WSSFC Substantive Track

Session 3

A Residential Real Estate

Transaction: Practice Tips and

Tales from the Trenches

Sara B. Andrew

Andrew Law Offices S.C., Fond du Lac

Carol E. Krigbaum

Krigbaum Law LLC, Milwaukee

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2014 WISCONSIN SOLO & SMALL FIRM CONFERENCE

STATE BAR OF WISCONSIN

A Residential Real Estate Transaction: Practice Tips and Tales from the Trenches

October 23, 2014

Sara B. Andrew

PREPARING FOR CLOSING

1. CHECKLIST FOR BUYERS AND SELLERS

A. See sample in materials. B. A great crutch to make sure that you don’t miss anything. C. Can be used as a Table of Contents for a closing book to present to your

client after closing. A reference source if properly annotated. D. A plan for consistency in your office so that each closing is handled

roughly the same.

2. CLOSING STATEMENTS

A. Sample statements are in the materials attached. B. All parties should sign at the closing. C. Sometimes sellers do not want buyers to see their closing statement. Do

they have the right to see it?

3. PREPARATION OF CLOSING DOCUMENTS – DISCUSSION IS

ONLY ON DOCUMENTS NOT DISCUSSED OTHERWISE IN THIS

SEMINAR

A. Owner’s Affidavit

i. See sample in materials. ii. Required by title companies. iii. Can be used to remove some exceptions to the title commitment. iv. Construction lien representations are very important to the buyer –

buyer will want to get lien waivers from all contractors, subcontractors and material suppliers involved in any construction work done within six (6) months of the closing. See Wis. Stat. § 779.05. Any construction work should be disclosed on this Lien

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Affidavit and if disclosed, the affiant is required to list all contractors, subcontractors and material suppliers. These are the people to get lien waivers from.

B. Lead Based Paint Notice

i. See form to be used in the materials. ii. Seller must give to Buyer for all homes constructed before 1978. iii. See 42 USC § 4852.

C. Real Estate Condition Report

i. See Wis. Stat. § 709.03. The required form is also in the materials. ii. Not required – property that has not been inhabited and property

exempt from the Real Estate Transfer Fee. See other exemptions in the statute.

iii. Must furnish to Buyer no later than ten (10) days after acceptance of contract of sale.

iv. May be waived by the Buyer. v. May substitute information supplied by a licensed engineer, land

surveyor, structural pest control operator or person who is a qualified third party as defined in Wis. Stat. § 452.23(2)(b).

vi. Covers 1-4 family homes.

D. 1099 Form

i. If you are closing the transaction, more than likely you are responsible for filing the 1099 form with the IRS and also giving or sending a copy of the form to the Seller.

ii. The easiest way to comply with this is to have the form prepared, give the parties a copy of the form at the closing and have them sign a receipt for the form. This avoids mailing it to the Seller at the end of the year.

iii. At the end of the year you must report the information on these 1099 Forms to the IRS.

iv. See www.1099-S.com for an excellent source of information on when these forms are required and how you file the information with the Internal Revenue Service.

E. Rental Weatherization Stipulation

i. No owner may transfer a rental unit unless an inspector certified by the Department of Commerce has issued a Certificate of Compliance indicating that the rental unit meets the Rental Unit

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Energy Efficiency Standards. See Wis. Admin. Code § Comm 367.03(1).

ii. The Register of Deeds will not accept documents for recording for a property covered by this section without the Certificate of Compliance, Waiver or a Stipulation. See Wis. Admin. Code § Comm 367.06.

iii. The Buyer can agree to have this inspection and make any construction improvements necessary to comply with the Rental Weatherization Standards within one year of the date of transfer. If this is done a Stipulation can be signed by the Buyer and filed with the Register of Deeds at the time the deed is recorded rather than the Certificate of Compliance. A Certificate of Compliance must then be filed with the Register of Deeds within one year of the date of transfer.

iv. The rental units excluded are shown in Wis. Admin. Code § Comm 367.02(2). The most common exclusion is that one of the rental units being transferred is owner occupied.

F. Removal of Standard Exceptions to Title Policy

i. Each title underwriter is a little bit different in terms of what they require for removal of standard exceptions.

ii. Best practice is to send a letter to the title agent issuing the title commitment asking for removal of the standard exception in the format provided in the materials, or some other format that makes clear that you wish to have as many of these standard exceptions removed as possible. Some might be impossible to remove or the requirements for removal might be cost prohibitive (e.g. an ALTA/ASCM survey). A sample letter is in the seminar materials.

G. Non-Foreign Affidavit

i. If a “foreign person” sells real estate the transferee must withhold 10% of the amount realized on the sale and send it to the IRS unless the transaction is covered by an exemption in this section. See 26 USC § 1445(b)(5).

ii. Homestead is exempt if under $300,000. iii. Exempt if seller signs a Non-Foreign Affidavit. See 26 USC §

1445(b)(2). See sample in seminar materials. iv. See statute for additional exemptions.

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H. U. S. Patriot Act, Check SDN List

i. The Office of Foreign Asset Control, part of the U. S. Department of the Treasury, creates a Specially Designated Nationals (SDN) List. It is required that real estate settlement providers check the list with regard to all relevant parties in a real estate transaction. This list can be found at http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx

ii. See U. S. Patriot Act, 31 U. S. C. § 5318. iii. See Executive Order 13224 (9/24/01). iv. If you find a person to the transaction is on the list, go through with

the transaction, but report the person’s name and the circumstances of the closing to the OFAC.

4. ELECTRONIC REAL ESTATE TRANSFER RETURN (eRETR)

A. This process allows the filing of a Real Estate Transfer Tax Return on line with the Wisconsin Department of Revenue rather than at the Register of Deed’s office.

B. https://ww2.revenue.wi.gov/GenericFile/application?interview=1127

322 C. First time users should review the “System Overview” contained at

http://revenue.wi.gov/retr/index.html. D. One of the biggest benefits of using this system is that when you file the

eRETR and it is accepted, you do not need to worry about the Register of Deeds Office bouncing the documents back to you because of an error in the transfer return.

E. Generally, the system is fairly easy to use. At the conclusion of the entry of the return, the system indicates whether the return is accepted and that document can be printed out and you would file this with the deed at the Register of Deeds and that proves you filed the eRETR on line. You would pay the fee to the Register of Deeds also.

5. POST CLOSING MATTERS

A. Record documents immediately

i. You want to achieve priority for your client’s interest. See Wis. Stat. § 706.08(1) sometimes referred to as the Race-Notice statute or the race to the courthouse to see whose document is recorded first and thus has priority.

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ii. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (October 17, 2005), if a document is not recorded within 30 days of closing (formerly had been 10 days) the trustee in bankruptcy of one of the parties to the transaction can void the transaction. This change was effective April 20, 2006. See § 547 (e)(2).

iii. The best policy is to record all documents on the day of closing or the day after the closing.

B. Mortgage Payoff Cover Letter

i. It is best when paying off a mortgage to obtain a written payoff letter from the lending institution and also to send a payoff cover letter when sending payment.

ii. Most lenders do not satisfy mortgages immediately and the problem is that if the mortgage is connected with a home equity loan, the payoff letter must instruct the lender to cancel the home equity loan or the lender may continue loaning money on the loan and then the entire loan will then not be paid off.

iii. A sample payoff letter is with the seminar materials.

6. CLOSING STUMBLING BLOCKS.

A. Good Funds and Available (or Collected) Funds.

i. Available Funds. a. Available Funds are defined by your bank. b. Available Funds refers to how long must elapse after you

deposit a check in your account before the bank will allow you to use the money in the account, as an example to send a wire transfer.

c. If you send a wire transfer before the funds are available you are using other people’s money that happens to be in your account.

d. A good rule is “Wire in, Wire out,” meaning that you do not wire funds out unless they are wired in.

e. Remember, your funds are not good and may not be wired or withdrawn by another for an issued check unless you meet your bank’s Available Funds rules.

ii. “Qualified loan funds” or “Good Funds” are defined in Wis. Stat. 708.10.

a. If you are closing you want to make sure that the Buyer or

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the Buyer’s lender is bringing good funds to the closing. b. The rules are complicated but you should receive a

cashier’s check, a wire transfer or a check issued by the lender. These are the most common ways of providing “Good Funds.”

c. What you want to avoid are checks from someone other than the lender.

B. Spousal Non Titled Homestead Property.

i. Wis. Stat. 706.02(1)(f) states that if one spouse owns the homestead, the other spouse must join in any deed or mortgage to alienate the non titled spouse’s interest.

ii. The statute says failure to follow these rules results in a void transfer. This is not voidable but void.

iii. There is an exception for a purchase money mortgage and also for deeds between spouses.

iv. Making the transfer void is such a stiff penalty that this is a statute number worth remembering.

v. There has been an effort to whittle away at this rule in view of the protections offered to spouses under the Marital Property Act but so far, nothing has happened.

vi. All kinds of excuses will be given to you as to why this is impossible in certain situations, but that makes no difference. The statute says what it says.

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TITLE CONSIDERATIONS

1. WHY USE TITLE INSURANCE? Why do we use title insurance in real estate

transactions? The use of title insurance is a form of title evidence that a Seller gives to a Buyer in a real estate transaction so that the Buyer has some guarantee or assurance that he or she is getting good title when they pay the proceeds of the transaction to the Seller. It is also used by lenders to make sure that property that is mortgaged to them is mortgaged by the actual owner of the property. Title insurance is divided between owner’s policies and lender’s policies, which we will cover further in this outline. The basic requirement for title insurance is contained in the standard offer to purchase. In the Appendix is a WB-11 Residential Offer to Purchase (07-1-11 Version). If you look at lines 325-359, which relate to the whole subject of title evidence, the requirements of that section are as follows:

A. The offer states, “Upon payment of the purchase price, Seller shall convey the Property by warranty deed . . . free and clear of all liens and encumbrances…”

B. It also requires at lines 340-341 the form of title evidence and states,

“Seller shall give evidence of title in the form of an owner’s policy of title insurance in the amount of the purchase price on a current ALTA form issued by an insurer licensed to write title insurance in Wisconsin.”

C. The offer to purchase also states at line341-342, “Seller shall pay all costs

of providing title evidence to Buyer. Buyer shall pay all costs of providing title evidence required by Buyer’s lender.”

D. The offer to purchase at lines 348-355 states, “For purposes of closing,

title evidence shall be acceptable if the commitment for the required title insurance is delivered to the Buyer’s attorney or the Buyer not less than 5 business days before the closing, showing title to the Property as of a date no more than 15 days before delivery of such title evidence to be merchantable per lines 326-335, subject only to liens which will be paid out of the proceeds of closing and standard title insurance requirements and exceptions, as appropriate.”

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E. As an attorney you can write a contract for sale or an offer to purchase using any format you wish to use. Where I practice, in Fond du Lac, almost all of the residential real estate transactions are evidenced by a standard offer to purchase and also most of the commercial transactions, condo sales and other are also using the standard format.

2. WHAT IS TITLE INSURANCE? “Title insurance has been described as a

contract of indemnity. Its purpose is to indemnify the insured for impairment of its interest due to failure of title as guaranteed in the title insurance report. That is, it protects against losses sustained in the event that a specific contingency, such as the discovery of an unexcepted lien affecting title, occurs.” Greenberg v. Stewart

Title Guaranty Company, 171 Wis.2d 485, 492 N.W.2d 147 (1992). Quoting from Blackhawk Prod. v. Chicago Title Ins., 144 Wis.2d 68, 78, 423 N.W.2d 521

(1988). The Greenberg case goes on to say that a title insurance company is not an abstracter of title employed to examine title. It says that rather, a title company guarantees the status of title and insures up to the policy limits against existing defects. It goes on to say that the only duty undertaken by a title insurance company in issuing a policy of insurance is to indemnify the insured up to the policy limits against a loss suffered by the insured if the title is not as stated in the policy. Title commitments and policies usually have the following characteristics:

A. In most states, title policies are on ALTA forms. ALTA is the American Land Title Association. They have a committee that drafts these forms and they are then approved by their Board of Directors.

B. Title policies are divided into owner’s policies and lender’s policies.

C. In an owner’s policy, the owner is the named insured. The policy only

benefits the insured.

D. The only duty undertaken by a title insurance company in issuing an owner’s policy of title insurance is to indemnify the insured up to the policy limits against a loss suffered by the insured if the title is not stated in the policy. A title company is not required to correct title defects. Sometimes that is done by title companies, as the easiest way to satisfy all of the parties, but it is not necessary to do so. On the other hand, if the title is not as stated in the policy and the insured files a claim, then the title company must pay the insured for any losses sustained up to the limits of the policy.

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E. A loan policy is different. First of all, the loan policy’s limit is the outstanding balance of the mortgage. Even though there might be a title defect that is insured in the policy, if the mortgage payments keep getting paid and if ultimately the mortgage is paid off, the title insurer has no liability. There might be times when you could get a loan policy and not get an owner’s policy because of the difference in coverage for each of the policies.

3. REVIEW OF TITLE COMMITMENT AND POLICY

A. The standard owner’s and lender’s policies now being used in Wisconsin

by virtually all title companies are the 2006 ALTA approved forms.

B. The previous forms published by ALTA were the 1992 forms. Some title underwriters in Wisconsin will allow a customer to request a 1992 form. This is rare because the 2006 forms, in most respects, provide a slightly broader coverage for the owner.

C. See Handout.

i. Commitment Schedule A. ii. Commitment Schedule B-1

iii. Commitment Schedule B-2 with some discussion on the importance of the General and Special Exceptions.

iv. Policy-Covered Risks. v. Policy-Compare the Exceptions in the commitment with the

Exceptions in the policy.

4. GAP ENDORSEMENT

A. A title commitment is normally dated a number of days before the closing. The gap is the period between the time that the commitment is dated and the time that the documents are recorded. Without a “Gap Endorsement” the period of the “gap” is not covered by the title commitment and will not be covered in the policy.

B. See lines 343-347 of the Residential Offer to Purchase which states

“Seller shall provide a ‘gap’ endorsement or equivalent gap coverage ….” The remainder of the paragraph explains what is meant by the “gap” and what happens if “gap” coverage is not available.

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C. Most companies charge for a gap endorsement. Some people feel that if the title company does a search of the records just prior to the closing, that is a good substitute for a gap endorsement and normally this is done without charge. The problem with that is the documents may not be recorded immediately and, in any event, they are not going to be recorded before the closing when the last search ended. So there is a period of time here where a Buyer of property has no protection without a gap endorsement.

D. See Appendix item 12 for a more thorough explanation of what

constitutes the gap.

5. GENERAL EXCEPTIONS AND THEIR REMOVAL

A. See the title commitment Schedule B-2. There are eight (8) general exceptions.

B. Also see Appendix item 7, which is an explanation of how you can get the

general exceptions removed so that when the policy is prepared those exceptions do not appear.

C. Also see Appendix item 8, which is an attorney’s letter to the title

company asking for removal of the exceptions. It is highly desirable for the attorney representing the Buyer or the lender to ask that the general exceptions be removed. They may not be able to be removed in all cases, but an effort should be made to get as many of the general exceptions removed as possible. Appendix item 7 will tell you how to do that process. You will see they are very self-explanatory. No doubt the title agent that you are working with at the title company will assist you if you have any questions regarding the removal.

6. OWNER’S AFFIDAVIT AS TO CONSTRUCTION LIENS AND

POSSESSION

A. It is required that this Affidavit be completed by the Seller at the time of closing. The basic idea of this Affidavit is to make sure that no construction has been done on the property in the six (6) months prior to the closing date (See Wis. Stat. 779.06(1) requiring that a lien be filed within six months of last performing construction work on the job). The affidavit is also to have the Seller make the Buyer aware if there are any

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tenants occupying the property and whether they are going to leave by the closing or stay after the closing. The title company is also interested in knowing whether there are tenants on the property, as the title company may be asked to remove exception No. 4.

B. With respect to construction work, it is the Buyer’s objective to make sure

that the Buyer does not become obligated to pay for any construction work that was done prior to the closing. Therefore, if the Seller states that construction work was done within six months prior to the closing, the Buyer should be asking for the Seller to list all of the contractors and material suppliers involved in whatever construction work was done. The Buyer would then also insist on having lien waivers given to the Buyer at or prior to the closing. Without those lien waivers, the Buyer cannot be assured that they will not end up paying for the construction work that the Seller has actually done with the property prior to the closing. The title company is also very interested in this for several reasons. First of all, this is upsetting to everyone after the closing if someone finds out that a construction lien gets filed against the property. Secondly, the title company may be asked to remove the construction lien exception which is exception No. 3.

7. USE OF CCAP: CCAP means Consolidated Court Automation Program. It can

be found at http://wcca.wicourts.gov/index.xsl. If you are concerned about whether or not judgments have been filed against your client prior to the closing or if they would be filed against a Seller if the Buyer is your client, you can look this up in CCAP. Most title companies now use CCAP and treat it as if it was the docket in the Clerk of Courts office. Most counties now are timely filing judgments in their counties at the same time that judgments are docketed. It is also a much easier method to use than to go over to the courthouse and search the records of the Clerk of Courts office. You may find this more convenient than contacting the title company to do the search for you.

8. PECULIARITIES OF DEALING WITH HOMESTEAD PROPERTY

A. Wis. Stat. 706.02(1)(f) states, a deed or mortgage is void unless it “Is signed, or joined in by separate conveyance, by or on behalf of each spouse, if the conveyance alienates any interest of a married person in a homestead under Section 706.01(7), except conveyances between spouses, but on a purchase money mortgage pledging that property as security only the purchaser need sign the mortgage”.

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B. This statute can be a trick statute. This arises when one spouse is the title

owner of the homestead and that spouse desires either to sell or mortgage the property. In all cases, you must make sure that the non-titled spouse also signs the deed or mortgage.

C. The sanction imposed by the statute is that the deed or mortgage is void

without the non-titled spouse’s signature. It doesn’t say voidable, it says void. There have been many mistakes made in Wisconsin with respect to this statute. You will find title companies are very strict in its application. People have come up with all different ways to try to get around this statute, but most title companies will be very conservative in its application because of the fact that the transaction will be void without following the statute properly.

D. There have been bills in the legislature to repeal this statute. So far none

of them have passed. The proponents of that Bill feel that there is plenty of protection for a non-titled spouse in the Marital Property Act and other acts, that this statute is no longer necessary.

9. HOW MUCH TITLE INSURANCE SHOULD BE PUT ON YOUR

PROPERTY?

A. The Doctrine of Co-Insurance applies to title insurance in a similar manner that it covers fire insurance.

B. You must insure your property in an Owner’s Policy for the fair market

value of the property. If you are purchasing the property, normally that would be the purchase price, unless there is a partial gift involved.

C. If you fail to write title insurance for the correct amount, then when there

is a loss you will become a co-insurer. An example of this would be if a property is worth $100,000 and you have $100,000 of insurance and you have a $50,000 loss, the title insurance company will pay you the $50,000. On the other hand, if you have a $100,000 property and you have $50,000 of title insurance and you have a $50,000 loss, you are only going to get $25,000 because you are co-insuring half of the value of the property by not getting title insurance for the full value of the property.

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D. A more complicated issue is how the co-insurance rule applies when the loss occurs after the property has increased or decreased in value.

E. For a good discussion of these issues see J. Bush Nielsen, Title and

Escrow Claims Guide (2nd

Ed.), Section 3.2.3.3.

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2014 WISCONSIN SOLO & SMALL FIRM CONFERENCE

STATE BAR OF WISCONSIN

A Residential Real Estate Transaction: Practice Tips and Tales from the Trenches

October 23, 2014

Carol E. Krigbaum

PART I: THE OFFER TO PURCHASE

1. BUILDING A CONTRACT: PICK A FORM ANY FORM

All transactions involving the transfer of an interest in real property start

with an Offer to Purchase. Chapter 706 Wis. Stats. sets forth requirements

for real estate contracts and conveyances and includes the “Statute of

Frauds,” which requires that the contract be in writing in order to be

enforceable. The offer, typically proffered by the buyer, becomes an

enforceable “binding” contract after the seller signs the offer, signifying

acceptance, and delivers the accepted offer to the buyer by the deadline

designated in the offer.

The Wisconsin Department of Safety and Professional Services prepares

and approves real estate forms for use by real estate licensees, pursuant to

Chapter 452 of the Wisconsin Statutes. Those forms are constantly reviewed

and periodically revised to address industry and social changes. The years

2010 and 2011 brought significant changes to the forms, particularly the

Residential Offer to Purchase (WB-11), Residential Condominium Offer to

Purchase (WB-14) and Vacant Land Offer to Purchase (WB-13).

While use of the approved forms is mandatory for real estate licensees,

attorneys are not required to use these forms. For those of you inclined to

draft your own Purchase and Sale Contracts, I have a piece of advice: Don’t

do it. It slows down the entire process for everyone and affords opportunity

for material terms to be missed or misunderstood. Remember, without a

“meeting of the minds,” the enforceability and viability of your contract is at

risk.

Subscriptions to forms software providers such as zipForm® and Info-Pro®

make it easy to always use the most up-to-date forms available. The

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Wisconsin REALTORS® Association website (www.wra.org) and the State

Bar of Wisconsin website (www.wisbar.org) have forms available as well.

Many local real estate associations develop their own addenda and other

forms, which have to be approved by the Board, to address issues either

common or unique to their geographical areas. These forms can be a good

resource, particularly if you are unfamiliar with the area in which the

property is located.

2. MAKE IT YOUR (CLIENT’S) OWN.

Remember, in spite of the deceptively simple “fill-in-the-blank” format, this

is a contract and contract law prevails. While it isn’t recommended that you

create your own purchase/sale contract form, you certainly don’t want to

constrain yourself to just the standard terms and provisions in the forms. If

there are issues that are unique to your particular real estate transaction,

create your own addenda. Be sure to include language that if the terms of the

addenda differ from the form of the standard offer, that the terms of the

addenda prevail. Also, be careful to not create ambiguity within the four

corners of the contract with your original drafting. Remember the standard

rule of contract construction: ambiguities are construed against the drafter.

A. INTERVIEW YOUR CLIENT REGARDING STANDARD

TERMS, CONCERNS AND SPECIAL CIRCUMSTANCES.

Presumably, your client will have viewed the property before

contacting you to draft an Offer to Purchase. Be sure to ask them what

they want in their offer, including but not limited to the following:

1. The address, including the municipality.

2. The price they want to offer.

3. The earnest money and where it will be held.

4. What personal property do they want/expect to be

included in the purchase? Anything not a “fixture” needs

to be specifically included in the Offer. “Fixtures” are

defined in the forms (at lines 185-195 of WB-11; lines

290-295 of WB-13; lines 317-326 of WB-14).

5. When they want to close.

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6. Whether they have been given a real estate condition

report from the seller.

7. Whether they are getting financing and, if so, whether

they’ve been in contact with a lender. You will want to

know how much they plan on putting down and what

monthly payments (including estimated taxes and

insurance) they can afford.

8. If there’s anything in particular that they are concerned

about or want to have addressed in the Offer.

B. RESEARCH BEFORE YOU WRITE!

Writing an Offer without doing research first is like flying blind. You

need to familiarize yourself not only with what your client wants, but

determine the best way for your client to get what he/she wants. In the

words of Francis Bacon, “Knowledge is Power.” Learn as much as you

can about the property before writing. It’s the best way to minimize

surprises for you and for your client.

1. The Parties. Who is buying/selling? This can impact how

the offer is drafted or countered, what financing may be

available, what title issues may arise, etc. Get to know all

you can about who you are dealing with in the transaction

by using the following suggested resources:

a. The Wisconsin Circuit Court Access Program

(CCAP) http://wcca.wicourts.gov. Check to see

if the seller is in foreclosure, if the buyer has

outstanding judgments that might interfere with

financing, if any of the parties are going through

a divorce, facing jail time, etc.

b. Google. www.google.com. Throw the parties’

names into Google and see what turns up.

c. The Wisconsin Department of Financial

Institutions. https://www.wdfi.org. Especially if

one of the parties is a corporation.

d. Sex Offender Registry. www.widocoffenders.org.

You may want to search the zip code of the

property in order to learn about potential

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neighbors.

2. The Property. What and where is the real estate that is

being purchased? While a survey is the best way to fully

identify the parcel that is the subject of the Offer, surveys

can be expensive and, unless there’s a compelling reason

to have one, many buyers and sellers are unwilling to pay

for them. As an alternative, the following resources are

helpful in identifying the parcel and any special conditions

that may need to be addressed in the Offer:

a. Multiple Listing Service (membership required).

www.mlswis.com; Zillow (www.zillow.com) or

Trulia (www.trulia.com). If the property is

currently listed, the MLS listing will provide a lot

of information about the property. Sometimes

listing brokers attach real estate condition

reports, lead paint disclosures and even plat maps

to the listing. The data sheet will generally list

personal property that is included, square

footage, whether the property is served by

municipal water and/or sewer, if there’s water

frontage access, etc. Even if the property is not

currently listed, previous listings can still provide

information about the property.

b. GIS maps by County. These are awesome. You

can typically see plat map boundaries and can

often, using the satellite view, identify possible

encumbrances.

c. Letter Report. Every real estate attorney should

have a reliable title company that they work with

on a regular basis. Title companies are able to

access information about real property from

county records in record time...most of the time.

A letter report provides basic information about

the property – names of current owners of record,

any outstanding encumbrances, mortgages,

judgments or other liens, and a complete legal

description.

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3. The Region/Municipality/Subdivision. If you are

unfamiliar with the area where the property is located, it

is important to educate yourself as much as possible. You

don’t want to assist you client purchase land for rest and

relaxation only to find out after closing that there are

plans for a casino or a Wal-Mart to go on the adjoining

parcel. “Googling” the name of the subdivision or

municipality to see if it’s been “in the news” about

anything that might impact your client’s intended use of

the property is a good idea. If there’s a homeowner’s

association, check CCAP to see if it’s been involved in

any litigation.

Thorough research allows you to address any and all concerns in

the Offer in the form of contingencies (see below).

C. COUNTER OFFERS.

Just a quick word about Counter Offers. Once an Offer is submitted, a

seller has, basically, three choices of how to respond. One is to accept

the Offer as written; two is to reject the Offer outright; and three is to

counter the Offer. Counter Offers modify only the terms included in

the Counter Offer – all other terms of the original Offer stay the same.

Confusion can arise when there are numerous Counter Offers. Only

the terms in the final, signed Counter Offer become part of the Offer to

Purchase.

PART II: CONTINGENCIES

1. What is a Contingency? A contingency is a condition that must be

satisfied before the parties will be required to perform under the terms of

the Offer. For Buyers, a contingency can be an “exit door” through

which they can be released from the Offer. Common contingencies are

addressed below, but remember that every transaction is different and,

based upon the research that you’ve done, may need additional

contingencies that are specific to your transaction.

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2. Common Contingencies and Material Terms:

A. Earnest Money (Lines 10-12 and 369-394 of WB-11). Earnest money

is not really considered a “contingency,” but it is a material term of the

Offer. Failure to pay earnest money does not invalidate the contract. It

is, however, a failure to satisfy a material term and may allow a Seller

the opportunity to terminate the Offer based on the Buyer’s breach of

contract. Earnest money, pursuant to the WB-11 is held by the listing

broker. If there is no listing broker or if the earnest money is going to be

held elsewhere, that needs to be specifically stated in the Offer. Earnest

money can be deposited with the title insurance company or held in

either a buyer’s or seller’s attorney’s trust account. In those

circumstances, the parties should execute an Escrow Agreement

regarding the terms of disbursement of the funds, should the transaction

not close.

B. Real Estate Condition Report (RECR) (Lines 148-164 of WB-11).

Chapter 709 Wis. Stats. requires Sellers to complete a Real Estate

Condition Report and provide it to Buyers within 10 days of acceptance

of an Offer. The form is actually contained within the body of the

Statute. While the intent of the RECR is to disclose active defects in the

property, it is often used in claims of misrepresentation against Sellers –

and often for conditions that may not have been active at the time it was

completed. If the RECR is given to a Buyer prior to an offer being

accepted (as is common practice, especially by real estate licensees), it is

considered “advertising” and subject to Sec. 100.18 Wis. Stats.

Since 2011, Sellers of vacant land are no longer exempt from providing

a RECR.

TIP: When representing Sellers, insist that condition reports be

delivered to a Buyer only after an offer has been accepted. If you and/or

your client believe that they cannot adequately or accurately disclose

conditions in the property (i.e. they are elderly or have live in the

property for a really long time), require that Buyers waive their right to

receive the RECR. This is allowed under Sec. 709.08 Wis. Stats.

C. Home Inspection (Lines 410-433 of WB-11). This is one of the most

critical contingencies in the Offer to Purchase. It gives a Buyer the

opportunity to “kick the tires,” if you will and, if defects are discovered,

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the opportunity to terminate the Offer. The following are key things to

know and consider when drafting the home inspection contingency:

i. Registered Home Inspectors. Chapter 440, Section

X, requires home inspectors to be registered by the

Wisconsin Department of Safety and Professional

Services. Buyers cannot have their handyman uncle

or friend inspect the property.

ii. Testing (Lines 395-409 of WB-11). The very first

sentence of this contingency makes clear that testing

is not authorized by the home inspection

contingency. If the Buyer wants any testing done, it

needs to be specified. Be sure to consider what

you’ve learned from your research when considering

what testing might be included in the Offer. For

example, pesticides might not be a concern in urban

areas but will likely be a concern if farmland abuts

the property. Common tests that are often included

are:

a. Radon. Radon is a gas which is found in almost

all rock, soil and water, as it is derived from the

radioactive decay of radium. Radon is associated

with certain cancers when it reached certain

levels. The EPA has determined acceptable air

levels to be 4 pCi/L or less. The testing for radon

is simple – a canister is left at the premises,

usually in the basement, to collect an air sample.

If radon levels are high, mitigation systems

typically vent the basement allow for the outflow

of radon from the house. Installation of these

systems typically cost $700-1200.00. Radon

testing should probably be a standard provision

in every Offer.

b. Lead Paint (Addendum S). A Lead Paint

Disclosure is generally required in every real

estate transaction involving property that was

built before 1978. Prior to 1978, most interior

house paints contained lead and, unless surfaces

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have been sanded and all paint removed, that lead

is likely still present. The Lead Paint Disclosure

requires sellers to disclose what they know about

the presence of lead paint and any notice of

governmental requirements and gives the Buyer

the opportunity to specifically ask for the right to

test for lead paint.

c. Mold. As mold tests can be expensive and not all

molds are toxic or present health concerns, mold

testing is typically only requested after a home

inspector has found evidence of mold that bears

further investigation. If a client has allergies or a

child with asthma, this might be a useful test to

include, defining under what conditions the

presence of mold would constitute a “defect.”

d. Well Inspection. Water Testing. POWT

Inspection (Addendum B). When a property is

serviced by a private or shared well, that system

should be inspected to assure that it is operational

and complies with code – whether at the time it

was installed or by current standards.

Water samples should also be taken and tested

for bacteria, nitrates and arsenic, at a minimum.

If the property abuts farmland, tests for pesticides

and/or herbicides might also be requested.

Recent legislation (Wis. Admin. Code ch. 812,

effective October 1, 2014) requires any well

driller or pump installer that conducts a well

inspection to draw water samples for testing for

bacteria (total Coliform and E.coli), nitrates and

arsenic. Prior to this legislation, well inspections

did not require water testing.

TIP: When drafting the inspection contingency,

include language that will allow for additional testing

if something would be discovered during any

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inspection.

iii. Defect. Just because a Buyer may learn something

about the property that they don’t like, doesn’t mean

they have the right to terminate the contract. The

inspection or tests have to discover a “defect” in the

property. The term “defect” is defined in the

document as “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 normal life of the

premises.” (Lines 182-184 WB-11).

TIP: Lines 425-426 WB-11 specifically excludes

any conditions that the Buyer had notice of prior to

writing the Offer. Be sure to strike these lines if the

Buyer has any information – even a RECR that

discloses a defect – prior to submission of the Offer.

iv. Deadline. Because of the importance of the

inspection contingency, I practically tattoo the

deadline on my person to make sure it’s not missed.

If that deadline passes and no Notice of Defect is

been delivered to the Seller, the contingency is

waived and the Buyer cannot use condition of the

property as a means to terminate the Offer.

v. Notice. Notice of any defects must be given to the

Seller as a Notice. As it states at line 424 of WB-11,

“A proposed amendment is not a Notice of Defects

and will not satisfy this notice requirement.” It’s

amazing how often people don’t read that line.

In order for a Notice to be effective, it must be

accompanied by a copy of all inspection reports and

must be delivered to the seller by the deadline stated

in the Offer.

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vi. Right to Cure. It is always a bit of a sticky wicket

in deciding whether or not to give a Seller a right to

cure defects that are identified by the home

inspection(s) and testing. If no right to cure is given

to the Seller, delivery of a Notice of defects

terminates the offer – there is no room for further

negotiation. If a right to cure is given, a Notice of

defects gives the Seller the power to decide whether

they want to cure or terminate the Offer.

TIP: If a Buyer chooses not to give the Seller a right

to cure defects, be sure to set the deadline for the

inspection contingency out sufficiently to allow for

negotiation before that Notice has to be delivered.

That way, proposed Amendments can be exchanged

to see if the parties can negotiate a satisfactory

resolution to issues that may be been uncovered by

the inspections. If so, no Notice need be given.

D. Financing Contingency. When a Buyer needs financing in order to

purchase a property, the financing contingency should be included.

Lines 217 – 256 of the WB-11 allow a Buyer to set forth the terms of

financing that he/she needs in order to purchase the property. One item

of note: Unlike the inspection contingency, the passing of the deadline

for a financing commitment does not waive the contingency. Instead, it

allows the Seller the ability to unilaterally terminate the Offer (lines 247-

249).

i. Terms. When drafting a financing contingency on

behalf of a Buyer, the terms included in the Offer do

not have to match what the Buyer may have been

told they can get from their lender. In fact, the

financing contingency should really reflect the best

terms that the Buyer could get. The Buyer is free to

accept any terms, but can also use this “exit door” if

they need to terminate the offer for any other reason.

It’s walking a fine line, as the parties are obligated to

act in good faith; the terms can’t be so outrageous as

to breach that obligation.

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ii. Financing Commitment. The best financing

commitment that a Buyer can get from their lender is

one with minimal conditions. Some commitments

are issued before appraisals have been done, before

credit checks have been completed and sometimes

even before employment has been confirmed. Even

a commitment conditioned on all of those items, if

property delivered to the Seller, will satisfy (read:

waive) the financing contingency. That could put the

Buyer in a very bad position if his financing is

subsequently denied.

iii. Delivery. In order for a financing contingency to be

satisfied, the Buyer must deliver a financing

commitment to the Seller along with Buyer’s written

directive to deliver the commitment (lines 238-242).

iv. Unavailability. In the event the Buyer cannot get

financing on the terms set forth in the Offer, the

Buyer must provide the Seller with a rejection letter

along with a Notice terminating the Offer. Lines 252

includes (s)’s, which suggest that more than one

rejection letter may be required. I typically cross

those out.

v. Seller financing option. Lines 252-256 of WB-11

allow Seller’s to finance the transaction if the Buyer

is unable to obtain financing elsewhere. There are

circumstances under which the SAFE Act may

interfere with this option, however.

E. Appraisal. The appraisal contingency operates like the inspection

contingency in that it is waived if Buyer fails to timely deliver Notice

that the appraisal did not indicate a value equal to or greater than the

purchase price.

F. Sale of Home Contingency and the infamous “Bump Clause.”

(Lines 304-311 of WB-11). If a Buyer needs to sell a property before

they can purchase the subject property, the Offer should be contingent

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on the sale and successful closing on that property. However, the

“bump clause” allows the Seller to nullify the Offer if (a) the Seller

accepts a bona fide secondary offer; (b) notifies the Buyer of that fact;

and (c) Buyer is unable to waive the contingency in the amount of time

specified at line 310. Additional conditions that may be inserted at line

307 of the WB-11 might include a waiver of the financing, appraisal

and/or other contingencies contained in the Offer.

Once all contingencies in the Offer to Purchase have been satisfied, the parties can look

forward to closing.