“As Is” Clause in Real Estate Agreement

When using an “as is” clause, the seller and the realtor are still obligated to make disclosures about the property, unless the buyers executed a valid waiver to receive the real estate condition report.

Under Wis. Stat. § 709.01, the law requires that sellers of real estate complete a real estate condition report. There is no exception for property sold “as is.” The only exceptions from the requirement of providing the real estate condition report are for (a) Personal Representatives; (b) Trustees; (c) Conservators; and (d) Fiduciaries who are appointed by, or subject to the supervision of a court. Wis. Stat. § 709.01(2).

Sellers of real property also have a duty to exercise ordinary care — the legal obligation to refrain from any act which would cause foreseeable harm to another or create an unreasonable risk to another. Sellers may be liable if they intentionally conceal defects or prevent buyers from investigating the property to discover the defects. Sellers may also be liable to buyers if they make false affirmative statements about the property. Sellers may further be liable if they do not disclose material conditions which buyers are in a poor position to discover (e.g., fire damage that has been repaired or prior mold or pest issues).

Similarly, pursuant to Wis. Admin. Code REEB 24.07, real estate agents are required to inspect the property to familiarize themselves with the property’s condition and disclose adverse conditions to potential buyers. Wis. Admin. Code REEB 24.07(1)(b) further requires real estate agents to “make inquiries of the seller on the condition of the structure, mechanical systems, and other relevant aspects of the property as applicable.” Simply because the real estate is being sold “as is” does not mean that a real estate agent no longer must comply with such prescribed duties.

In conclusion, if you are selling your property and you want the sale to be an “as is” sale, you may still be required to make disclosures about the condition of the property. To limit your risks, talk to your attorney about proper disclosures when selling real estate.

Imperfect Title: A Survey Exception Primer

There is little risk in presuming that the majority of homeowners rate their property as their most important asset. Paradoxically, homeowners likely know more about their car insurance than the insurance purchased for the purpose of protecting legal title to their property. Just like no one would want to purchase a car subject to someone else’s car loan, neither do people want to purchase property subject to the former owner’s mortgage or other liens. A homeowner may avoid such problems by obtaining a title insurance policy.

Familiarity with title insurance is usually nothing more than a nuisance charge on a closing statement. Yet, the essential function of a title insurance policy is to provide coverage ensuring the homeowner has good title to the property. If a covered title defect is found, the policy pays the homeowner for actual loss under the terms of the policy, and no more.

As with any insurance policy, it is paramount to understand what is covered. Basically, title insurance is a two-step transaction: the title commitment and title policy. The commitment consists of three parts: Schedule A, Schedule B, and the Conditions.1 Schedule A lists the name(s) of insured(s), the amount of coverage, a description of the insured property, and the effective date. Schedule B-I provides preliminary requirements to a policy being issued. Schedule B-II lists exceptions to coverage. The commitment also has Conditions found on the commitment cover. Following closing, the policy is issued based upon the commitment if the requirements have been met.

A typical title insurance policy contains certain exceptions concerning title risks that cannot be discovered or evaluated relying solely on public real estate records. The survey exception removes coverage for boundary line disputes. The purpose of the survey exception is to make it clear that the policy does not protect against matters outside a review of real estate records. In other words, matters that would be discovered by a surveyor are not covered by a title insurance policy unless a survey is obtained prior to closing.2 Typical language for this exclusion, found on Schedule B of the policy, states:

This policy does not insure against loss or damage (and the Company will not pay costs, attorneys’ fees or expenses) which arise by reason of: Encroachments, overlaps, boundary line disputes, or other matters which would be disclosed by an accurate survey or inspection of the premises.

Essentially, the title company puts the risk of not surveying the property on the insured. The property owner can limit this risk by either obtaining a survey or arranging for the removal of the survey exception.

Removing the survey exception – which can be accomplished by performing a survey per the policy conditions or paying an additional premium – exponentially expands the protection provided by a title insurance policy. For example, when the survey exception is removed, coverage is expanded to include3:

1.  A survey’s failure to show an encroachment of a policyholder’s fence on a neighbor’s property.

2.  The incorrect placement of lot line which causes a policyholder’s cellar door to open on a neighbor’s property.

3.  The incorrect placement of a power line easement 50 feet from the house as opposed to the true of measurement of 5 feet from the house.

4.  An incorrect statement of the amount of acreage.

5.  The encroachment of an insurance holder’s barn onto the neighbor’s property.

Whether you are working with a realtor or purchasing a for sale by owner property, it is important to understand your title insurance policy and the exceptions to coverage. Review your title insurance terms and exceptions to ensure your property is protected. If you have questions about your title insurance policy and what it covers, make sure you call your attorney.

1.  This form is available at the ALTA website: http://www.alta.org/forms/ (last visited June 5, 2017).

2.  Joyce Palomar, Title Insurance Law, § 7.02.

3.  Title and Escrow Claims Guide, 2nd Ed., § 12.3.16 (2013).

 

Seller’s Closing Costs

Many sellers of real estate do not realize the costs associated with selling real estate in Wisconsin. I am frequently in meetings with clients and catch sellers by surprise when I start mentioning the fees that are associated with the standard offer to purchase form which provides for the seller to pay for an owner’s title policy, the real estate transfer return fee (charged by the Wisconsin Department of Revenue and based on .003% of the value of the property being transferred), mortgage satisfaction fees, closing service fees (normally to a title company), wire transfer fees, and unpaid real estate taxes and assessments (if any). Additionally, a seller is expected to prorate real estate taxes and give the buyer a credit at closing which is usually based on the number of days the seller owned the property in the year of closing and based on the net general real estate taxes for the preceding year.

Altogether, these charges and buyer credits add up and can result in an unexpected surprise if the seller is unprepared. It is possible to negotiate whether the buyer or the seller will pay for the above fees. Therefore, if you are aware of what fees are typically associated with the transaction, then you will know what fees to negotiate with the other party to pay for.

Seller’s “Right to Cure”

A Seller’s “right to cure” does not mean that the Seller must cure any defects uncovered during a home inspection. Rather, a Seller’s “right to cure” means that the Seller simply has the option to cure a defect once the Buyer notifies the Seller that there are defects to which the Buyer objects.

When the Buyer provides notice of defects to the Seller, the Buyer must include a copy of the inspection report and a list of the defects to which the Buyer objects. After delivering the inspection report and the objectionable defects to the Seller, the Seller may elect to cure such defects. If the Seller elects to cure the defects, then the Seller shall deliver written notice to the Buyer stating that the Seller is electing to cure the defects.

If Seller does not wish to elect to cure the defects, the Seller may deliver notice to the Buyer stating that the Seller will not cure the defects. The Seller also could do nothing after receiving Buyer’s notice of defects. If the Seller does nothing or delivers a notice to the Buyer stating that the Seller will not cure the defects, then the Offer to Purchase will be null and void, and the Buyer should receive its earnest money back. In conclusion, a “right to cure” does not mean that the Seller must cure any defects; it simply gives the Seller the option to cure defects.

Managed Forest Land Program Changes

The enactment of 2015 Wisconsin Act 358 on April 16, 2016 (Act) has caused significant changes to the Managed Forest Law (MFL) Program. The Wisconsin Department of Natural Resources (DNR) monitors the MFL Program which was created to incentivize private forestland owners to adopt sustainable forestry practices and to designate their property as “open” or “closed” to public recreation. An “open” designation allows the public to access the designated property for only the following activities without further permission from the landowner: hunting, fishing, hiking, sight-seeing, and cross country skiing. A “closed” designation allows landowners to restrict public access to the designated property. Prior to the April 16, 2016 changes, a maximum of 160 acres per ownership, per municipality (city/town/village) could be designated as “closed.” Below is a discussion of some of the significant changes to the MFL Program.

Qualification in MFL Program

Qualification in the MFL Program now requires a landowner to have at least 20 contiguous acres under the same ownership. Prior to April 16, 2016, a landowner was only required to have 10 acres of contiguous ownership. Additionally, if there is any building or improvement on the land, the DNR will not accept the application for the land’s enrollment in the MFL Program. “Improvement” includes any accessory building, structure, fixture, or landscaping. Prior to the changes, only a building that was “developed for human residence” would disqualify the property from enrollment.

No Retroactive Modification of an Order

An MFL order is now defined as a contract between the state and the MFL owner. Therefore, if the laws change after land has been enrolled in the MFL Program, the Act prohibits the DNR from retroactively modifying the order to comply with such law changes. If a new law is enacted that would materially change the terms of the order, the MFL owner may elect either to accept the modifications of the order to be consistent with the new law or to withdraw voluntarily from the MFL Program without penalty.

More “Closed” Acreage and Leases Permitted

The Act now permits landowners to have 320 acres designated as “closed” rather than 160 acres. The fee for the “closed” designation is to be distributed 80% to the local municipality and 20% to the county in which the land is located rather than 100% being distributed to the state conservation fund. MFL owners may also lease “closed” land to persons for recreational activities. Before, the law prohibited such lease agreements.

Natural Disaster Restoration

If the MFL land experiences a natural disaster (defined as damage from fire, ice, snow, wind, flooding, insects, drought or disease), the DNR is authorized to allow an MFL owner to restore productivity and thus be compliant with the MFL Program. The time period to restore the land is subject to the DNR’s discretion.

Cutting Notices

The DNR is no longer required to approve a cutting notice if the cutting is required under the terms of the management plan and the cutting notice is submitted by a forestry professional (as defined in the Act). Additionally, the DNR shall not restrict a cutting so long as the cutting conforms to the management plan and is consistent with sound forestry practices.

Severance and Yield Taxes

The Act repeals the DNR’s authority to assess 5% yield tax on MFL land for timber and forest products harvested. After April 16, 2016, MFL owners should not receive any invoice from the DNR for yield taxes. Any MFL lands with outstanding yield taxes must be voided and any payments received on or after April 16, 2016 as a result of those invoices must be refunded.

The Act makes a number of changes in addition to those discussed above. If you have questions about the changes or are planning on transferring MFL land or withdrawing from the MFL Program, it may be advisable for you to discuss the Act’s impact with a legal and/or forestry professional.

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