I Feel It Coming: Future Changes to the RECR and VLDR


 Cori Lamont  |    June 10, 2019
I Feel It Coming

This legislative session, the WRA is looking to make some modifications to the Real Estate Condition Report (RECR) and Vacant Land Disclosure Report (VLDR), or more accurately, disclosures by owners of real estate as provided in Wis. Stat. Chap. 709. 

The WRA will keep you up to date regarding bill progresses. In the interim, below are summaries of the recommended changes. 

Issue 1: Statutory inconsistencies within Chap. 709

Wis. Stat. § 709.05 permits a buyer to automatically get his or her earnest money back if the buyer has the right to rescind the offer. However, Wis. Stat. § 709.02(1) does not provide the right to receive the earnest money back. As a result, the two statutes are inconsistent, which creates confusion for the parties. 

Recommended change

Amend Wis. Stat. § 709.02(1) to authorize the buyer to receive the earnest money back if the buyer has the right to rescind the offer. 

As reference, the relevant portion of Wis. Stat. § 709.05(1) provides:
(1)‚Äā Except as provided in sub. (2) (b), if a buyer receives a report after submission of a contract of sale or option contract to the owner or the owner‚Äôs agent, the buyer may, after receipt of that report by the prospective buyer and before the applicable deadline, rescind in writing a contract of sale or option contract if a defect, as defined in the report, is disclosed, without any liability on his or her part, and a buyer is entitled to the return of any deposits or option fees paid in the transaction. A prospective buyer who receives a report that is incomplete or that contains an inaccurate assertion that an item is not applicable and who is not aware of the defects that the owner failed to disclose may, within 2 business days after receipt of that report, rescind in writing a contract of sale or option contract without any liability on his or her part and is entitled to the return of any deposits or option fees paid in the transaction.
Bold italics indicate emphasis added.

While the relevant portion of Wis. Stat. § 709.02(1) provides:
(1) In regard to transfers described in s. 709.01, the owner of the property shall furnish, not later than 10 days after acceptance of a contract of sale or option contract, to the prospective buyer of the property a completed copy of the report under s. 709.03 or 709.033, whichever is applicable, subject to s. 709.035, except that the owner may substitute for any entry information supplied by a licensed engineer, professional land surveyor, as defined in s. 443.01 (7m), or structural pest control operator, by an individual who is a qualified 3rd party, or by a contractor about matters within the scope of the contractor‚Äôs occupation, if the information is in writing and is furnished on time and if the entry to which it relates is identified, and except that the owner may substitute for any entry information supplied by a public agency. Information that substitutes for an entry on the report under s. 709.03 or 709.033 and that is supplied by a person specified in this section may be submitted and certified on a supplemental report prepared by the person, as long as the information otherwise satisfies the requirements under this section. A prospective buyer who does not receive a report within the 10 days may, within 2 business days after the end of that 10‚ąíday period, rescind the contract of sale or option contract by delivering a written notice of rescission to the owner or to the owner‚Äôs agent.

Issue 2: Confusion when a seller marks the entire form with an ‚ÄúX‚ÄĚ

Some sellers provide a huge ‚ÄúX‚ÄĚ through the RECR report, rather than answering the specific questions, which creates confusion about whether the seller has provided a completed report.¬†

Recommended change

Clarify in the statute that if the seller provides a RECR report with strikethroughs or unanswered questions, the form is to be considered incomplete. 

Issue 3: FIRPTA

Federal law imposes a withholding tax on foreign sellers when they sell real property and requires buyers involved in such transactions to potentially be responsible for the tax. 

Recommended change

The sale of a U.S. real property interest by a foreign seller is subject to income tax withholding under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). FIRPTA authorized the U.S. to tax ‚Äúforeign people‚ÄĚ selling U.S. real property interests. A ‚Äúforeign person‚ÄĚ is defined in FIRPTA as a nonresident alien individual, foreign corporation, foreign partnership, foreign trust or foreign estate. It does not include a resident alien individual. An alien refers to a person who is not a U.S. citizen. A resident alien is a noncitizen who is a lawful permanent resident of the U.S. at any time during the calendar year and who meets the green card test or the substantial presence test. U.S. real property interests include sales of interests in parcels of real property as well as sales of shares in certain American corporations that are considered property-holding corporations.

Section 1445 of the Internal Revenue Code provides that a transferee (‚ÄúBuyer‚ÄĚ) of a U.S. real property interest must be notified in writing and must withhold tax if the transferor (‚ÄúSeller‚ÄĚ) is a foreign person and no exceptions from FIRPTA withholding apply.

People buying U.S. real estate interests from foreign sellers, certain purchasers’ agents and settlement officers are required to withhold 15 percent of the amount realized to ensure Internal Revenue Service (IRS) taxation of the gains realized on the sale. Under FIRPTA, the buyer is the withholding agent. The buyer must find out if the seller is a foreign person. If the seller is a foreign person and the buyer fails to withhold, the buyer may be held liable for the tax.

To learn more about FIRPTA withholdings, visit www.irs.gov/individuals/international-taxpayers/firpta-withholding. Additional FIRPTA information from the National Association of REALTORS¬ģ is found at www.nar.realtor/videos/firpta-changes-primer and www.nar.realtor/foreign-investment-in-real-property-tax-act-firpta.¬†

Recommended change

Add FIRPTA as a disclosure to both the RECR § 709.03 and VLDR § 709.33 reports. The objective of this recommended change is two-fold: (1) ask the seller about FIRPTA disclosures at the time of completing the condition/disclosure report, and (2) provide basic education about why the question is being asked because of the IRS and its importance.

Issue 4: Disclosure of private rights of way

There is confusion among sellers completing the form about whether they are required to disclose public rights of way. 

Recommended change

Modify the land use disclosure items in both forms to specify the disclosure applies to private and not public rights of way. 

Issue 5: Effective date

To ensure there are no surprises in the transaction, the effective date is proposed to be July 1, 2020. 

The WRA will keep you informed of the legislation and its progress. 

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

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