Thousands of lawsuits are filed each year against businesses in every industry sector including real estate. In recent years, the number of lawsuits filed against real estate brokers and companies has increased. In the second quarter of 2014 alone, the National Association of REALTORS^® reported that 40 lawsuits were filed against real estate brokers and companies. While some of these lawsuits have merit because the real estate broker or company, for example, violated a fiduciary obligation owed to a client, many other lawsuits were filed against the real estate broker or company simply because they were involved in the transaction.

Background

Under current law, a real estate licensee is vulnerable to litigation relating to a written contract for six years. Therefore, a real estate licensee, including their company, may be sued based on a listing, buyer agency agreement, or offer to purchase any time within a six-year period after a closing on a transaction or the expiration of a listing or buyer agency agreement. 

Real estate companies and their agents often find themselves in litigation due to the perception that they have “deep pockets,” even though the company and its agent had no involvement or knowledge of the issue at the heart of the litigation. However, the company and its agent must defend their way out of the lawsuit. 

The “leaky basement” scenario can serve as an example. Five years after closing, a buyer’s basement takes on water. The buyer sues the seller, stating the seller did not disclose the leak and knew of the pre-existing condition of the basement taking on water. The buyer also sues the listing company, the listing agent and the subagent, arguing they also knew about the water issue in the basement and failed to disclose such to the buyer.
Five years prior, the seller did not disclose the water issue on the Real Estate Condition Report, and the agents said they had no knowledge of the water issue. The agents recommended the buyer have a home inspection, but the buyer refused. 

The fact that a company and its agents can be susceptible to litigation six years after a transaction closes, terminates or expires creates significant uncertainty for practitioners and their companies. 

New legislation

To better protect REALTORS^® from frivolous lawsuits, the WRA will be seeking legislation that would limit the liability of real estate licensees to two years after the transaction has closed. In other words, a party would have a maximum of two years from the time a transaction closed to file a civil lawsuit against a real estate licensee. 

This legislation recognizes that the more time that passes from the close of a transaction, the burden should be higher to prove the responsibility and knowledge on the parties. Moreover, the legislation identifies the parties’ right to sue while recognizing the action should occur closer to the transaction itself.

The specific statute of limitation for real estate licensees would not be unique to Wisconsin. Other professions in Wisconsin have a specific statute of limitations as to liability: home inspectors have two years, doctors and nurses have three years, lawyers have six years, and appraisers have seven years. 

Moreover, other states have enacted specific statutes of limitation for real estate licensees with similar time frames. For example, some states have a statute of limitation on contract claims of three or fewer years:

• Alabama
• Alaska
• California
• Colorado
• Delaware
• North Carolina
• South Carolina

Other states carve out a two-year statute of limitation for professional malpractice:

• Florida
• Michigan
• Nebraska 
• New York
• Oregon
• Rhode Island

While these states represent a broad spectrum of political philosophies — such as Alabama and California — each state believes that placing reasonable limitations on liability would maintain adequate protection for consumers. To date, none of these states has repealed, significantly modified, or increased the time frame related to their statutes of limitation. 

To be clear, the legislation would only prohibit civil lawsuits against the real estate licensee after the two-year time frame. It would not place any time limits on criminal complaints, or from complaints being filed with the Wisconsin Department of Safety and Professional Services. 

The legislation is being authored by Rep. Scott Allen (R-Waukesha), who has been a REALTOR^® for 20 years, and the legislation will hopefully be introduced in the weeks ahead.

Tom Larson is Senior Vice President of Legal and Public Affairs for the WRA.