are available in zipForm¬ģ and may be purchased from the WRA in hard copy.¬†

Do all sellers need to complete the new reports? 

No, the WRA has created addenda to facilitate making changes to the existing reports. 

 

  • Addendum to Real Estate Condition Report: The Addendum to Real Estate Condition Report may be used with the WRA Real Estate Condition Report (WRA-CR, 2 pages), the WRA Real Estate Condition Report (WRA-SCR, 3 pages), and the WRA Real Estate Condition Report ‚Äď Farm (WRA-F, 3 pages). This addendum supplements these RECRs such that they comply with the statutory changes in Wis. Stat. ¬ß 709.03 effective July 1, 2014. WRA Addendum to RECR is available in fillable format at www.wra.org/disclosure.¬†
  • Addendum to Vacant Land Disclosure Report: The separate Addendum to Vacant Land Disclosure Report is designed for use with the WRA Vacant Land Disclosure Report (WRA-VLD, 3 pages). WRA Addendum to the VLDR is available in fillable format at www.wra.org/disclosure.¬†
  • Amendment to Real Estate Condition Report: To dispel any confusion between the addenda and an amendment, the WRA Amendment to Real Estate Condition Report form has not been modified based on the recent changes.¬†

 

Which reports must be modified? 

It is all about the timing. For any transactions with accepted offers before July 1, 2014, no changes need to be made for the accepted offers that close.
What about all the current listings with no offers yet?

The seller has two choices: complete a new RECR or VLDR (copyright 2014) or complete the corresponding WRA Addendum that can be distributed to buyers along with the pre-existing report. The RECRs and VLDRs for existing listings will either need an addendum or will need to be redone on revised forms for all reports delivered to buyers on or after July 1, 2014.

What report should the broker provide for any future listings? 

The broker has two choices: (1) Ask the seller to complete the new 2014 RECR or new 2014 VLDR, or (2) if the broker has hard copies of the 2012 copyright forms, the broker may provide the 2012 report with the supplemental WRA addenda. This allows a broker to continue to use the WRA RECR-CR or RECR-SCR or RECR-F with a 2012 copyright date. If the broker retains any copies of the 2010 copyright RECR, then the new 2014 addenda and the 2012 rider would be necessary. It may be time to just jettison those older reports.

The broker is looking at the addenda and does not find buyer signature lines. Are they needed? 

Additional signature lines are not necessary because each addendum refers to the respective report to which it is attached, and the buyer signs the main report to indicate that the buyer has received the report. It is not a situation where the addendum is a bilateral contract that both parties must sign. The buyer’s signature on a condition report simply indicates that they received it, and the report is not invalidated if the buyer does not sign a report that they did receive. In addition, the report is incorporated by reference into the offers where both parties do sign. If it would make parties or brokers more comfortable, they may add in lines for the buyers to sign the addenda, create their own addenda that include a buyer acknowledgement section, or ask the buyer to sign or initial at the bottom of an addendum to confirm receipt.

What happens if in July 2014 a buyer receives a RECR completed on an old form?

Any RECR or VLDR given to a buyer before July 1 does not need to be changed, but any RECR or VLDR given to a buyer on or after July 1 must contain all the new legislative provisions. A buyer could rescind the offer to purchase based on the right to rescind provisions in Wis. Stat. § 709.05 if a buyer receives a RECR or VLDR completed on an old (2012) form. A prospective buyer who receives a disclosure report that is incomplete may, within two business days after receipt of the report, rescind the offer. A RECR or VLDR without all of the statutorily mandated provisions may be characterized as incomplete when compared to the statutory requirements. A rescinding buyer has no liability to the seller and is automatically entitled to the return of any earnest money paid. The right to rescind is the only remedy provided under chapter 709, so once the two business days have passed, a buyer may have no other remedy.

Two or three-page RECR? 

Why does a two-page WRA-CR exist along with a three-page WRA-SCR? What is the difference between these two new RECRs? It seems that the three-page form includes more disclosures ‚ÄĒ is this the main difference?

Both forms (copyright 2014) contain the mandatory chapter 709 content for one- to four-family residential transactions. The basic difference is that the three-page version includes reminders or examples of information that would cause a seller to answer ‚Äúyes‚ÄĚ to the presence of defects. All information contained in italics in the three-page form is there for education or to prompt the seller‚Äôs memory.

Vacant Land Disclosure Report 

When did the VLDR become mandatory? 

Effective July 1, 2012, sellers of vacant land are required to complete a VLDR. This requirement applies to land with no buildings. The Wis. Stat. § 709.033 disclosure provisions generally must be completed by all persons who transfer Wisconsin real estate that does not include any buildings, including condominium units and timeshare property, by sale, exchange or land contract. All sellers subject to Wis. Stat. § 709.033, whether broker-assisted or FSBO, must complete a disclosure report with the necessary provisions or risk buyer rescission of the offer to purchase or other contract for sale. 

Pursuant to the Wis. Admin. Code § REEB 24.07(1)(b), real estate licensees listing a property are required to inspect the property, ask the seller about the condition of the property, and ask the seller to provide his or her answers in writing. This obligation to inspect and request written statement applies to all transactions, even vacant land. 

For any vacant land offers accepted on or after July 1, 2012, the seller must provide a VLDR containing the elements in Wis. Stat. ¬ß 709.033. If the seller does not provide the VLDR, the broker may ask the seller to sign the Seller Refusal to Complete Real Estate Condition Report form. If the sellers do not wish to make representations in the offer, they should be referred to legal counsel to discuss the transaction and the possibility of structuring it as an ‚Äúas-is‚ÄĚ transaction.

Wis. Stat. ¬ß¬ß 709.033 and 709.03(5)(b) indi¬≠cate that the VLDR provisions must be used for transfers of real property that do not include any buildings. If the transaction relates to only land with no structure that might be deemed a building, the new ¬ß 709.033 indicates the new disclosure provisions must be used. The term building is not defined in Chapter 709 of the statutes, but in the dictionary, ‚Äúbuilding‚ÄĚ is defined as a structure that has a roof and walls and stands more or less permanently in one place, or a usually roofed and walled structure built for permanent use. Thus if there is an outbuilding, or a dilapidated outhouse, for that matter, the argument can be made that the VLDR need not be used because there is a building on the property. As a practical matter, wisdom would seem to point to using the VLDR in situations where the property is primarily land, even if there are incidental structures or accessory buildings. That is the intent and spirit of the legislation and there would seem to be no reason to unnecessarily invite debate or controversy.¬†

Who is exempt from completing a VLDR?

The ¬ß 709.033 requirements do not apply to personal representatives, trustees, conservators and other fiduciaries appointed by or subject to supervision by the court, but only if those persons have never occupied the property ‚ÄĒ a likely situation, given the property is vacant. This exemption for fiduciaries, however, does not apply to persons holding powers of attorney because this relationship is created by contract, not by court appointment, and is not subject to direct court supervision. Powers of attorney would be subject to the ¬ß 709.033 requirements if conveying vacant land without buildings.¬†

The § 709.033 provisions are also not required for sellers engaged in vacant land transfers that are exempt from the real estate transfer fee, such as between spouses, foreclosures or probate transfers, for example. 

There is no exemption from the vacant land disclosure law based solely on the fact that the seller does not live at the property or is not familiar with the condition of the property. A bank that has acquired a lot by foreclosure, for example, is still expected to complete a VLDR for REO sales. A seller in this position can either (a) complete the VLDR to the best of his or her knowledge, (b) retain a professional to provide an inspection report to be used as the basis for completing the VLDR, (c) refuse to complete the VLDR and sell ‚Äúas-is,‚ÄĚ risking buyer rescission, or (d) refuse to complete the VLDR and sell ‚Äúas-is,‚ÄĚ refusing to accept any offers from buyers who do not waive their Chapter 709 rescission rights.

For more information about the VLDR, see the May 2012 Legal Update, ‚ÄúVacant Land Disclosure Report,‚ÄĚ at www.wra.org/LU1205.

Tracy Rucka is Director of Professional Standards and Practices for the WRA. 

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