Extreme Disclosure Report Makeover

 Cori Lamont  |    June 08, 2018

Over the course of the last decade, there have been many changes to seller disclosure reports used in Wisconsin real estate practice: the residential Real Estate Condition Report (RECR) and the Vacant Land Disclosure Report (VLDR). The RECR was updated with random abandon, creating voluminous disclosures unrelated to one another as well as a haphazard layout that created confusion for sellers attempting to complete the form. In addition, the VLDR was modified in 2012 and shared some of the mismatched layout of the RECR and featured disclosure statements that often were not completely related.

Needless to say, both reports needed new disclosures and some consistency to one another. And so, the WRA proposed legislation during the 2017-18 legislative session that aimed to update these two reports. With the passage of 2017 Wis. Act 338 earlier this year, the RECR and VLDR reports have both enjoyed a much-needed upgrade.

This article provides some frequently asked questions about the updated forms as well as a brief summary of the modifications.

When are the new forms required?

July 1, 2018. 

Will the WRA still offer more than one RECR? 

No. Previously, the WRA created a two-page RECR and a three-page RECR. The three-page form included supplemental explanation information for the seller. The law now includes such explanations and, thus, the WRA created only one RECR. 

Did the law change who needs to complete the forms?

No. Wis. Stat. § 709.01 requires a residential seller to complete a § 709.03 RECR, whether the transaction is licensee-assisted or For Sale By Owner (FSBO). Sellers who transfer residential real estate generally transfer property that contains one to four dwelling units, including condominium units, timeshare property or living quarters in a commercial property. 

The law continues to exempt the following individuals from being required to complete the RECR or VLDR: 

  • 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. Note: this does not include powers of attorney.¬†
  • Real estate that has not been inhabited, for example, new construction.¬†
  • Transfers exempt from the real estate transfer fee, such as between spouses, foreclosures or probate transfers. Note: this exemption does not include REO sales of foreclosed properties.¬†

What's different in the revised forms?

Questions instead of statements: The seller is now posed a question rather than a statement. In the past, the statute provided statements for the seller to respond to, such as, ‚ÄúI am aware of ‚Ķ‚ÄĚ The revised form now asks the seller questions such as, ‚ÄúAre you aware of ‚Ķ‚ÄĚ The idea of posing a question to the seller rather than a statement is intended to provide a more interactive form, creating encouragement for the seller to answer a question rather than create a statement.¬†

Checkboxes: The statute now provides checkboxes, which provide ease of use for the seller to track which question is being asked and how to respond. 

Redesign: The report offers categories so the seller knows which questions are going to be presented in that section. For instance, the report now has categories including structural and mechanical; environmental; well, septic and storage tanks; taxes, special assessment, permits; and land use. Therefore, the seller will not be surprised when the section titled ‚Äúenvironmental‚ÄĚ asks about radon and radium.¬†

Examples: After the seller is asked a question, immediately following on the form are examples of what types of defects might be included. For example, the form provides defects regarding chimneys and fireplaces, which might include defects in the chimney, fireplace flue, inserts of other installed fireplace equipment, or woodburning stoves installed pursuant to code. 

‚ÄúYes‚ÄĚ responses: The report now offers explanation of ‚Äúyes‚ÄĚ responses in each section of the form rather than one for all explanations of ‚Äúyes‚ÄĚ responses in the form.¬†

New statement: The statute and the reports now include a statement that says, ‚ÄúReal estate licensees may not provide advice or opinions concerning whether or not an item is a defect for the purposes of this report, the legal rights or obligations of parties to a transaction.‚Ä̬†

Licensees repeatedly express frustration about explaining to sellers that licensees are not permitted to answer seller questions about whether an item is or is not a defect. The inability to answer the seller’s question is because licensees cannot provide legal advice. This statement was included to help the licensee when explaining what can and cannot be answered by the licensee regarding seller questions as to whether something is a defect or not. 

New disclosures

Rented items: To avoid learning later in the transaction about the seller’s rented items such as a water softener, the report now asks the seller about rented items.

B10. Are you aware of rented items located on the property such as a water softener or other water conditioner system or other items affixed to or closely associated with the property?

Water quality: To address questions about lead in water, the form now asks the seller about conditions related to lead.

C6. Are you aware of water quality issues caused by unsafe concentrations of or unsafe conditions relating to lead? 

Meth: The VLDR previously included disclosure about meth being manufactured on the property, and the revised RECR now asks the same question. 

C7. Are you aware of the manufacture of methamphetamine or other hazardous or toxic substances on the property? 

Conservation easements: Conservation easements have a significant impact on the property, and the revised RECR now includes a question and explanation. 

F6. Are you aware of conservation easements on the property? 
A conservation easement is a legal agreement in which a property owner conveys some of the rights associated with ownership of his or her property to an easement holder such as a governmental unit or a qualified nonprofit organization to protect the natural habitat of fish, wildlife, or plants or a similar ecosystem, preserve areas for outdoor recreation or education, or for similar purposes.

Restrictive covenants and deed restrictions: Questions F7 and F8 were disclosures all layered into one question under the old statute (C26), and they are now broken into two separate questions. 

F7. Are you aware of restrictive covenants or deed restrictions on the property?
F8. Are you aware of nonowners having rights to use part of the property, including, but not limited to, rights‚ąíof‚ąíway and easements other than recorded utility easements?

Use value assessment and other relevant agreements and programs: This disclosure may seem familiar because sellers have legally been required to disclose certain factors about use value assessment. However, items not part of the statutory disclosures of the RECR and in previous WRA condition reports ‚ÄĒ such as forest crop, managed forest, conservation reserve and similar disclosures ‚ÄĒ were included in the WRA‚Äôs form in italics. In the new RECR revisions, the use-value assessment disclosures are included in the statute.¬†

F10. The use value assessment system values agricultural land based on the income that would be generated from its rental for agricultural use rather than its fair market value. When a person converts agricultural land to a non agricultural use (e.g., residential or commercial development), that person may owe a conversion charge. For more information visit https://www.revenue.wi.gov/Pages/FAQS/slf‚ąíuseassmt.aspx or (608) 266‚ąí2486.¬†

a. Are you aware of all or part of the property having been assessed as agricultural land under Wis. Stat. s. 70.32 (2r) (use value assessment)? 

b. Are you aware of the property having been assessed a use-value assessment conversion charge relating to this property? (Wis. Stat. s. 74.485 (2)) 

c. Are you aware of the payment of a use-value assessment conversion charge having been deferred relating to this property? (Wis. Stat. s. 74.485 (4)) 

F12. Is all or part of the property subject to, enrolled in, or in violation of the Forest Crop Law, Managed Forest Law, the Conservation Reserve Program, or a comparable program?

Burial sites: This section ensures that no burial sites exist on the property or informs the buyer that a burial site exists on the property. Such a disclosure is important for development and improvements on the property because of the potential historical preservation. 

F18. Are you aware of one or more burial sites on the property? (For information regarding the presence, preservation, and potential disturbance of burial sites, contact the Wisconsin Historical Society at 800‚ąí342‚ąí7834 or www.wihist.org/burial‚ąíinformation.)

Insurance claims: This question asks the seller about insurance claims relating to property damage or premises in the last five years and also assists the buyer in understanding which items the seller may have repaired on the property after an insurance claim was made. 

G1. Have you filed any insurance claims relating to damage to this property or premises within the last five years?

Agreements: This section asks the seller about whether the seller is aware of any agreements that bind subsequent owners of the property, such as a lease agreement or an extension of credit from an electric cooperative. See 2017 Wis. Act 76, which created the extension of credit. This question ensures the buyer is aware of potential future obligations if the property is purchased. 

G3. Are you aware of any agreements that bind subsequent owners of the property, such as a lease agreement or an extension of credit from an electric cooperative? 

Number of years: Per the statute, the seller is now asked how many years the seller has owned the property. 

G5. The owner has owned the property for __ years.

The goals of these updates offer sellers of residential properties and vacant land a straightforward, user-friendly report to meet their statutory disclosure obligations. 
This two-part cover story regarding disclosure form updates continues on page 12 in which WRA Senior Attorney Debbi Conrad outlines 10 things you should know about the revised VLDR form.

Updated WRA-SRR and Farm RECR Forms

The WRA Updated the WRA-SRR Form

License law requires all licensees to inspect the property by performing reasonably competent and diligent property inspections, regardless of the type of property or if it‚Äôs being sold ‚Äúas-is.‚ÄĚ Furthermore, the law requires listing firms to inspect the property prior to executing the listing and make inquiries of the seller on the condition of the structure, mechanical systems and other relevant aspects of the property as applicable. See Wis. Admin. Code ¬ß REEB 24.07(1)(b).¬†

The rule also states that licensees shall ask the seller to provide written responses to the licensee‚Äôs inquiry. Generally, this response takes the form of a RECR or a seller disclosure report. However, when a seller refuses to complete a report and sell ‚Äúas-is,‚ÄĚ best practice for the listing firm would be to obtain written evidence that the licensee asked about the condition of the property and the seller refused to answer. The WRA Seller Refusal/Statement Regarding the Condition Report (SRR) could serve as that written evidence.

This form has been subtly updated to reflect terminology updates and entity signatures and acknowledgements.

The WRA Updated the WRA Farm RECR

The Farm RECR is based off the RECR but includes a few additional farm-centric disclosures. For instance, the farm RECR includes: 

  • Property definition: Provides the report applies to the land, dwellings, barns and outbuildings.¬†
  • Adds the following language to storage of hazardous or toxic substances on neighboring properties: "Including dumpsites on the property where pesticides, herbicides, fertilizer or other toxic or hazardous materials or containers for these materials were disposed of in violation of manufacturer‚Äôs or government guidelines or other law regulating said disposal?"¬†
  • Wells: Adds "out-of-service wells and cisterns not closed/abandoned according to applicable regulations, and atrazine."¬†
  • Encroachments: References "noncompliance with fence laws (See Wis. Stat. Ch. 90)."¬†
  • Federal, state or local regulations: Includes "livestock siting violations (Wis. Admin. Code Ch. ATCP 51)."
  • Other defects: Adds "substantial crop damage from disease, insects, soil contamination, wildlife or other causes, diseased trees, or substantial injuries or disease in livestock on the property or neighboring properties."
  • Includes the note: "Any sales contract provision requiring inspection of a residential dumbwaiter or elevator must be performed by a state-licensed elevator inspector."
Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.
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