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    Revising the Residential Offer Form

    As of July 1, 2011, real estate licensees are required to use the 2011 WB-11 residential offer to purchase form, which replaces the 2010 version. The 2011 revised form addresses most of the concerns with the older form but also raises new questions.

    Richard J. Staff

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    Wisconsin LawyerWisconsin Lawyer
    Vol. 84, No. 6, June 2011

     

    Residential Offer FormThe Wisconsin Department of Regulation and Licensing (DRL) has approved a revised WB-11 residential-offer-to-purchase form (the Offer) to replace the 2010 version. The mandatory use date of revised WB-11 is July 1, 2011, but real estate licensees can use the Offer immediately. Most, but not all, of the concerns with the 2010 WB-11 Offer have been addressed.1 Unfortunately, a new problem affecting enforceability may have resulted from the redrafting. This article briefly discusses these issues. The Offer (and other forms promulgated by the DRL) is available for downloading and review at http://drl.wi.gov/prof_docs_list.asp?profid=116&locid=0. (Note that line references are to the DRL Offer published as of May 1, 2011. Currently, there are formatting and line numbering discrepancies among different publishers’ versions.)

    Conveyance of Title

    Lines 326-339. The DRL changed the language that describes the type of deed the seller will provide to the buyer in the transaction. In prior forms the seller agreed to provide a warranty deed unless another form of conveyance was specified. From a broker’s perspective, this sometimes caused problems because the broker might not know to, or remember to, revise the language to provide for another form of a deed (for example, a personal representative’s or a trustee’s deed). To address this practice issue, the DRL crafted an alternative provision to provide different options for the form of the deed depending on whether the seller is an individual or a trust, estate, or another entity. The new language states:

    “CONVEYANCE OF TITLE: Upon payment of the purchase price, Seller shall convey the Property by warranty deed (trustee’s deed if Seller is a trust, personal representative’s deed if Seller is an estate or other conveyance as provided herein). …”

    This language seeks to simplify the situation for sellers and brokers, but it may create a serious enforceability problem for buyers and the transaction as a whole. The problem with this language is that at the time the offer is being negotiated buyers do not know what type of a deed will be provided. This can be a serious substantive issue because the difference between a warranty deed and a trustee’s or other special warranty deed can be significant. For example, assume that there is a problem with merchantable title that is not covered by title insurance and the merchantable title problem predates the seller’s ownership. A warranty deed would likely protect the buyer’s interests. A personal representative’s or trustee’s deed generally will not warrant against title defects predating the estate’s or trust’s ownership. If the buyer unknowingly is negotiating on a property owned by a trust, the buyer may have neither seller warranties nor title insurance to rely on to obtain merchantable title to the property for problems predating the creation of the trust.

    From an enforceability perspective, it appears that this is a material ambiguous provision that brings the contract’s enforceability into question. Wisconsin courts have declared offers unenforceable because of ambiguity for failure to spell out all material terms of a financing contingency, and so they might do the same for offers in which the scope of the seller’s title warranties are not agreed on. Until this issue is resolved, it may be prudent to advise clients to strike the alternative deed language and to specify the type of deed that will be used in the transaction.

    Merchantable Title

    One area of the 2010 Offer that many commentators criticized has not been revised. The definition of merchantable title continues to omit undisclosed-use violations from the seller’s warranty of merchantable title.

    The warranty of title section (essentially the definition of merchantable title) reads as follows:

    “CONVEYANCE OF TITLE: Upon payment of the purchase price, Seller shall convey the property by warranty deed (trustee’s deed if Seller is a trust, personal representative’s deed if Seller is an estate or other conveyance as provided herein), free and clear of all liens and encumbrances, except: municipal and zoning ordinances and agreements entered under them, recorded easements for the distribution of utility and municipal services, recorded building and use restrictions and covenants, present uses of the Property in violation of the foregoing disclosed in Seller’s Real Estate Condition Report and in this Offer, general taxes levied in the year of closing and _____ which constitutes merchantable title for purposes of this transaction. Seller shall complete and execute the documents necessary to record the conveyance at Seller’s cost and pay the Wisconsin Real Estate Transfer Fee.”

    Note that the seller does not warrant that the present use of the property is not prohibited by zoning ordinances, building codes, subdivision restrictions, and so on. Attorneys representing buyers should consider using the warranty of title found in the 1999 residential offer to purchase.

    Many positive changes, however, have been made to the form. A brief overview follows.

    Richard J. Staff, Marquette 1981, of La Crosse, is president of Gerrard Hoeschler, Realtors and a principal and legal counsel for Gateway Title of Wisconsin LLC. He provides expert witness services on a limited basis focusing on real estate brokerage and contract issues. He was the senior attorney for the Wisconsin Realtors Association from 1988 to 2006. Contact him at com rickstaff rickstaff rickstaff rickstaff com or visit www.rickstaff.com..

    Closing Prorations

    Lines 118-139. The 2011 Offer continues to use the standard of calculating closing prorations “based upon date of closing values.” Real estate industry members know that many prorations cannot be calculated based on date-of-closing values because the closing statement must generally be completed before the day of closing. For example, fuel oil often is prorated, and determining its quantity and price on the day of closing is not practical. In recognition of this, the DRL provides a caution at line 121:

    “CAUTION: Provide basis for utility charges, fuel or other prorations if date of closing value will not be used.”

    One way the real estate industry has addressed this issue is to define date-of-closing values as the “values available at the time the closing prorations are calculated but no earlier than 10 days prior to closing.”

    Tax Proration and Reproration

    The DRL has corrected the property tax proration language so that both the tax proration alternatives and the reproration language are usable as redrafted.

    Offer Not Contingent on Financing

    Lines 257-263. The 2011 Offer does not require proof that funds will be available on the day of closing. Instead, it correctly asks for proof of sufficient funds as of the time of verification.

    ‘Gap’ Endorsement

    Lines 343-347. The 2011 Offer corrects the definition of “Gap” coverage to reflect title industry standards.

    Lien Waivers for Repairs

    Lines 206-215. In the 2010 Offer the seller was obligated to provide lien waivers for all repairs done to the property between acceptance and closing. The 2011 Offer correctly limits the duty to “lienable” repair work.

    Rental Weatherization

    Lines 144-147. The language that suggested that the parties were obligated to comply with Wisconsin’s rental weatherization standards in exempt transactions has been corrected.

    Many other tweaks to the Offer do not have a substantive effect and are not addressed here.

    Conclusion

    The making of several improvements to the 2011 WB-11 Residential Offer to Purchase is a positive development, as is formal State Bar participation in the work of the Forms Council: State Bar member Richard Petershack has been appointed to the Council (although he is also a member of the Real Property, Probate and Trust Law Section, Petershack does not formally represent that body on the Council). A continued gap in the seller’s warranty of merchantable title and a new flaw with the potential to affect the enforceability of all sales contracts drawn on the WB-11 Residential Offer to Purchase need to be addressed. In the meantime, attorneys reviewing the forms for use in transactions can revise the form as needed to ensure appropriate title warranties and enforceability.

    Endnotes

    1 See Richard J. Staff, Using the New, Flawed Residential Offer Form, 83 Wis. Law. 14 (March 2010); Celia M. Jackson, Residential Offer Forms: Setting the Record Straight, 83 Wis. Law. 5 (April 2010).




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