|
|
Legal Matters
Best of the Legal Hotline - FSBO Issues
by Debbi Conrad and Tracy Rucka
The following questions were asked about working with for sale by owner (FSBO) sellers.
| Q. Do the telemarketing rules regulate calls to FSBO sellers? What about the FSBO ads that say "no real estate brokers or agents?" |
| A. The seller's FSBO property advertisement is not an affirmative request for brokers to call and pitch their listing services--the ad does not authorize any attempt to sell the owner any goods or services. Rather, the typical FSBO ad invites agents with buyers who are interested in the property to call the owner to set up a showing for the buyer. If a FSBO ad prohibits real estate licensees, an agent calling that seller will likely need a buyer agency agreement with that buyer (at least for that property) because it is unlikely that such a seller will agree to a listing.
If the FSBO owner is on the do not call list, a broker may contact the FSBO seller to offer listing services by any means other than a call to the residential telephone number on the DATCP "do not call" list. Licensees may try to contact the seller by calling a business telephone number or cell phone, by mail, by e-mail, by personal visit, or by other means of communication.
|
Back to top
| Q. Must an agent enter into a one-party listing with the seller in order to write an offer on a FSBO property? |
| A. An agent must have an agency relationship with either the buyer or the seller before the agent may provide brokerage services and write an offer to purchase. Thus, the agent must have a WB-36 buyer agency agreement or a listing contract with the seller before writing the offer. The listing may be an exclusive right to sell listing or a one party listing, naming the specific buyer.
|
Back to Top
| Q. Can a buyer's agent draft the offer to purchase and other transactional documents for a FSBO seller? |
| A. The buyer's agent, based upon the agency relationship created by the buyer agency agreement, may draft the offer, any counter-offers and any other transactional documents needed by the buyer and seller. In this situation, the buyer is the agent's client and the FSBO seller is the customer. Buyer's agents working with FSBO sellers must be sure to give the seller an agency disclosure form indicating that the buyer is the agent's client. If the FSBO seller is not comfortable with this arrangement, the seller may draft his or her own transactional documents or hire an attorney to handle this task.
|
Back to Top
| Q. When acting as a buyer's agent for a buyer who wants to purchase a FSBO property, when should the buyer's agent disclose the buyer agency relationship to the seller? |
| A. If the property is one- to four-family residential real estate, the buyer's agent must notify the seller of the buyer agency relationship at the earlier of first contact with the seller where information regarding the seller or transaction is being exchanged, a showing, or any other negotiation with the seller. The agent must also indicate that he or she is a buyer's agent in the offer to purchase. See § RL 24.07(8). Similarly, the Code of Ethics in Standard of Practice 16-11 requires that the agent disclose the buyer agency relationship to the seller at first contact with the seller
and confirm the disclosure to the seller in writing not later than the execution of the offer to purchase.
Prior to providing any brokerage services to the seller, the agent also must give the seller an agency disclosure form, per § RL 24.07(8). If the property is one- to four-family residential real estate, the agent must ask the seller to acknowledge receipt of the disclosure form in writing.
|
Back to Top
| Q. A seller marketed their property FSBO for months after the listing expired. The broker kept putting the property in the MLS as extended. Can a broker keep a FSBO property in the MLS after the listing is expired?
|
| A. No. Wis. Stat. § 452.135 requires that a broker must have an agency contract authorizing the broker to provide brokerage services such as the promoting the sale of this property on the MLS.
MLS rules generally also require a current listing contract to advertise a property on the MLS.
The seller may contact the previous listing broker and ask him to remove the property from the MLS. If he will not comply, the seller may contact the local MLS and tell them that the broker is posting an unlisted property and ask to have the property removed from the MLS. The seller may also file an ethics complaint with the local association and/or a complaint to the Department of Regulation and Licensing regarding this unauthorized advertising activity. The Code of Ethics, in Standard of Practice 12-4, provides that
REALTORSŪ shall not offer property for sale or advertise property without authority, and §RL 24.04(3) provides that brokers shall not advertise property without the consent of the owner.
|
Back to Top
| Q. A seller is selling his home FSBO. A buyer has negotiated with the seller on price. The seller wants the real estate agent to draft the offer and handle the closing, for a fee. Is this legal? |
| A. A licensee may not enter into an agency agreement just to draft the offer because it would be considered the unlicensed practice of law. Any drafting by a real estate licensee must be incidental to the practice of real estate. If the parties to the transaction have agreed to purchase terms, they should be referred to an attorney to draft their contract.
§ RL 16.05(3) provides: "A licensee may use approved forms only in those transactions in which the licensee is acting in a capacity as licensee or in which the licensee is a principal, and in either case the use of such forms is incidental to the real estate practice of the licensee."
§ RL 16.05(4) provides: "A licensee may not make a separate charge for completing an approved form in conjunction with a transaction."
These provisions, when taken together, are interpreted by the DRL to mean that a licensee cannot use an approved form such as an offer to purchase unless the licensee is working under the authority of a listing contract or a buyer agency agreement. This interpretation originated decades ago with the concern that broker completion of conveyance forms constituted the practice of law, as expressed in the State v. Dinger case. In Dinger, the court found that broker contract drafting activities may encroach into the sphere of the legal profession only occur when such activities are incidental to the broker's trade or business.
If the licensee entered into a one-party listing with the seller, the licensee must provide brokerage services besides just drafting the offer. This would include, at minimum, inspection of the property, disclosure of material adverse facts and negotiation of the contract terms other than price.
|
Back to Top
| Q. What if the FSBO seller has not completed the real estate condition report or the lead based paint disclosures? |
| A. All sellers subject to Chapter 709, whether broker-assisted or FSBO, must complete a Chapter 709 Real Estate Condition Report (RECR) or risk rescission of the offer to purchase. Chapter 709 generally applies to all persons who transfer real estate containing one to four dwelling units, including condominium units, time share property, living quarters in a commercial property, etc. Chapter 709 does not apply to (1) 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 exemption does not include powers of attorneys); (2) real estate which has not been inhabited, e.g. new construction; and (3) transfers exempt from the real estate transfer fee, e.g. between spouses, foreclosures, probate transfers, etc.
It is recommended that sellers complete a RECR as soon as possible because if a completed RECR is given to the buyer before he or she submits an offer to purchase, there will be no Chapter 709 buyer rescission rights.
Addendum S, the WRA disclosure form for lead-based paint (LBP), is used most effectively and offers the most liability protection for real estate agents when it is completed by the sellers when the residential listing is taken. Sellers can complete and sign the Seller section (lines 12-27 of Addendum S) at the same time the RECR is completed. The listing agent can sign the Addendum S, and copies of the completed RECR and Addendum S can be distributed to buyers.
Once the buyers have completed and signed the Buyer section (lines 38-63 of Addendum S) and the cooperating agent has signed the form, it is ready to attach to the offer. Sellers cannot accept an offer until all the steps described in Addendum S have been completed, the form has been filled out and signed by the parties and agents, and the form is attached to the offer.
Delays may result if this procedure is not followed. Buyers may refuse to complete Addendum S before the seller section is filled in. In the buyer acknowledgment, the buyers certify that they have received the seller's LBP disclosures. An agent who encourages or permits the buyers to sign this form before the sellers have made their disclosures risks potential liability. An agent who signs the Agents section (lines 28-37 of the revised Addendum S), wherein the agents certify that the sellers have been informed of their obligations under the federal LBP law, may also have
liability problems. This is not likely to be true if the sellers haven't yet completed the form. The best reassurance that a cooperating agent has that the sellers have been advised of the law is the signatures of the sellers and the listing agent on Addendum S. Addendum S has a summary of the federal LBP law on the back so sellers who have signed the form and been given a copy presumptively have notice of the law. See Legal Updates
96.04 & 96.07 for further discussion of the LBP law and Addendum S.
|
Back
to Inside This Edition
Return to On-Line
Publications
Look Out for Predatory Lending
by Debbi Conrad
The nightmare of predatory lending is present in Wisconsin. Predatory lending involves deception or fraud, manipulating the borrower through aggressive sales tactics, or taking unfair advantage of a borrower's lack of understanding about loan terms and their consequences. Predatory practices are concentrated in the subprime mortgage market where high interest loans with large up-front fees are made to individuals who have impaired or limited credit histories, or high debt amounts relative to their income.
The Strategies To Overcome Predatory Practices (STOPP) coalition launched an anti-predatory loan campaign in Milwaukee last year. This coalition came together in response to specific incidents of predatory lending in the Milwaukee area and federal studies showing that subprime loans--particularly to Afro-Americans--were occurring in the Milwaukee area at rates higher than the national averages.
Defining the practices that make a loan predatory is a bit difficult because often predatory lending involves a series of features that, in combination, impose substantial hardships on the consumer. For example, the following horror story was told to the Department of Housing and Urban Development (HUD) and Department of Treasury National Predatory Lending Task Force in 2000:
Ms. H is an 81-year-old African-American widow from Washington, D.C. with an existing $118,000 mortgage loan. The mortgage broker who had originated that loan in 1997 convinced her in 1999 to refinance by telling her that her new loan would retire existing unsecured debt, lower her monthly payments, cover her real estate taxes and insurance, and lower her interest rate. In fact, Ms. H's new $129,000 loan did not pay off any unsecured debt, raised her monthly payments, did not cover her tax and insurance obligations, and, after a two year period, significantly increased her interest rate. Ms. H. received no cash or any other tangible benefit out from the new loan, which triggered a substantial pre-payment penalty in the first loan when it was paid off in less than three years. The mortgage broker's combined compensation on the two loans exceeded $12,000.
Ms. H's account demonstrates several common predatory lending practices:
- "Loan flipping" - the successive refinancing of loans with little or no resulting benefit to borrowers, but generating substantial fees for mortgage brokers
- Refinancing points and origination fees reducing the borrower's equity
- Prepayment penalties that discourage refinancing at more favorable rates and generate additional fees should refinancing occur.
For further discussion of predatory lending, read Legal Update 03.05.
One of the best things that REALTORSŪ can do to help prevent predatory lending is to encourage buyers to educate themselves about consumer credit, mortgage loans and homeownership. It is certainly not the role of the
REALTORŪ to provide financial counseling or advice, but encouraging buyers to seek the appropriate financial guidance will serve to enhance the possibilities of a successful transactions and satisfied buyers who are not put at risk of foreclosure.
H REALTORŪ Practice Tip: Encourage buyers to obtain a copy of their credit report and find out what their credit score is. For information about obtaining credit reports and credit scores, see the
WRA Mortgage Loan Assistance
REALTORŪ Resource page.
H REALTORŪ Practice Tip: Encourage homebuyers, especially first-time homebuyers and homebuyers with no credit history or a marginal credit standing, to attend credit counseling or homebuyer counseling classes. Lists of counseling services appear on the WRA Mortgage Loan Assistance
REALTORŪ Resource page.
H REALTORŪ Practice Tip: Use the "Mortgage Loan" consumer handout and the Predatory Lending Consumer Handout that appears in Legal Update 03.05 and on the WRA Mortgage Loan Assistance
REALTORŪ Resource page. REALTORSŪ are urged to copy these pages and distribute them to all of their clients and customers who are first-time or lower income homebuyers.
Predatory Lending Warning Signs
- Making a loan for an amount that exceeds the fair market value of the home.
- Basing the amount of the loan on the borrower's equity in the property, rather than on his or her ability to pay.
- Falsifying loan applications, especially the borrower's income level.
- Seeking out homeowners who are vulnerable because of medical, credit card, or other consumer debt.
- Targeting minority neighborhoods, especially long-time homeowners.
- Financing unnecessary insurance and other products into the loan, drastically increasing its cost.
- Frequent, unnecessary refinancings with no benefit to the borrower.
- Excessive penalties for prepaying the loan.
- Payment schedule includes large "balloon" payment or "interest only" payments.
Back
to Inside This Edition
Return to On-Line
Publications
Insurers Nix Trampolines, Diving Boards and Pit Bulls
by Debbi Conrad
Many insurance companies had suffered heavy losses in recent years and have taken numerous measures to limit their risk. Insurers are increasing premiums, excluding homes with water damage or mold claims, requiring an upgrade for 60-amp electrical service, and generally tightening their underwriting criteria. In their latest effort to minimize risk exposure, The Wall Street Journal reports that some insurance companies are refusing homeowner's insurance coverage for homes with a trampoline, swimming pool (especially those with diving boards) or feisty dog (pit bulls, Dobermans, Rottweilers, chows). (Christopher Oster, Legal Minefield in Your Backyard, Wall St. J., May 23, 2003, at D1.)
This is not a universal strategy among insurers so shopping around may be beneficial for the homebuyer-they may be able to find other insurance companies that will cover a coveted recreational amenity, although it may be at an increased premium. For example, State Farm Insurance will evaluate trampolines on a case-by-case basis and prefers trampolines with netting, may cancel policies if there is a diving board, and factors a dog's bite history into underwriting. Farmers Insurance Group does not exclude trampolines, covers pools with diving boards if the yard is fenced, and covers one dog bite claim only. Nationwide Insurance will cover trampolines and pools with diving boards if the yard is fenced, but won't cover homes with pit bulls, Dobermans, Rottweilers or chows.
H REALTORŪ Practice Tip:
REALTORSŪ should warn homebuyers that they may need to shop around for homeowner's insurance if the new home of their dreams includes a trampoline, swimming pool or a black Doberman in the backyard.
For more information about homeowner's insurance issues, read Legal Update 03.04 or visit the
WRA's Wisconsin Homeowner's Insurance Resource page.
Back
to Inside This Edition
Return to On-Line
Publications
Curriculum Council
by Rick Staff
The DRL's Curriculum Council met on Thursday, May 22 to consider several issues dealing with pre-license and continuing education requirements. Work on new broker and salesperson prelicense curricula has been completed and the Curriculum Council approved the rule revisions that will implement the new pre-license curriculum. The curriculum, which will be the subject matter for testing beginning September 2003, is much more transaction-based than prior curricula. The sales prelicense curriculum will no longer include a "national" section and will focus exclusively on Wisconsin law, forms and practice. The broker's curriculum will focus exclusively on supervision, law and practice issues. The former broker curriculum material which focused on office financial management has been eliminated.
The Curriculu |
