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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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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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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1. Consider how easy it would be to sell the home

The last thing on a first-time buyer’s mind is the sale of the home they are about to buy; however, this is a crucial consideration if you ever want to step up in the home-buying game. It is likely that the proceeds from the sale of your first home will be used to purchase your second home, and that your second home may contain a few more bedrooms, an extra bathroom, or other features that were not in the budget at the time of your first home purchase.

To ensure that you can reap enough of a profit to make the step up to a bigger and better second home, you should be paying attention to the market and considering whether your home will eventually sell for more than you purchased it for. To help keep your home value up, you should make sure that you allocate money from your yearly budget to keep up with the maintenance of the home. Part of this allocation should be for an emergency fund in the event that an expensive and unexpected repair arises. Other things to consider are the desirability of the location, its related school district, distance to shopping, how well the surrounding homes are maintained, etc.

2. Ask for a home inspection contingency

A great way to reduce your risk of inheriting an expensive repair with a home is to make your offer contingent on an inspection. If possible, try to attend your home inspection and ask the inspector questions – if the inspector notices something that needs to be repaired, they may be able to give you a rough fee estimate and other insightful information.

Know how this contingency works. To ensure you know your rights when it comes to a home inspection, you should hire a lawyer. A lawyer can advocate for your interests if the inspection report either makes you no longer want to purchase the property or makes you only want to purchase subject to certain conditions and repairs. A lawyer can also help you understand the type of inspections you may have, how many, when, and other deadlines that need to be met to preserve your rights under an inspection contingency.

3. Shop around for your mortgage

If you are financing your home with a mortgage, you should shop around or consider using a mortgage broker, who can shop around for you. Lenders will offer different interest rates, and the best way to ensure you are receiving the lowest rate is to call around or use a broker. You do not have to begin the underwriting process with each lender to obtain a rate estimate, rather you can call around and ask hypothetical questions such as what your rate would be with your current credit score, the amount you anticipate putting down, and by providing your debt-to-income ratio.

4. Understand your title insurance policy

A title insurance policy not only protects you against some issues that may later arise with ownership of the home, but also provides insight into any judgements, liens, mortgages, restrictions, and/or covenants that may encumber the property. Understanding these documents is important for a variety of reasons, but especially if you plan on building an addition, constructing a pool, a shed, or making any other significant property modification that requires a permit or understanding association rules if the property is in a subdivision.

It is not uncommon for unexpected things to show up on a title policy, which is why hiring an attorney to explain the title policy and review other title work, including your final closing statement, is a good idea.

5. Consider what each party has to gain from a transaction

Nearly every party you encounter who assists with the purchase of your home has an interest in ensuring that the sale goes through – your loan officer only receives their cut if the loan is approved, an agent only receives their commission if the home closes, and even the title company only makes out on their title fees if the sale is successful. The only party who does not have an interest in the sale going through is an attorney, as attorneys are not paid based on a successful closing, and an attorney’s only focus is to help you, whether that is to help you buy the property or help you in getting out of the purchase.

The excitement of purchasing a home can be overwhelming and emotional, which is why it is crucial to approach the process with a clear head. A disinterested party, such as a real estate attorney, can help you navigate the legal aspects of the home-buying process, avoid potential pitfalls, negotiate effectively, and ensure a smooth closing. Contact our attorneys at Wynn at Law, LLC for assistance with the purchase of your home – we can help you navigate the entire process from start to finish, whether you are represented by an agent or not.

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

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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An easement on a property allows a landowner to grant access to a part of his or her property. You grant access without giving up ownership of that part of the property. It’s a binding agreement. Where we see this commonly throughout southeast Wisconsin is allowing access to a walking path, a driveway, a community pier, or a utility line crossing the property. Without an easement in place for access to such things, anyone attempting to access the path, pier, driveway or utility pole would be trespassing on the property. You can see the legal ramifications.

That means: Talk to your real estate attorney anytime the word comes up. Here are a few spots in which the topic may come up.

If you are buying a property

Two easement issues Wynn at Law, LLC sees frequently are easements for driveways and for lake rights or lake access. When there are disputes over the area of the easement, or the size or the situations for which the property can be used, it can sour a neighborhood. Nobody wants to be ‘that neighbor,’ especially when you’re new to the neighborhood. By the way, if a lender is involved, the lender may take issues with driveway easements. Driveway easements require you to have legal access to your property. Imagine the difficulty clearing up the easement specifics after the closing.

If you are selling a property

When you know of an easement exists, you should disclose that to potential buyers on the real estate condition report. If you do not have a written easement in place or it is not recorded with the Register of Deeds Office, Wynn at Law, LLC can assist you in drafting and recording the easement.

Your relationship with your neighbors is the important aspect of easements. It is important to have a lawyer review easements on your property because it is your property.

Image by Anna Koldunova, used with permission.

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