I Noticed You, Noticing Me ...


 Cori Lamont  |    August 06, 2015
DefectsLRG.jpg

As long as any of the attorneys at the WRA can remember, understanding the difference between the notice and the amendment as they relate to the Inspection Contingency has been a challenge for many. For some, this confusion exists because once upon a time there was only one form that included both the notice and the amendment. For ease of use, that form was eventually broken down into two separate forms: the WB-40 Amendment to Offer to Purchase (WB-40) and the WB-41 Notice Relating to Offer to Purchase (WB-41).

Notice or amendment?

In the WRA’s pre-license course, company trainings and through the WRA Legal Hotline, agents have been reminded of the appropriate use when dealing with the Inspection Contingency of the amendment and the notice. 

The notice and the amendment are distinctly different. The Inspection Contingency assists in making this distinction: ‚ÄúCaution: A proposed amendment is not a Notice of Defects and will not satisfy this notice requirement.‚ÄĚ A WB-40 is used when the parties are agreeing to modify terms; the WB-41 is utilized when one party is giving notice that does not require the other party‚Äôs agreement.

If the buyer wishes to negotiate terms after a home inspection, the buyer would draft an amendment. If the buyer would like to provide a Notice of Defects, the buyer would draft a notice and attach it to the inspection report. An easy way to remember to reserve the buyer’s negotiating rights is to think of them alphabetically: A before N, so amendment before notice. Another similar mnemonic device is to think of the forms, 40 and 41, in sequential order: WB-40 before WB-41. A Notice of Defects will activate the right to cure provision of the offer. Therefore, once a buyer provides a Notice of Defects, the situation is dictated by the right to cure language. Since the amendment is not a notice, the amendment provides the parties with the ability to negotiate terms without activating the right to cure provision.

A buyer is not required to provide an amendment prior to a notice. However, a buyer wishing to negotiate terms would provide an amendment first. A buyer may also choose to skip the amendment process and go right to the Notice of Defects.

If the buyer provides a notice and the parties later decide they would rather negotiate the defect issue, the parties should document a withdrawal of the Notice of Defects with an amendment. Any amendment proposed after a Notice of Defects has been given should include a provision agreeing to the withdrawal of the Notice of Defects. If the amendment is signed, the Notice of Defects would be withdrawn and the parties would have agreed to certain repairs in the amendment. If the amendment is not signed, the Notice of Defects will be enforced.

What is a defect? 

The Offer to Purchase defines ‚Äúdefect‚ÄĚ in the Inspection Contingency. Line 425 states, ‚ÄúFor the purposes of this contingency, Defects (see lines 182-184) do not include structural, mechanical or other conditions, the nature and extent of which Buyer had actual knowledge or written notice before signing this Offer.‚ÄĚ

Lines 182-184 define ‚Äúdefect‚ÄĚ as ‚Äúa 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.‚ÄĚ Whether any item listed is actually a defect is determined on a case-by-case basis. If the parties cannot agree whether an item is a defect as defined in the offer, then the parties should be directed to their respective attorneys for advice.

Drafting a notice of defects

This article is focusing on one very narrow discussion: drafting the Notice of Defects. In recent months, we've heard from agents and their supervising brokers about the way to draft the notice or questions relating to one a seller received. 

The WB-11 Residential Offer to Purchase states on lines 421-423, ‚ÄúThis Contingency shall be deemed satisfied unless Buyer, within _____ days of acceptance, delivers to Seller a copy of the written inspection report(s) and a written notice listing the Defects(s) identified in those report(s) to which Buyer objects (Notice of Defects).‚Ä̬†

According to the Offer to Purchase, for the buyer to provide a proper Notice of the Defects, the buyer must provide a copy of the inspection report AND give a written list of the defects to which the buyer objects. 

Proper notice of defects

If the buyer wishes to provide a Notice of Defects to the seller, then the buyer would send a WB-41 with language along the lines of, ‚ÄúThis is a Notice of Defects. The following are defects to which the buyer objects,‚ÄĚ then the buyer would insert the items the buyer deems to be defects.

The buyer would also provide a copy of the inspection report with the WB-41 to meet the requirements of lines 421-423. While the buyer is not obligated to state that the notice is a Notice of Defects, it does make it clear to all the parties involved that the buyer is providing a Notice of Defects. Again, the buyer is required per the offer to provide a copy of the report AND a written list of the defects included in the report to which the buyer objects. 

Improper notice of defects

Examples of a buyer‚Äôs arguably failed attempts to provide a Notice of Defects include, ‚ÄúThe following inspection report has been given to the seller noting the inspector‚Äôs comments regarding the property.‚ÄĚ It is unclear in this statement whether the buyer is providing a Notice of

Defects or is meeting the buyer‚Äôs obligation on line 407 to promptly provide the seller a copy of the inspection report. Another example of a poorly drafted notice would be, ‚ÄúThe buyer objects to the items listed in the inspector‚Äôs report.‚ÄĚ This language fails to identify which item in the report to which the buyer objects, therefore the seller would likely be successful in their attempt to challenge that the buyer did not provide a Notice of Defects. Due to the way the Inspection Contingency is drafted, unless the buyer objects to defects in the inspection report by the deadline in the Inspection Contingency, the buyer has deemed the contingency satisfied and has agreed to purchase the property in its current condition. Thus if the buyer via their agent fails to correctly draft a Notice of Defects, and the deadline for the Inspection Contingency has passed, the buyer effectively is purchasing the property ‚Äúas-is.‚Ä̬†

Lastly, the Notice of Defects is for the buyer to list defects from the inspection report to which the buyer objects. The Notice of Defects is not a place for the buyer to dictate how the seller will cure such defects.
See the resources box to the right for more information about the appropriate use of an amendment and the notice as well as the definition of defect regarding the Inspection Contingency.

Tips

Once the buyer has decided to send a Notice of Defects to the seller before the deadline of the Inspection Contingency expires, the agent working with or representing the buyer should use the Inspection Contingency Notice of Defects language in the Offer to Purchase as a checklist.

  • Review the definition of Defects on lines 182-184 with the buyer.¬†
  • Grab the WB-41 Notice Relating to Offer to Purchase.
  • Include language such as, ‚ÄúThis is a Notice of Defects. The following are defects to which the buyer objects," then the buyer would insert the items the buyer deems to be defects.
  • At the buyer‚Äôs direction, list on the WB-41 Notice Relating to Offer to Purchase the defects from the report(s) to which the buyer objects.
  • Send the inspection report(s) along with the WB-41 Notice of Defects.

Resources

‚ÄĘ LegalTalks videos on the inspection contingency: www.wra.org/LegalTalks/InspectionContingency.
‚ÄĘ ‚ÄúUncovering the Truth: Inspection Contingency,‚ÄĚ in the April 2011 issue of Wisconsin Real Estate Magazine: www.wra.org/WREM/Apr11/UncoveringTruth.
‚ÄĘ ‚ÄúUncovering the Truth: Dismantling the Inspection Contingency,‚ÄĚ in the June 2014 issue of Wisconsin Real Estate Magazine: www.wra.org/WREM/June14/UncoveringTheTruth.

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

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