Not only are our federal legislators in a hussle and bussle to enact new laws, our Wisconsin state legislators are also having fun. Here are some new and possible upcoming laws affecting the real estate industry:
- New Law: Foreclosures - now the Tenants must be notified – but how? Part of 2009 Wisconsin Act 2 (enacted February 19, 2009 and published March 5, 2009), the newly created §846.35, Wis. Stats., requires a lender foreclosing on a residential rental property to provide the following notice to tenants in possession of each rental unit: (A) within 5 days after the commencement of the foreclosure action, notice to the tenant that the action has been commenced, (B) within 5 days after the judgment of foreclosure is entered, notice to the tenant that the judgment has been entered and when the redemption period ends, and (C) notice to the tenant of the date and time of the confirmation of sale, once scheduled. The notices to the tenant must be given either by personal service or certified mail. If the foreclosing lender fails to provide the tenant the necessary notice(s), the tenant may be awarded $250 in damages, plus reasonable attorneys’ fees.
The law further provides that if a tenancy of a residential rental property is terminated as a result of a foreclosure action, the tenants may retain possession of the rental units for up to 2 months after the end of the month in which the sale of the property is confirmed. The court may not execute a writ of assistance or restitution requiring the removal of a tenant before the end of the 2nd month beginning after the month in which the sale of the property is confirmed unless the tenant has waived, in writing, the right to retain possession of the premises for those 2 months.
Now a few comments about the hurdles and opportunities created by this new law. Hurdle – how does the foreclosing law firm know who are the tenants? In 99.99% of the cases (not a scientific number) there are no recorded residential lease agreements and the owner of the property is in foreclosure – is s/he going to cooperate and give the lender the names of the tenants? Probably not. Yes it’s fair that the tenant receives notice of the foreclosure action; however, why the tight time frames and the requirement of personal service or service via certified mail? Why isn’t the posting of a notice at the property sufficient? Opportunity – tenants can duck service of process in the foreclosure action and then ask an attorney to represent them to collect the $250 under the statute and attorneys are encouraged to take such cases because reasonable attorneys’ fees are included in the statute. Hurdle – from start to finish a residential foreclosure action in Wisconsin typically takes 7-10 months; but now if the property is residential rental property tack on another 2+months. Really, how long must an unpaid lender wait?
- New Law: “Avoiding Foreclosure – YES we can help you”: “Foreclosure specialist” companies willing to help “avoid foreclosures” have been popping up out of the woodwork – some good and some bad. A common practice to “avoid foreclosure” is for the owner to sell the property to the foreclosure specialist. The foreclosure specialist then pays off the delinquent mortgage and enters into a lease with the old owner which includes an option for the old owner to buy-back the property for a set price at a set time (typically the price will be a % over the price that the foreclosure specialist bought the property – representing the foreclosure specialist’s potential profit). The newly created §846.40, Wis. Stats. (Part of 2009 Wisconsin Act 2) wraps some parameters around these types of transactions, including:
- There must be a contract between the foreclosure specialist (in the statute defined as “foreclosure purchaser”) and the homeowner written in English and the homeowner’s principal language;
- The contract must include a right for the homeowner to cancel the contract over specific time periods;
- Waiver of the cancellation provisions voids the contract (with one exception – the homeowner may waive the 5-day right to cancel if the property is subject to a foreclosure sale within the 5-days);
- The foreclosure specialist must be satisfied that a litany of items apply, including that the homeowner will have the ability to repurchase the property and the terms of repurchase or lease are not unfair or commercially unreasonable;
- In the event that the foreclosure specialist commences an eviction action against the homeowner, the court can grant a stay of proceedings for 90 days if the homeowner makes a prima facie showing of the items listed in the statute; and
- A homeowner may bring an action against the foreclosure specialist for violation of the new §846.40, Wis. Stats., and if successful the court may order punitive damages under §895.043, Wis. Stats. A foreclosure specialist may also face criminal charges for violation of the statute.
Note that 2009 Wisconsin Act 2 includes a related new statute governing the regulation of “foreclosure consultants” (as defined in the statute), providing civil and criminal penalties for a foreclosure consultant’s failure to comply with the statute (see the newly created §846.45, Wis. Stats.).
- Pending Law: Don’t lie on a Residential Property Condition Report: In July of 2008, in Below v. Norton, the Wisconsin Supreme Court determined that the economic loss doctrine bars a homebuyer from recovering in tort for an intentional misrepresentation concerning the property made by the seller of the property in a residential real estate transaction (prior to Below, the economic loss doctrine only applied in commercial real estate transactions). The Court decided in Below that the plaintiff could continue her claims for breach of contract and misrepresentation in violation of state statutes but not intentional misrepresentation. This was important because: (A) the remedies available to a plaintiff under a breach of contract claim are generally perceived as being less than the remedies available in an intentional misrepresentation claim, and (B) the statute of limitations on an intentional misrepresentation claim can be much longer than the statute of limitations for a breach of contract claim or claims for misrepresentation in violation of state statutes.
Pending in Madison right now is a bill to reverse the decision in Below (2009 Senate Bill 9 and the companion bill 2009 Assembly Bill 6). The pending bill provides that, in addition to any other available remedies, a purchaser in a residential real estate transaction may maintain an action in tort against the seller of the real estate for fraud committed, or an intentional misrepresentation made, by the seller in the transaction. The bill defines a residential real estate transaction as a real estate transfer for which a real estate condition report is required.
- Pending Law: Wage Claim Liens get Even More Super-Priority: Currently pending in Madison is a bill to amend Wisconsin’s wage claim lien law (2009 Senate Bill 2 and the companion bill 2009 Assembly Bill 40). Under current law, the Wisconsin Department of Workforce Development (DWD) or an employee who brings a wage claim action has a lien upon all property of the employer, real and personal, located in this state for the full amount of any wages owed to the employee (“wage claim lien”) (§109.09(2)(a), Wis. Stats). The wage claim lien upon real property takes effect when the DWD or the employee gives certain notices to the employer and files a notice with the local circuit court (§109.09(2)(b)(1)) (thus the lien applies before a final order of the court and although filed in only 1 county in the state serves as a lien against the employer’s real property in all 72 counties in the state).
Wage claim liens enjoy super-priority, taking priority over all other debts, judgments, decrees, liens, or mortgages against an employer regardless of whether those other debts, judgments, decrees, liens, or mortgages originated before or after the wage claim lien took effect. One exception to this super-priority rule is that wage claim lien takes priority over a prior lien of a commercial lending institution but only as to the first $3,000 of unpaid wages covered under the wage claim lien that are earned within the six months preceding the filing of the action. The proposed changes to the wage claim lien law include:
- The bill eliminates the $3,000 cap and six−month time limit so that under the bill a wage claim lien covering any amount of wages earned at any time takes precedence over a lien of a commercial lending institution, regardless of whether the lien of the commercial lending institution originated before or after the wage claim lien takes effect; and
- The bill provides that a wage claim lien takes precedence over the rights of any purchaser of any property of the employer, including any bona fide purchaser that purchases the property of the employer at the time of commencement of a bankruptcy proceeding (this would reverse a recent 7th Circuit Court of Appeals decision that a trustee in bankruptcy can avoid wage claim liens).
Now a few comments and questions – Wisconsin is a consumer friendly state, but is this too consumer friendly? Which consumer is being protected? Under the proposed law a person buys a property for $125,000 from Seller/Employer on January 1, 2009. On January 1, 2009, the wage claim lien is not yet filed with the circuit court and the buyer has no reason to believe that the Seller/Employer is not paying his/her employees. Then on September 1, 2009 a wage claim lien is filed against Seller/Employer in the amount of $300,000. Under the proposed law the $300,000 wage claim lien suddenly jumps ahead of the buyer’s interest in the property and if/when the buyer sells the property the buyer has to satisfy the lien. Does this make sense? Shouldn’t a buyer of property with no actual or constructive notice of a lien, and who pays fair market value for the property, take free and clear of a lien that arises subsequent to the buyer’s purchase of the property?
And what about the elimination of the $3,000 cap and six-month time limit? Will this have a freezing effect? Will secured lenders want to lend money to an employer knowing that if the employer does not pay employees the lender will be in 2nd position to an unknown dollar amount (currently secured lenders do assume a risk that the wage claim lien will jump ahead of the lender’s lien, but it is a known quantity ($3,000 multiplied by the number of employees) – will lenders want to assume this same risk when the risk is unknown (number employees multiplied by $?????))?
One additional concern about Wisconsin’s current wage claim lien law is the filing of the wage claim lien – a wage claim lien in Rock County, for example, serves as a lien against ALL property, real and personal, of the employer in the state. What if the employer is selling real estate in Vilas County – will the buyer know to look to Rock County to find a wage claim lien? Possibly not. The Wisconsin Land Title Association is currently requesting that the Wisconsin Circuit Courts create a one-stop shop system similar to the docketing of Child Support Liens for wage claim liens to make the search for wage claim liens uniform.
This is but a brief synopsis of some of the new laws and bills affecting Wisconsin’s real estate industry. All of the bills and laws are available on the Wisconsin Legislature website. |
