Friday, October 12, 2012

FSBO Sellers - Flat fee MLS Sellers - home buyers

FSBO Sellers - Flat fee MLS Sellers - home buyers

Contact real estate attorney James N. Graham
Madison, Wisconsin

 Accession Law LLC

Tuesday, October 2, 2012

What Is Going On With Title Insurance Premiums In Wisconsin?

Atty James N. Graham
Accession Law LLC
Question:  What is going on with title insurance premiums in Wisconsin?

Answer:  Good question.  We have received rate sheets from several local title insurance companies that show a significant increase in policy rates.  For example, the owner's title insurance premium (usually a seller closing cost) on a $252,000 house has increased from $627.00 to $934.00 as of the fall of 2012.  

At least one company implied that the rate increases  had something to do with recent action by the Wisconsin Office of the Commissioner of Insurance.  The Wisconsin OCI did issue a bulletin in April of 2012 which can be found at 0412titleins.htm .  This bulletin does not reflect a change in either the law or the enforcement of the law.  Title insurers have been required to file rate schedules with OCI for many years.  This bulletin simply reminds title insurers of record-keeping requirements for rates and, in particular, for cases where the rates are lowered below the published rates.

So what is the reason for rate increases?  Note that the rate increase is not an isolated case where one company raised its published rates.  At least 3 of the major title insurers have increased their rates in exactly the same fashion.

If there is not a regulatory reason for the increase, there must be a business reason.  One of the companies explained the rate increase as follows:

"Wisconsin rates have lagged far behind the rates elsewhere in the country and in the neighboring region, making it a very difficult place for the title underwriters to do business, and forcing them to cut back on support services and other operating expenses that would benefit consumers.  The new rates, although still below much of the country, bring us more in line with surrounding states and will permit a greater focus on customer service and better products."

This does not explain why there is a need for a nearly 50% increase in one year.  It also does not explain why the major insurers moved in synchronized fashion.

In discussing this question with other real estate attorneys, I have heard several hypotheses as to the reason for this move.  One attorney suspects that the foreclosure epidemic has resulted in higher levels of claims.  While this may be true, the explanation strikes me as unlikely for several reasons. 

First, the title insurance premium is really only partially an insurance premium.  Most of what is being purchased is not "insurance" in the standard risk-sharing sense but rather a fee for the service of searching the title and analyzing the risks.  Second, this would be easy to establish if it were true and would undoubtedly be offered to explain rate increases to customers.

Another explanation I have heard is that the national insurers have long disapproved of a purportedly common practice in Wisconsin ie - deviation by title insurance agencies from the published rate sheets.  In my experience, the rates offered by local agencies have been extremely competitive to the point of being identical.  The agencies have increasingly generated revenue through increased closing fees and other sources of revenue (which are not passed through to the national underwriting insurers).  In order to limit this, so the theory goes, the national companies each concluded that they should raise their rates.    

To date, I am uncertain how to explain the curious substantial and identical increase in rates among different companies.  I am certain that it has nothing to do with a change in the law.

Attorney James N. Graham practices real estate and business law with Accession Law LLC

Monday, July 23, 2012

Choose Your Home Builder Wisely

"It may sound self-serving, Madison attorney James Graham acknowledged, but hiring a lawyer versed in real estate law can put a new home customer in a much better position.
“Most (new-home) transactions don’t involve an attorney, and to the extent a person is represented by anyone, they’re often using a real estate broker — who’s not trained in reviewing contracts, is not allowed to give legal advice, and is an interested party in the transaction,” said Graham, who works for Accession Law."

Read more:

Friday, July 20, 2012

Seller disclosure question

My elderly mother is selling her vacation home. After full disclosure, is she liable for any period of time for property defects that might arise after closing?
There is no way to absolutely limit a seller's liability after closing. There is a 6 year statute of limitations for legal claims arising from the purchase contract. Such claims might arise as the result of a warranty or because of representations made by the seller.  For example, there are numerous seller representations made in the real estate condition report which typically is incorporated by reference into the contract.  Remember that misrepresentations can occur both through what is stated and through what is not stated.

Further, Wisconsin has a false advertising statute which may apply to a seller who makes a false or misleading statement to induce a buyer to purchase a home. Under § 100.18(11)(a), if the buyer proves his case, the buyer can recover any monetary loss plus costs and attorney fees.

Even the use of an "as-is" clause does not relieve the seller's duty to fully disclose the condition of the property. For example, in Green Spring Farms v. Spring Green Farms, 172 Wis. 2d 28 (Wis. App. 1992), some calves on the property had been killed by salmonella bacteria. The seller apparently believed that the problem had been alleviated and did not disclose the condition.  Further, the seller sold the property "as-is." The buyer later experienced problems with the salmonella contamination and sued.  The Court held that the seller had a duty to fully disclose material adverse conditions even though the transaction was "as-is." The rationale is that the seller has this material information and the buyer is not able to discover the information.

A seller should discuss any known or suspected property conditions with an attorney to determine what to disclose when and how.

Attorney James N. Graham of Accession Law LLC is providing a general answer which does not establish an attorney/client relationship and which is not legal advice. Contact attorney James N. Graham in order to discuss the terms of retainer and the information needed in order to obtain a legal opinion, recommendation, or advice. The first inquiry for an attorney is to know only the parties involved in order to check for conflicts of interest with current or former clients.

James N. Graham
Accession Law LLC
6401 Odana Road
Madison, WI 53719

Wednesday, March 7, 2012

Wisconsin joins $25 billion mortgage settlement

For information on the mortgage settlement agreement, please see the referenced article by Holly Pomraning, Assistant Attorney General, Wisconsin Department of Justice
Wisconsin Joins $25billion mortgage settlement

Under the agreement, settling banks have set up phone lines to provide information related to loans that they service. Borrowers may obtain information about the settlement and their rights by calling the following numbers:
  • Ally (GMAC): 800-766-4622
  • Bank of America: 877-488-7814
  • Citi: 866-272-4749
  • JPMorgan Chase: 866-372-6901
  • Wells Fargo: 800-288-3212
Information is also available at the following websites:

Thursday, March 1, 2012

Governor Walker Signs Wetland Mitigation Law

On February 29, 2012, Governor Scott Walker signed Senate Bill 368 relating to: "permits for discharges into wetlands; wetland mitigation; wetland mapping and delineation; fees for permits and other authorizations or determinations by the Department of Natural Resources relating to structures, deposits, and other activities in or near navigable waters; making appropriations; and providing penalties"

The law creates a two-tier DNR permit system for construction involving wetlands.  Instead of a general permit,  Developers can apply to the DNR for a specialized individual permit which includes mitigation plans. Acceptable forms of wetland mitigation now include purchasing wetland credits from already restored wetlands, paying the DNR wetland restoration fees, or restoring other wetlands located within the project's watershed.  These alternative forms of wetland mitigation give developers more options and flexibility in replacing and restoring disturbed wetlands.  

For the full text of the law, see:
2011 Wisconsin Act 118

Wednesday, February 29, 2012

The Wisconsin Court of Appeals again used the “economic loss doctrine” to bar tort claims for construction services

The "economic loss rule" rears its head again in a construction defect case.
In Kalahari Devlopment LLC v. Iconica Inc., 2011AP643 (Feb. 23, 2012), the Wisconsin Court of Appeals, District IV, considered whether to apply a statute of limitation or a statute of repose to a construction defect and whether the "discovery rule" would apply.
Iconica, Inc., designed and built a water park resort and conference center for Kalahari Development, LLC under a contract dated May of 1999 with work completed in May of 2000.  In 2008, Kalahari discovered moisture damage in the walls. Kalahari brought claims for breach of contract and professional negligence against Iconica. The complaint alleged that the damage was caused by a defectively designed and installed vapor barrier.  Installation of a defective barrier was alleged to be both a breach of the construction contract and professional negligence related to Iconica’s performance of architectural and construction services.

 Iconica moved for summary judgment and the circuit court granted the motion. The court concluded that the contract claim was barred by the six-year statute of limitations applicable to contract claims.  A claim seeking damages for breach of contract cannot be brought more than 6 years after the contract date.  The court rejected Kalahari’s argument that the 10 year statute of repose, § 893.89 would permits its claim.  This statute of repose is a broader limitation which requires commencement of suits for improvements to property to be commenced within 10 years.  However, the court ruled that this does not increase the applicable statute of limitation for a contract claim.  The statute of repose is another bar which might work to limit claims, but it does not modify the contract statute of limitations.

As to the tort claim for negligence, Kalahari argued that this claim was valid because tort claims use the "discovery rule."  The claim must be brought within the limitations period, but the period does not commence until the plaintiff discovered the damage.  The defendant argued that, under Wisconsin law, the economic loss doctrine bars tort claims brought for breach of contract.  If the economic loss doctrine applies to bar the tort claim, the discovery rule is irrelevant.

Generally, the economic loss doctrine generally prevents a party from recovering tort damages for what is actually a breach of contract. The economic loss doctrine has been the subject of substantial litigation (and has been modified legislatively as relates to residential purchase contracts, see Sec. 895.10, Stats. ) The current status of the law in Wisconsin is that the economic loss doctrine bars tort claims arising from contracts for products but does not bar tort claims arising from contracts for services.  In cases of contracts for both products and services, the court must determine the predominant purpose of the contract Linden v. Cascade Stone Co., 2005 WI 113, 283 Wis. 2d 606, 699 N.W.2d 189.

The contract in this case contained three components that are key for purposes of resolving Kalahari’s predominant purpose argument. The three components are Iconica’s promise to provide (1) architectural and engineering services, (2) other services necessary for construction, including supervision and labor, and (3) construction materials. As we explain below, two supreme court cases addressing substantially similar situations have concluded that the contracts in those cases were predominantly for a product. Because Kalahari fails to persuasively distinguish those cases, we conclude that we are bound to follow
their result here. 
Although short on the reasoning behind its finding, the court concluded that the plaintiff's tort claim was barred by the economic loss doctrine, so the discovery rule does not apply.

Tuesday, February 28, 2012

What is a letter of intent?

A "typical" "simple" real estate purchase in Wisconsin generally involves the use of a form "offer to purchase" contract.  Once accepted and delivered, this contract is binding upon both buyer and seller.  Subject to specified contingencies, according to the terms of the accepted offer, the buyer shall buy and the seller shall sell the subject property.

In more complicated transactions, the parties may enter into a preliminary agreement which is often called a letter of intent (or a term sheet).  Typically, the parties do not intend to create a binding contract during this phase of the negotiations.  Rather, the seller and the buyer intend to set forth a set of key terms on which they agree.  However, they agree upon these key terms subject to the condition that they come to agreement on the remaining terms.

For example, the buyer and the seller may agree on a price, a closing deadline, and a general set of contingencies.  It may be of benefit to both parties to document where there appears to be agreement before proceeding with the expense and effort of finalizing the purchase contract.  However, the parties should be careful that they do not create a binding contract if their objective is to only document part of what may be the final contract.

Saturday, February 11, 2012

Landmark Borrower Relief? Biggest Settlement Ever?

On Thursday, the US Attorney General and several state AGs announced that they finalized an agreement for $26 billion with five major home mortgage lenders.  See WSJ  This "settlement" was touted in various sources as punishing foreclosure abuses and as providing homeowner relief and was generally reported as a landmark agreement representing the largest settlement since Tobacco if not ever.

There are a few flaws with this narrative.  First, both sides do not agree that an agreement has been "finalized."  To the contrary, the major banks are reporting an "agreement in principle." See Bank of America Announces Agreements in Principle With Federal and State Authorities on Mortgage Matters While this distinction between a finalized settlementn agreement and an agreement in principle might seem relatively insignificant, there are two key points to remember:  1) this settlement relates to numerous alleged violations and unfair practices involving millions of borrowers. There are hundreds if not thousands of unresolved issues still to be negotiated (such as, keep your eye on this one, the extent to which lenders will be immune from future private suit).  2) These government attorneys' public statement, "a historic deal has been reached, please congratulate us," makes it politically impossible for them to end up without a deal.  We should expect all of the myriad final details to be dictated by the banks.  The banks still have the leverage to say "no."

Second, this settlement is no major victory for tax-paying consumers.  As noted by Michael Hiltzik for the LA Times in Mortgage settlement is great — for politicians and banks ,
There certainly are some big winners in the deal, which has the approval of 49 of the 50 state attorneys general. Start with its godfathers. President Obama took to the podium a couple of hours after the deal's announcement to declare that it will "speed relief to the hardest-hit homeowners."

California Atty. Gen. Kamala D. Harris went before the cameras soon after that, taking credit for "a tremendous victory for California," which has been perhaps the hardest-hit state in the foreclosure crisis.

Then there are the banks. The signatories to the deal are Bank of America, Citibank, Wells Fargo & Co., JPMorgan Chase and Ally Financial (formerly GMAC), which handle payments on more than half the nation's outstanding 27 million home loans and therefore have been at the center of the servicing and foreclosure abuses the settlement is supposed to end.

If you don't listen too closely, it sounds as if they're putting up the $25 billion. Not so. The only cold cash the banks are paying is a combined $5 billion, including $1.5 billion to compensate borrowers whose homes were foreclosed on from 2008 through the end of last year, with the rest going to the federal and state governments to pay for regulatory programs.

Most of the balance is in mortgage relief for stressed or underwater mortgage holders, including principal reductions, refinancings and other modifications.

How much of this will translate into an outlay of cash by the five banks? Not much, if any.
The banks want a settlement.  They have a massive set of massive problems (which they created), and no real solution.  For example, I am familiar with many cases where discovery has determined that the lender who claims to hold a note and mortgage cannot produce proper evidence that it owns the note, owns the mortgage, or can document the borrower's payments received and therefore cannot prove the balance due.  I do not know where the evidence went if it ever existed, but I know that the lender now cannot prove its case.  That means that the lender cannot sue the borrower for repayment and foreclosure in a Court of law.

I have been predicting for at least a year that the way that the banks would resolve this dilemma would be by accepting a "punishment" from the federal and state governments.  We will see what this agreement provides with respect to bar of private suits.  My latest prediction is that we won't be privvy to the details on this point until after the agreement is actually finalized, signed, and approved by a Court.

Not only do the banks want a settlement, the Obama administration obviously wants a deal.  This is a great photo op and an excuse for self-congratulation on the part of administration officials.  A more sinister motive for the Obama "rush to announcement" is suggested by blogger Yves Smith at naked capitalism

Maybe the Administration believes its own PR and thinks this measley program will help the housing market, or more important, secure the fealty of banks. But my guess is that the fact that 15 AGs concerned about the negotiations had met is what pushed the Administration into high gear. They did not want a meaningful, cohesive opposition forming. In addition, I am certain some evil genius in the Administration understood full well the value of destroying the AGs’ bargaining leverage before the final phase of negotiations.

Stay tuned as we find out how much the banks extract in protections, waivers and immunity after the settlement is finalized. 

Tuesday, January 17, 2012

Conveyance of land for highway purposes granted an easement, not fee title

A state appeals court has rejected the town’s argument that private landowners did not meet certain acreage requirements for development because the landowners’ predecessors-in-interest transferred fee title, not an easement, in land designated for a highway.

Appellate Court Opinion

Landowners with a 35 acre parcel were not permitted to build because of a zoning ordinance that requires 35 acres for a dwelling site.  If the parcel did not include land granted for a highway, it would be less than 35 acres.  The Court of Appeals held that the highway grant was an easement which did not reduce the size of the parcel.

Although the landowners won this round, is there not reason to question the sensibility of requiring 35 acres for a home site?  Most of us live on lots smaller than 35 acres.  A home with a well and a septic system is virtually self-contained with respect to its water and sewage.  The technical question should be how much land is needed given the soils and geology for a well and septic system to operate properly.  The answer is almost certainly far less than 35 acres in Wisconsin.

Thursday, January 5, 2012

How does Wisconsin law provide for splitting a property owned by several parties?

We have recreation real estate owned by 4 tenants in common. 3 of us are attempting to force the sale. 4th is demanding a physical split of the property. Will this be an alternative recognized by court?

Chapter 842 of the Wisconsin statutes are the statutory provisions relating to division of a tenancy in common through a "partition" action. The statutes provide a mechanism for dividing a property and for selling a property if it cannot be properly divided. There are provisions for appointment of a referree to advise the Court as to the proper way to proceed. So, in short, split of the property rather than sale of the entirety and split of the proceeds may or may not be ordered by the Court in a partition action depending upon the facts and circumstances of the case.

Attorney James N. Graham of Accession Law LLC is providing a general answer which does not establish an attorney/client relationship and which is not legal advice. Contact attorney James N. Graham in order to discuss the terms of retainer and the information needed in order to obtain a legal opinion, recommendation, or advice. The first inquiry for an attorney is to know only the parties involved in order to check for conflicts of interest with current or former clients.

James N. Graham
Accession Law LLC
6401 Odana Road
Madison, WI 53719