In Part II of the series, we are asking and answering the following question:

What happens when there is damage to a home after acceptance of an offer to purchase?

Notifying the Buyer About the Damage:

Wisconsin’s Residential Offer to Purchase differentiates what happens when the property is damaged in an amount less than 5% of the purchase price and what happens when the cost of the damage is over 5% of the purchase price. Regardless of the amount of damage, the seller is under an obligation to notify the buyer of any damage to the property after the offer is accepted.

The seller can notify the buyer of the damage in a few different ways. The first and most common option is to supply the information on a Notice form disclosing the damage. The second option is the seller amending his/her Real Estate Condition Report to disclose the damage. The second option is generally not recommended, as it can trigger the buyer’s 2-business day right to rescind the offer under Wis. Stat. 709.05(2)(a)(2). When a buyer rescinds the contract based on this statute, the buyer is entitled to a refund of their earnest money deposit. The second option is only recommended if the seller understands and agrees to the prospect of the contract falling apart and/or if the seller wants to give the buyer a way out of the contract. The third way of disclosing the damage is for the seller’s real estate agent to complete a Disclosure of Material Adverse Facts.

Damage Less Than 5% of The Purchase Price:

If the damage to the property is something relatively minor, such as one broken window, then the cost to repair the damage is likely less than 5% of the purchase price. The Offer specifies that when the damage is less than 5% of the purchase price, sellers must first notify the buyer of the damage. After notifying the buyer, the seller has a duty to repair the property. Specifically, the seller has to restore the property to the same condition it was in when the buyer made his or her offer.

It is the seller’s responsibility to bear the cost of the repairs. The seller may choose to pay for the cost of the repair by including the contractor’s invoice on the closing statement, entitling the contractor to be paid from the sales proceeds. Alternatively, if the seller pays for the repair before closing, he or she must supply the buyer with a lien waiver for any lien-able repairs.

If the seller cannot repair the property before closing, then the parties can mutually agree to one of the following options:

(a) extend/postpone the closing date to give the seller time to repair the property; or

(b) the seller can give the buyer a credit or price adjustment for the cost of the repair; or

(c) Other options may be available depending on what stage of the repair process the seller is in, such as holding money in an escrow account for the cost of the repair.  An attorney should be consulted to ensure that all parties rights and obligations are clearly communicated to avoid disputes.

Damage More Than 5% of The Purchase Price:

Imagine a tornado striking the home you are under contract to either purchase or sell, resulting in the need for an entirely new roof and siding. This may likely be damage that exceeds 5% of the purchase price. In this situation, the Offer specifies that the seller must first notify the buyer of the damage and then give the buyer the option to terminate the Offer. A buyer who decides to terminate is entitled to a return of their earnest money deposit.

If the buyer decides to proceed with the purchase despite the damage, then the Offer states that the buyer is “entitled to the seller’s insurance proceeds, if any, relating to the damage to the Property, plus a credit towards the purchase price equal to the amount of Seller’s deductible on such policy, if any.”

Both parties should hire legal counsel to assist with negotiating and drafting documentation to specify who will complete the repairs, how the insurance proceeds will be allocated, what documentation the seller is required to provide, and any other considerations that may need to be arranged or put in writing, depending on the agreed-upon course of action.

Schedule a consultation with Wynn at Law, LLC today to discuss your home sale or purchase

Wynn at Law, LLC can assist you with either your purchase or sale, starting with a review of or assistance with drafting the initial offer, and ending with helping you reach a successful closing.

Contact Wynn at Law, LLC today at 262-725-0175 or visit our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has offices conveniently located in Salem, Delavan, and Lake Geneva, Wisconsin.

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What happens when there is damage to a home after acceptance of an offer to purchase?

These two questions will be discussed in this two part series, where we will explore what a seller’s duties are, what a buyer’s rights and remedies may include, implications on the condition report that a seller may be required to complete, and ways the parties can come to a mutually beneficial agreement.

Part I of II – Damage Before the Real Estate Transaction.

The Real Estate Condition Report:

Most sellers are required to answer specific questions relating to their vacant land, commercial property or residential property on a form called the “Real Estate Condition Report” (RECR). The RECR directs sellers to disclose “defects” that the seller is “aware” of. Wisconsin statute 709.03 defines a defect as any of the following three conditions:

1. A condition that would have a significant adverse effect on the value of the property;

2. A condition that would significantly impair the health or safety of future occupants of the property; or

3. A condition that if not repaired, removed, or replaced would significantly shorten or adversely affect the expected normal life of the premises.

In essence, this is the form where sellers would disclose any damage that may have affected the property prior to being under contract. It is worth noting that under Wis. Stat. 709.035, if a seller had already completed a RECR prior to being under contract, and an answer to one of the seller’s questions change, the seller is under an obligation to either amend the report on file or complete a new condition report.

Timing of the Real Estate Condition Report:

A seller may supply a completed RECR to a buyer before a buyer makes an offer. Alternatively, a buyer can submit an offer and require the seller to provide a completed RECR within a specified number of days, or within the default 10 days under the standard contract language. It should be noted that the RECR is not meant to replace an inspection contingency, even though the condition report may disclose the same type of defects that an inspection report may find. It is recommended that a buyer have the RECR in hand prior to his or her inspection, as the report may disclose defects that a buyer directs an inspector to take a closer look at.

Why the Real Estate Condition Report is Important:

The RECR is a document that sellers should complete truthfully and in good faith. Buyers who discover that a seller intentionally answered the report untruthfully may sue the seller for misrepresentation among other legal claims, even after the transaction has closed. Real estate agents are precluded from providing a seller with advice as to whether something qualifies as a defect or not, as this is considered legal advice. If a seller is concerned about what to disclose, the seller should contact an attorney for help.

Buyers may have the right to rescind their offer if the condition report discloses a defect that the buyers were not aware of or if the condition report is incomplete. Specific time frames must be followed in order for a buyer to exercise these rescission rights.

Insurance Claims Disclosed in the Real Estate Condition Report:

One of the questions that a seller is required to answer on the condition report is whether any insurance claims for damage to the property have been filed within the past 5 years. If the seller answers “yes” to this question, the seller must explain why the insurance claim was filed. Buyers may negotiate with the seller by requesting a copy of the seller’s Comprehensive Loss Underwriting Exchange (CLUE) Report. A CLUE report is most often used by insurers when underwriting individuals for a policy, but under the Fair Credit Reporting Act, homeowners have the right to request one free CLUE report on themselves per year.

The CLUE report discloses insurance claims that have been filed on the property within the past 7 years and the amount that was paid out on the claim. Buyers should be aware that not all insurers report to LexisNexis, the provider of CLUE reports, and therefore a CLUE report that discloses nothing does not necessarily mean that insurance claims haven’t been filed on the property within the last 7 years.

You may now be wondering what happens when the need to file an insurance claim arises after acceptance of an offer and what a seller’s duties are in relation to the Real Estate Condition Report when confronted with damage to the property while under contract – both of these situations are discussed in part II – Damage During the Real Estate Transaction, along with other considerations for the parties to the transaction.

Schedule a consultation with Wynn at Law, LLC today to discuss how the Real Estate Condition Report affects your home sale or purchase

Wynn at Law, LLC can assist you with how to approach the real estate condition report – whether that be assistance with completing the report or advice on how to proceed based on what is disclosed in the report.

Contact Wynn at Law, LLC today at 262-725-0175 or visit our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has offices conveniently located in Salem, Delavan, and Lake Geneva, Wisconsin.

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At Wynn at Law, we recently hit a milestone: 150 Google reviews.

We don’t take that lightly.

Every review represents a client who trusted us during an important moment—buying or selling a home, planning for the future, or making decisions that impact their family and finances. Those aren’t small things, and we’re grateful to be part of them.

What means the most isn’t the number itself—it’s what people consistently say:

• That they felt comfortable asking questions
• That things were explained clearly
• That our team was responsive and kind
• That they walked away feeling confident in their decisions

That’s exactly what we aim for every day.

This milestone also reflects the people behind the scenes. From guiding clients through real estate transactions to helping families put estate plans in place, our team works hard to make what can feel overwhelming a lot more manageable.

To everyone who has taken the time to leave a review—thank you. It truly means a lot to our entire team.

And if we’ve worked together and you haven’t shared your experience yet, we’d always love to hear from you.

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Hypothetical 1:

Imagine you are the seller. You go under contract to sell your home, however the deal falls apart based on the buyer’s inspection. The buyer provided you with a copy of the inspection report, and in an effort to be up-front with your next buyer and avoid another inspection, you provide the second buyer with a copy of the first buyer’s inspection report.

The seller gave a copy of the first buyer’s inspection report to the second buyer “for informational purposes only.” Is this allowed?

Yes, a seller may choose to provide a potential buyer with a previous buyer’s inspection report, unless the seller and previous buyer agreed not to share the report. The seller is under no obligation to the home inspector to keep the report private.

Can the listing agent provide copies of a prior buyer’s inspection report to prospective buyers?

Listing agents should avoid providing a copy of the report to guard against any possible confidentiality concerns under Wis. Stat. 452.133(1)(d) because the report may be considered confidential, unless the agent has the consent of all parties to the first transaction.

Can the new buyer still obtain an inspection?

Yes. The new buyer is not precluded from making his or her offer contingent upon an inspection contingency, wherein the new buyer would have a new home inspection done.

Cautionary Note: The new buyer should be aware that he or she can only object to newly discovered defects that were not disclosed in the prior inspection report. It is presumed that the second buyer had “actual knowledge” of the defects disclosed in the first buyer’s inspection report, given that the new buyer was given a copy of the prior report. In other words, the first buyer’s inspection report was supplied to the second buyer “for informational purposes only.”

Who does the inspector owe a duty to if errors or omissions are discovered in the inspection report?

Home inspectors are only liable to the person who contracted for the inspection and not other parties that the inspection was provided to for informational purposes. [1] Therefore, if a second buyer chooses not to obtain his or her own inspection and instead relies on a seller-provided inspection report ordered by a previous buyer, the second buyer has no recourse against an inspector for any errors or omissions that may be contained in that report.

Is the buyer required to give a copy of the inspection report or testing reports to the seller, even if the buyer does not issue a Notice of Defects? 

Yes. If a buyer has an inspection or testing done (such as radon, mold, water or septic testing), the buyer is required to supply the seller with a copy of all inspection and test reports, even if the buyer is not requesting any action from the Seller. This requirement is clearly spelled out in the WB-11 Residential Offer to Purchase at lines 190-191, which states that “Buyer agrees to promptly provide copies of all inspections and testing reports to Seller.” 

Hypothetical 2:

Suppose that you are a seller who has been presented with an offer that has the box checked to include an inspection contingency, including the seller’s right to cure the defects, however in the “additional provisions” section of the offer, it states that “the inspection shall be for informational purposes only.”

Can the buyer present the seller with a notice of defects?

Yes, the buyer is not precluded from presenting the seller with a notice of defects if the inspection contingency was included with the offer. A buyer should be aware in this case that a seller may not be willing to fix the inspection defects or provide a credit. The seller may have thought that the buyer would not ask for any repairs, given the language in the offer stating that the inspection was “for informational purposes only.”

How can the buyer clearly ask for an inspection but not make their offer contingent upon one?

If a buyer feels comfortable with making an offer not contingent upon an inspection contingency, but would still like an inspection to be completed, this should be clearly spelled out in the additional provisions section of the offer. To clearly communicate the buyer’s intent, the buyer should not check the box for an inspection contingency in the offer. The buyer or buyer’s agent should also include provisions in the offer allowing the buyer’s inspector access to the property upon advance notice to ensure that all parties are on the same page. The buyer’s agent may also request that the buyer sign paperwork confirming the risk of foregoing a home inspection contingency.

Can an inspection for “informational purposes only” cause issues with the buyer’s lender?

Possibly, depending on the buyer’s lender and the type of loan the buyer is applying for. FHA, VA, and other government-backed lenders require certain minimum property standards relating to a property’s habitability and safety in order for the loan to be issued. When government-backed lenders discover conditions falling below their minimum standards, the lender may require that these conditions be fixed. This can cause issues if the offer is not subject to an inspection contingency.

Schedule a consultation with Wynn at Law, LLC today to discuss the real estate purchase and sale process

Many of the issues discussed above can be resolved with clear contract drafting. When all parties understanding the contract, the majority of disputes disappear.

Whether you would like to discuss general real estate questions or need help ensuring that a specific offer is clearly drafted, Wynn at Law, LLC’s attorneys are here to help. Contact Wynn at Law, LLC today for a consultation at 262-725-0175 or visit our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has offices conveniently located in Salem, Delavan, and Lake Geneva, Wisconsin.

[1] Wis. Stat. 440.977(2)

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If you are in the process of purchasing a new home, or have just purchased one, you may have encountered offers for a home warranty – but what exactly is a home warranty? Home warranties provide discounted repair and/or replacement services for components within your home, such as your heating, air conditioning, electrical, appliances, and sometimes even pool or garage door components. Home warranties are intended for items such as a broken water heater or an appliance repair. Essentially, a home warranty can cover things that your homeowner’s insurance would not (more on what homeowner’s insurance covers below). However, homeowners should clearly read their home warranty to understand what is covered, as many warranties do not provide coverage for repairs or replacements that can be attributed to a lack of maintenance. Rather, home warranties are often meant to cover unexpected repairs.

Do I need a home warranty?

The decision on whether to have or forego a home warranty is completely optional and situational. It is not a legal nor lender requirement that a home owner have a home warranty. When contemplating whether or not you should purchase a home warranty, here are some things to take into consideration.

First, do you have an emergency fund in place sufficient to cover unexpected home repairs? Consider what would happen if you needed to purchase a new refrigerator within the first year of owning your home, or even worse, an expensive air conditioning replacement – if this is something that you could not afford as an out-of-pocket expense, then it may be worth considering whether a home warranty could assist with the cost of an expensive and unexpected repair or replacement. Home warranties on average range from $300-$1,200 per year depending on the plan and components of the house.

Second, consider how old your home’s components are and what condition they are in. If you had a home inspection done, your home inspector will likely have gauged the remaining life of some of your components, so it may be worth taking a look at your inspection report. However, even brand new home components can unexpectedly go out – consider whether any of those components come with warranties of their own.

Third, what condition is your home in? If there are components that were already not functioning when you purchased the home, a home warranty will not assist with their repair or replacement. Review different home warranty plans and their exclusions to understand what would and would not be covered. For example, many home warranty plans contain exclusions for improper installation, mold, code violations, and structural home components (such as foundation cracks, roof repairs, etc.). If many of the repairs you need would not be covered, then you may able to work with the seller to negotiate the repairs or a credit to do the repairs yourself, assuming you have not already closed on the home.

How is a Home Warranty Different From Homeowner’s Insurance?

Home warranties are intended to cover the components of your home, such as plumbing, HVAC, and electrical. Homeowners insurance, on the other hand, covers damage to the actual structure of the home itself due to events outside the control of the owner, in most cases, such as a damaged roof due to a tree falling, fire or damage resulting from a natural disaster. If you have lending on your home, your lender will require you to have homeowner’s insurance, whereas the lender will not require you to have a home warranty. As always, it is best practice to thoroughly read any homeowners insurance policy or home warranty plan to understand what is and is not covered.

Schedule a consultation with Wynn at Law, LLC today to discuss the home buying process

Also see our related blog post, Five Things I Wish I Knew as a First Time Home Buyer. Contact Wynn at Law, LLC today for a consultation at 262-725-0175 or visit our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has offices conveniently located in Salem, Delavan, and Lake Geneva, Wisconsin.

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This achievement reflects a consistent level of excellence recognized by peers, colleagues, and the Super Lawyers independent research team. The annual selection process evaluates attorneys across several criteria, including professional accomplishments, peer feedback, and overall standing in the legal community. Earning this honor once is notable—earning it five years in a row is a testament to Attorney Wynn’s ongoing dedication to her clients and her craft.

Attorney Wynn has built her reputation on providing clear guidance, compassionate support, and effective legal solutions in matters that deeply affect individuals and families. Her commitment to thorough communication and personalized service has made her a trusted resource throughout the region.

The firm celebrates this milestone as a reflection of the values at the heart of its practice: integrity, excellence, and unwavering client focus.

Wynn at Law, LLC looks forward to continuing to serve the community with the same high standards that earned this distinguished recognition year after year.

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1. Naming Minors as a Direct Beneficiary of a Financial Account

Naming a minor child as a direct Payable On Death (POD) beneficiary of a financial account or as an insurance beneficiary could result in the money either going directly to the child’s guardian, or to the child the minute , he or she turns 18. Many 18-year-olds who come into large sums of money spend it in ways that may not be in their best interest or a child’s guardian may not be the person you want controlling the money either (i.e. divorced spouses). Parents or grandparents of minors should consider other estate planning tools, such as a trust, to avoid this situation.

2. Adding a Child as a Joint User to a Bank Account

Aging parents often find it advantageous to add one of their grown children to their bank accounts as a co-owner/ joint user so that their child can handle their finances. When the aging parent passes, the child on the bank account now owns those funds 100%. Parents with multiple children may not have anticipated this or assumed that the child would voluntarily share the funds with their siblings. In most cases, the child on the bank account does not share the funds with their siblings, and legally, they have no obligation to do so. Even if that child were to share the funds, unintended gift tax consequences can arise. Aging parents in this situation should consider using a Financial Power of Attorney to allow a child to manage their finances during their lifetime.

3. Improper Spousal Ownership of Real Estate

What happens in Wisconsin to real estate when one spouse passes? Does the surviving spouse automatically own the real estate? The answer lies in the way the spouses took ownership on the deed and the type of real estate owned. Simply having both spouses listed on the deed as owners (such as “Jack Doe and Jane Doe”) is not enough to avoid probate in most cases. Special consideration must be taken when titling real estate to ensure that a probate is not required between the spouses when one spouse passes. Having an attorney review your deed and fix any unintended titling mistakes can help prevent costly mistakes that can arise with what is often our biggest asset – the home! An attorney can also advise on options for passing down real estate when both spouses pass and common mistakes that can arise with these transfers and how to avoid them.

Schedule a consultation with Wynn at Law, LLC today to discuss the estate planning process

Whether you already have an estate plan in place and need to review it, or you would like to start from scratch, our attorneys are here to assist you. Contact Wynn at Law, LLC today for a consultation at 262-725-0175 or visit our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has offices conveniently located in Salem, Delavan, and Lake Geneva, Wisconsin.

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No. Buyers can only conduct an inspection if they ask for one as part of their offer to purchase. There are two ways to do this. A buyer can request an inspection under the inspection contingency, which gives the buyer certain rights if the inspection discloses defects (more on this below), or, a buyer can request an inspection for informational purposes only.

The Scope of the Inspection Contingency:

The inspection contingency in Wisconsin’s residential offer to purchase allows a buyer to use a Wisconsin licensed home inspector to inspect the home for defects. Inspectors are governed by certain standards under Wisconsin law – namely that the inspector must “perform a reasonably competent and diligent inspection to detect observable conditions” of a home.[1]

Note the statute’s reference to “observable” conditions – the statute specifically states that an inspector is not required “to disassemble any component of an improvement to residential real property” in order to inspect it.[2] For example, if a seller has moving boxes piled up against a wall, the inspector is not required to move those boxes. The inspector may make note of the obstruction in their report, however, it is best practice for the buyer to attend the inspection so that they can ask the inspector questions and take note of any areas that may need further attention. Buyers are allowed to conduct follow-up inspections within their inspection contingency time frame.

There are certain areas of a home that an inspector must observe and report the condition of, which includes: the foundation, columns, flooring systems, roof(s), plumbing, interior, exterior, and heating/ air conditioning system to name a few.[3] The Wisconsin Administrative Code specifies which aspects of these areas that an inspector is and is not required to report on. For example, an inspector observing a roof must report on the roof’s drainage systems, flashing, and signs of leakage, but is not required to physically walk on the roof or inspect any roof solar systems .[4]

A buyer can also negotiate for an inspection of an area that would typically not be inspected by a Wisconsin licensed home inspector, such as a pool’s plumbing components or a more comprehensive look at the home’s chimney. If the buyer negotiates for these further inspections, the buyer should hire a licensed contractor who specializes in inspections of the specified area and consider whether they want to make their offer contingent upon a contractor disclosing no defects of these areas.

What are Defects in a Wisconsin Home Inspection?

Before delving into what a defect is, it is important to understand why they are important. If a buyer has negotiated for an inspection contingency, then he or she may present the seller with a “Notice of Defects.” A Notice of Defects outlines a buyer’s objection to specified defects identified in the home inspection report.

If the offer has given the seller the right to cure such defects, then upon presentation of the Notice of defects, the seller can elect to cure or fix the defects, at the seller’s expense, and before closing. However, a seller who has been given the right to cure or fix the defects can also choose not to fix the defects, at which point the offer becomes null and void.

Now, onto what a defect is. . . an inspection report will specifically label something as a defect if the inspector believes the condition will either: (1) significantly impair the health or safety of the occupants of a property if the issue is not repaired, removed, or replaced, or (2) would significantly shorten or adversely affect the normal life of the component.[5] However, the offer allows a buyer to object to one other type of defect that an inspector would not categorize as a defect in their report. The residential offer to purchase defines the third type of defect as “a condition that would have a significant adverse effect on the value of the Property”.

Inspections vs. Tests – What is and is NOT Included in a Home Inspection:

A buyer should be aware that the right to conduct an inspection under the inspection contingency does NOT give the buyer the right to conduct a test. The offer defines a test as “the taking of samples of materials such as soils, water, air or building materials from the Property for laboratory or other analysis”. Common types of tests include: mold, water, asbestos, radon, and lead-based paint. If a buyer does not specifically ask for these tests, then the buyer has no right to conduct the test.

This means that if the buyer has a specific concern, such as mold for health reasons, the buyer should be sure to ask for a separate mold test and to hire a certified mold inspector to conduct the test.

Wisconsin licensed home inspectors have certain minimum conditions that they must report on. However, an inspector may report on additional findings as he or she deems appropriate.[6] For example, an inspector may make note of a mold-like substance or rodent droppings, even though the inspector is not required to take note of such items.

Conclusion

An inspection is a crucial aspect of being an informed buyer. Understanding what a standard inspection covers, what constitutes a defect, and the distinction between inspections and test empowers you as a buyer. By proactively including an inspection contingency in your offer and knowing your rights, you can approach your home purchase with greater confidence and clarity.

Schedule a consultation with Wynn at Law, LLC today to discuss the home buying process

To provide you with the utmost confidence and security, Wynn at Law, LLC can assist you with the process of buying a home and can help you navigate the inspection process, including assistance with drafting a Notice of Defects, if needed.

Contact Wynn at Law, LLC today at 262-725-0175 or visit our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has offices conveniently located in Salem, Delavan, and Lake Geneva, Wisconsin.

[1] Wis. Stat. 440.975(2) (emphasis added)

[2] Id.

[3] Wis. Admin. Code SPS 131.32

[4] Wis. Admin. Code SPS 131.32(4)

[5] Wis. Stat. 440.97(2m)

[6] Wis. Stat. 440.975(8)(a)

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This situation is quite common – property is often bought jointly, with both party’s names on the title. (See our blog “Ways to Take Title to Real Estate” for more info). For example, you and significant other, a sibling, or even a business partner may jointly hold title to real estate. But what happens when joint owners can’t agree? Situations like this may arise in the context of a deteriorated business relationship, a breakup, inherited property, or from frustrated interests – i.e. one party wants to sell and the other party does not. When co-owners cannot come to an agreement on their own, seeking a partition action from the court may be necessary.

What is a partition action?

A partition action is a court-ordered process in which the court orders either a forced sale of the property (partition by sale) or divides the property into separate parcels, giving each party an equal interest (partition in kind). Partitions in kind are not always possible, such as when a non-marital couple jointly own a house on a single parcel – the house cannot be divided equally, thus the court would be more inclined to order a partition by sale.

In a partition by sale, there will be a judicial sale of the property, resulting in each party receiving their fractional share. The fractional share is determined by the equity that each party put into the property. Thus, if one party put in $60K, and the other put in $40K, the sale proceeds would be distributed according to the party’s 60/40 interest. However, the court has broad powers in partitioning property and may consider other factors such as: who was making mortgage payments (or lack thereof), improvement payments, who is making more use of the property, who is paying the taxes, etc.

How can I file a partition action?

Before you can file a partition action, you should be aware of how you and your co-owner(s) hold title and examine any agreements, contracts, wills, or trusts concerning the property, which may place limitations on partition. For example, if the property you seek to partition was part of an inheritance by will, the will should be consulted to determine whether the decedent placed any limitations on the property – for example, the decedent may have prohibited a partition by sale with the intention of keeping the property in the family.

Contact us today for a consultation at 262-725-0175 or our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has three office locations: Lake Geneva, Delavan, and Salem.

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Land contracts are written agreements between a buyer and seller of real estate in which the seller provides financing to the buyer on agreed upon terms. The property under the contract can range anywhere from vacant land to an apartment building. Once the parties have executed their agreement and the buyer has made a down payment (if required) to the seller, the buyer can then obtain possession of the property immediately.

Why use a land contract?

For those experiencing trouble obtaining a traditional bank loan due to low credit or a recent bankruptcy filing, land contracts can provide a way for buyers to bypass the bank and instead work directly with the seller to finance the property. A Seller may also benefit from a land contract if the property being sold does not qualify for traditional lending. Land Contracts may also be an attractive option for selling between family members – particularly for adult children seeking to buy their parent’s home. Parties are often able to work out more favorable financing terms than what the bank can offer, making land contracts great options for first-time buyers in a less than favorable market.

How do land contracts work?

Like a mortgage, a buyer is still going to make a down payment on the property followed by installment payments, but these payments go directly into the seller’s pocket. The contract itself will work out payment frequency, but typically payments are made monthly with one final balloon payment at the end. The balloon payment is the balance of the loan owed to the Seller.  The idea is that by the time the buyer reaches the final balloon payment and may need a loan to make that payment, enough time has passed to let the buyer’s credit heal thus allowing him or her to get a traditional bank loan. In some cases, the parties will agree to pay the total sum of the purchase price in monthly payments and no balloon payment will be required.

Land contracts are also sometimes referred to as “contracts for deed” because that is essentially the buyer’s goal – once all of the land contract’s terms are fulfilled, the seller will transfer ownership to the buyer via deed.

What happens if the buyer defaults on payments?

Because land contracts are legally binding contracts, a seller has a few options when a buyer fails to make timely payments:

• The seller could file suit for breach of contract seeking reimbursement through money judgement, garnishment, or other means,
• The seller could file suit seeking termination of the land contract (most appropriate when the buyer has simply disappeared), or
• The seller could seek foreclosure, giving the buyer a final opportunity to pay, and either having the property revert to the seller or have it sold if the buyer foregoes this final opportunity.

These options may vary depending on the land contract’s terms and the state where the property is located which is why a seller in a land contract should be vigilant in drafting the contract so as to include desired remedies in the event of a buyer’s default.

Is a lease-to-own agreement different than a land contract?

Lease-to-own agreements operate much differently than land contracts, as these agreements typically give a tenant the option to purchase the property at the end of the lease term for an agreed-upon price or agreed-upon future value. Whereas the payments made during a land contract are subtracted from principal and interest, payments that a tenant makes during a lease-to-own agreement may not necessarily count towards the price that the tenant ultimately pays to exercise their option to purchase, unless a rent premium provision is added. However, even with a rent premium provision, these agreements rarely allow the entire rent payment to be credited towards the purchase price.

Lease to own agreements often also charge tenants an option fee – this is an additional charge a tenant pays upfront to preserve their right to purchase at the end of the lease term. A tenant who ultimately decides not to exercise their option to purchase generally loses the additional rent premiums and option fee, as these are most often non-refundable.

There is a significant difference between title rights in land contracts and lease-to-own agreements. Buyers in land contracts hold equitable title to the property. This means that as long as the buyer is making the agreed-upon payments, the buyer has the absolute right to occupy the property and continue towards their right to purchase that property. While the seller in a land contract is still the holder of legal title, the seller cannot try to sell the property to anyone else.

A tenant in a lease-to-own agreement does not hold equitable title. The distinction between a buyer in a land contract with equitable title and a tenant in a lease-to-own agreement who holds no equitable title, is influential on which party pays taxes, insurance, and maintenance/repair fees. For example, it is standard for a buyer in a land contract to pay the real estate taxes and property insurance, whereas in a lease-to-own agreement, it is more typical of a landlord to pay those expenses.

The pros and cons of a land contract:

As a buyer in a land contract, the pros are obvious: the opportunity to obtain financing on property without a bank. However, sellers should be cautious of who they decide to contract with. Unlike banks, individual sellers do not have the luxury of obtaining comprehensive background information from a buyer and assessing whether this is a risk worth taking.

Parties seeking to enter into a land contract should seek the assistance of an attorney for drafting and explanation of its terms and conditions. Both parties will be better off if they fully understand their obligations and liabilities that can arise when contract terms and conditions are not followed.

Contact us today for a consultation at 262-725-0175 or our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has three office locations: Lake Geneva, Delavan, and Salem.

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