Uncovering the Truth: Using Non-Approved Forms

 Cori Lamont  |    September 13, 2012

With the influx of bank-owned (REO) properties, involvement of attorneys and more savvy consumers, Wisconsin real estate licensees are being asked to participate in transactions where non-state-approved forms are being utilized. Historically, the Secretary of the Department of Safety and Professional Services (DSPS) approved all of the forms, however with the passing of the 2011-2013 state budget, the authority passed to the Real Estate Examining Board (REEB). 

The basics: what are approved forms? 

There are six groups of contractual and conveyance forms approved for use by Wisconsin real estate licensees; some of the groups are limited to use only by brokers. Wis. Admin. Code § REEB 16.03 identifies the six groups:

  1. Forms prepared and approved by the department, which include the REEB; such forms are numbered with a numeral preceded by the letters “WB.” As of 2012, there are 28 WB forms. 
  2. Forms prepared and approved by the State Bar of Wisconsin for deeds, land contracts, mortgages, mortgage notes, partial release of mortgage, satisfaction of mortgage, assignment of mortgage, and assignment of land contract. These forms are numbered with a numeral preceded by the letters “SB.” Only brokers may use these forms.
  3. Uniform Commercial Code forms #1, 2, 3, 4, 11, 410, 430, 445, 450 and 451. Only brokers may use these forms.
  4. Contractual forms for the sale, purchase or rental of real estate or a business located in another state, provided that the contractual forms are those that licensees may legally and customarily use for such transactions in the state where the real estate or business is located.
  5. Forms prepared by governmental agencies for use in programs administered by them under authority provided by law. Examples include federal forms associated with FHA, VA, Rural Development loans or HUD programs, or their similar state or local equivalents.
  6. Forms to be used for a property management agreement between a broker and a landlord that are prepared by the broker entering into the agreement, the broker’s attorney or the landlord, that contain provisions relating to leasing, managing, marketing and overall management of the landlord’s property.

While this situation may present itself in a variety of ways, the most common in today’s real estate market involves REO properties. Often the bank is not local to Wisconsin, and to fulfill its desire to have uniformity in all the transactions it is involved in throughout the United States, the bank has created its own set of forms. For instance, the bank may have had its legal counsel create a listing contract, offer to purchase, counter-offer, and an amendment; we will cover addenda later. 

Urban legend #1: Wisconsin real estate licensees cannot be involved in a transaction unless WB forms are being used. 

The Truth: Wis. Admin. Code § REEB 16.04 requires Wisconsin licensees to use Wisconsin-approved forms if an approved form is available for that purpose. Meaning, if the Wisconsin real estate licensee is involved in a residential transaction, then they would be using the WB-1 Residential Listing Contract and the WB-11 Residential Offer to Purchase. 

Although Wisconsin law requires brokers to use state-approved forms, when acting as a broker in a real estate transaction, the broker, as a party to the listing, may agree to and sign the seller-provided listing contract. 

Any time an attorney or consumer form is provided and a WB form is available, the licensee is permitted to help negotiate the terms of the contract, and only the consumer or an attorney may actually fill in the blanks. In a listing or buyer agency agreement, the licensees may sign the agreement as a party to the listing. 

In Wis. Admin. Code § REEB 16.02(5), “‘use a form’ means to complete a contractual or conveyance form by filling in the blanks or modifying printed provisions on a form for the purpose of accomplishing the intent of a party in a specific real estate transaction.”

The licensee may deliver the documents to the parties and negotiate the terms of the contract. But when it comes time to complete the forms, the consumer or their attorney may need to complete the document. Delivery of forms does not violate license law, but giving legal advice about them or completing them results in a violation of law and ethics.

Brokers are prohibited from engaging in the unlicensed practice of law and completing contractual forms that are not state-approved, unless there is no WB form for the kind of transaction and one is drafted by a party or attorney whose name is imprinted on the form per § REEB 16.04. 

Urban legend #2: Licensees are not required to follow Wisconsin law when a transaction involves non-WB forms. 

The Truth: It is a matter of broker discretion whether or not to enter into a non-WB listing or buyer agency contract. If a broker does permit licensees to enter into non-WB listings or buyer agency agreements, there are a few specific items the broker should be concerned about. The first item is whether the contract meets the requirements of Wis. Stat. § 240.10, which sets forth the minimum requirements for an enforceable listing or buyer agency contract for the payment of commission.

Wis. Stat. § 240.10(1) provides: “Every contract to pay a commission to a real estate agent or broker or to any other person for selling or buying real estate shall be void unless such contract or note or memorandum thereof describes that real estate; expresses the price for which the same may be sold or purchased, the commission to be paid and the period during which the agent or broker shall procure a buyer or seller; is in writing; and is subscribed by the person agreeing to pay such commission, except that a contract to pay a commission to a person for locating a type of property need not describe the property.” 

In addition, the real estate licensees must meet Wisconsin agency disclosure requirements. After obtaining the broker’s consent, an agent should compare the non-WB form to the WB forms, giving special consideration to commission and listing protection provisions.

It is recommended that the broker have the company attorney review the non-WB contract since many important broker protections that appear in the REEB-approved forms may not be included in the alternative form. For example, the broker must provide a Broker Disclosure to Clients form as required under Wis. Stat. § 452.133(2) and request the client’s written acknowledgment that the client has received the form if the property is residential (1-4 units). The WB state-approved forms incorporate these statutory disclosures. If the broker executes a non-WB listing or buyer agency contract, the broker should incorporate the Broker Disclosure to Clients form into the listing or buyer agency agreement, or concurrently, use a separate Broker Disclosure to Clients form. 

In addition, the non-WB form most likely does not include the language that provides the broker rights to commission relating to protected buyers (listing) — see lines 61-65 and 220-229 of the WB-1 and protected properties (buyer agency) — see lines 205-210 and the relevant definitions on lines 147-181. 

Urban legend #3: A licensee may create a form from scratch if there is not a contractual form for the kind of transaction. 

The Truth: Wis. Admin. Code § REEB 16.04(2) provides, “When to utilize approved forms: (2) For those kinds of real estate or business opportunity transactions for which the department has not approved contractual forms a licensee, when acting as an agent or a party, may use contractual forms drafted by a party or an attorney, if the name of the drafter is imprinted on the form before use by a licensee. For the purpose of this subsection, a listing broker is a party to the listing contract transaction.”

Wisconsin real estate licensees must use the state-approved form when it’s available. However, if a state-approved form is not available, then the licensee may use a form drafted by the parties or an attorney. For instance, there is not a state-approved lease form, and a Wisconsin licensee would be permitted to use the WRA lease form as it states that it is drafted by an attorney. 

Urban legend #4: There are state-approved addenda. 

The Truth: The state of Wisconsin does not have any state-approved addenda forms for real estate. Licensees may use a pre-prepared offer addendum provided by an REO company or consumer, but only if the prepared or “preprinted form” addendum complies with Wis. Admin. Code § REEB 16.06(4) or (5). 

When REO sellers provide worksheets, addenda or offers, and ask the broker to complete them, the broker should proceed cautiously. A licensee may be safe to complete an optional information addendum prepared by a party or an attorney or non-contractual forms such as a worksheet. Working with an REO-drafted purchase contract or other contractual form between the parties, on the other hand, may present a danger zone for licensees. 

A licensee must properly incorporate the addendum by reference into the approved form and relate the approved form and the attached addenda to one another. REO addenda tend to be language modification addenda because they change mandatory provisions in the offer. The agent may wish to have the party or their attorney complete the form to help the licensee avoid running afoul of these rules.

Cori Lamont is Director of Brokerage Regulation and Licensing for the WRA.

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