Source: State Bar of Wisconsin, Public Affairs
BUYERS have always been advised to “beware,” but a July 2008 ruling by the state’s Supreme Court makes caution an especially high priority for Wisconsin homebuyers. In Below v Norton (2008 WI 77), the court determined that the economic loss doctrine (ELD) bars certain claims for damages due to intentional misrepresentations that occur in the context of residential real estate transactions.
Sellers are required by Ch. 709 Wisc. Stats. to provide a Real Estate Condition Report (RECR) to prospective buyers. Previously, sellers who misrepresented or concealed the condition of the home in a RECR could be sued for intentional misrepresentation and could face both compensatory and punitive damages. The potential punitive damages, in particular, created an incentive for sellers to be honest about providing a complete and accurate RECR.
In this case, the sellers of a home completed a property condition report indicating that they were not aware of any problems with their home’s plumbing. After buying the property, however, the purchasers discovered a broken sewer line and commenced an action in circuit court to recover damages, alleging common law misrepresentation, false advertising and causing property damage by criminal failure to disclose. The sellers responded that the ELD precludes misrepresentation claims in residential real estate transactions and the courts agreed.
The ELD generally holds that claims for damages cannot be brought in disputes regarding contracts for goods or services (the court had previously determined that a residential real estate transaction is included under this doctrine). Because the property condition report was a part of the real estate contract, the ELD effectively bars the buyer from asserting intentional misrepresentation as the basis for a claim.
The court noted in its decision that purchasers in this type of situation are “not left without a remedy” because other state laws are available to address contractual misrepresentation. However, these laws offer less protection to buyers because sellers are subject only to compensatory – not punitive – damages. Thus, sellers who misrepresent the condition of their home could only be compelled to pay for repairs that should have been done in the first place (plus court costs and some legal fees), creating less of an incentive for sellers to be completely honest with buyers.
As a matter of public policy, this situation may merit legislative review and new law to better protect homebuyers. Until that happens, it is especially important for buyers to protect themselves by retaining an attorney, who can advise them on hiring independent inspectors; adding contingency provisions or other safeguards to contracts; and other steps prospective homeowners can take to protect their interests.
BUYERS have always been advised to “beware,” but a July 2008 ruling by the state’s Supreme Court makes caution an especially high priority for Wisconsin homebuyers. In Below v Norton (2008 WI 77), the court determined that the economic loss doctrine (ELD) bars certain claims for damages due to intentional misrepresentations that occur in the context of residential real estate transactions.
Sellers are required by Ch. 709 Wisc. Stats. to provide a Real Estate Condition Report (RECR) to prospective buyers. Previously, sellers who misrepresented or concealed the condition of the home in a RECR could be sued for intentional misrepresentation and could face both compensatory and punitive damages. The potential punitive damages, in particular, created an incentive for sellers to be honest about providing a complete and accurate RECR.
In this case, the sellers of a home completed a property condition report indicating that they were not aware of any problems with their home’s plumbing. After buying the property, however, the purchasers discovered a broken sewer line and commenced an action in circuit court to recover damages, alleging common law misrepresentation, false advertising and causing property damage by criminal failure to disclose. The sellers responded that the ELD precludes misrepresentation claims in residential real estate transactions and the courts agreed.
The ELD generally holds that claims for damages cannot be brought in disputes regarding contracts for goods or services (the court had previously determined that a residential real estate transaction is included under this doctrine). Because the property condition report was a part of the real estate contract, the ELD effectively bars the buyer from asserting intentional misrepresentation as the basis for a claim.
The court noted in its decision that purchasers in this type of situation are “not left without a remedy” because other state laws are available to address contractual misrepresentation. However, these laws offer less protection to buyers because sellers are subject only to compensatory – not punitive – damages. Thus, sellers who misrepresent the condition of their home could only be compelled to pay for repairs that should have been done in the first place (plus court costs and some legal fees), creating less of an incentive for sellers to be completely honest with buyers.
As a matter of public policy, this situation may merit legislative review and new law to better protect homebuyers. Until that happens, it is especially important for buyers to protect themselves by retaining an attorney, who can advise them on hiring independent inspectors; adding contingency provisions or other safeguards to contracts; and other steps prospective homeowners can take to protect their interests.
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