The WRA Legal Action Program was established in 1978 to support REALTORS® and property owners involved in legal matters that have significance for the WRA membership and the real estate industry. Cases may include, but are not limited to, real estate law and practice, land-use or environmental issues, private property rights or development rights. The WRA, acting through the Legal Action Program, typically participates in a case by filing an amicus curiae brief, also known as a “friend of the court” brief, as a member of a coalition of similarly interested parties, as a party to the lawsuit, or by providing legal, environmental, land use or other research. The Legal Action Program has most often participated in cases that have already been tried in the circuit court and are on appeal, but participation at the trial court or administrative hearing level has also been a vehicle for input on important legal issues at earlier stages of the litigation process.
The following recap of a few recent cases gives a sense of the WRA Legal Action Program in action.
Well-reasoned results
Our journey through recent Legal Action cases begins with three cases where the outcome is known — all wins for real estate professionals and property owners. The WRA filed an amicus curiae brief in each, addressing, respectively, tax foreclosure equity theft, LLCs as separate entities, and the land division condition imposed by the city that turned out to be an unconstitutional taking.
U.S. Supreme Court holds government retention of excess tax foreclosure equity is taking under Fifth Amendment
In Tyler v. Hennepin County, et al., 598 U. S. 631 (2023), the U.S. Supreme Court unanimously held that a Minnesota statutory scheme depriving a property owner of her condominium’s surplus equity in excess of her tax debt was a “classic taking,” stating a claim under the Takings Clause in the Fifth Amendment of the U.S. Constitution.
In Tyler, a 94-year-old Minnesota homeowner incurred a $15,000 tax debt after moving into an assisted living facility. Proceeding under Minnesota’s forfeiture procedures, Hennepin County took absolute title to Tyler’s condominium, sold the property for $40,000 and retained the full net proceeds of $25,000. Tyler asserted Hennepin County unconstitutionally retained the excess value of her home above her tax debt in violation of the Fifth Amendment’s Takings Clause and the Eighth Amendment’s Excessive Fines Clause.
The Pacific Legal Foundation requested an amicus brief from the WRA in support of its petition to the U.S. Supreme Court given Wisconsin’s recent involvement with the issue and enactment of tax foreclosure equity theft prevention legislation in Wis. Stat. § 75.36(3)(c), as discussed in the July 2022 WRA Legal Update, “Ending Tax Foreclosure Equity Theft,” at www.wra.org/LU2207. The Legal Action Program filed an amicus brief contributing to the winning arguments.
Wisconsin Supreme Court holds LLCs are separate entities and limits applicability of RECR representations
Pagoudis v. Keidl, 2023 WI 27, involved a residential real estate transaction and a claim that the seller misrepresented the condition of the subject property and failed to disclose defects in the Real Estate Condition Report (RECR).
Pagoudis negotiated an offer to purchase, received a RECR, and signed the offer as “Pagoudis or assigns.” Sead LLC purchased the property and took title, apparently as an assignee under the offer. Less than six months later, Sead LLC transferred the property to Kearns LLC, which owned the property when the complaint was filed. After purchasing the property, defects were discovered that the sellers did not disclose in the RECR, ranging from water and mildew in the basement, to insect infestations, to an unwanted piano.
Pagoudis, Sead LLC and Kearns LLC sued the seller. Pagoudis owns and operates Sead LLC and Kearns LLC. The issues presented were whether sellers should be liable to subsequent buyers for information disclosed in the RECR provided in a previous transaction and whether commonly owned limited liability companies (LLCs) should be treated as separate entities.
The Wisconsin Supreme Court found LLCs are individual legal entities that are separate from their members and from other LLCs regardless of common ownership. Pagoudis’ claims were dismissed because he was not a party to the final contract and did not purchase the property. The claims of Sead LLC survive because it was a party to the contract, received representations from the sellers, and purchased the property. Kearns LLC’s claims were dismissed because Kearns was not a party to the contract, and the sellers made no representations to Kearns LLC. The court remanded the Sead LLC’s claims to the circuit court for further proceedings.
Requiring a property owner to build a through street was unconstitutional taking
In Fassett v. City of Brookfield, 2022 WI App 22, the question was whether conditioning city approval of the property owner’s land division application on building a through street was an unconstitutional taking. The city’s approval of the division depended on the property owner paying for a public road to connect two dead-end streets, and the property owner claimed this condition was an unconstitutional exaction. U.S. Supreme Court precedent required the city to prove it had a legitimate reason for the creation of the through street by showing that Fassett’s proposed development created the need for the street. The property owner and the WRA argued that building the street would only fix an already existing problem.
The Wisconsin Court of Appeals agreed with the WRA arguments and ruled the City of Brookfield committed an unconstitutional taking by conditioning its approval of the land division on the completion of a through street across a parcel connecting two dead-end streets.
Awaiting the courts’ decisions
The next cases have amicus briefs or notices of claims filed, and the parties are awaiting the court’s decision. These cases involve short-term rentals, the two-year limitation on licensee liability, and a challenge to a municipality’s POWTS inspection requirements under the time of sale statute.
Regulating short-term rentals: overly restrictive ordinances
The Legal Action Program has an extensive list of instances where there are questions of whether the local municipal ordinance goes too far and imposes requirements beyond what is allowed under Wis. Stat. § 66.1014. In some scenarios, a notice of claim has been filed, and in a few instances, a lawsuit has been filed. Before a lawsuit can be properly brought against a municipality, a written notice of claim must be presented, considered and disallowed. The claim is deemed denied if the municipality does not respond within 120 days.
WRA v. Polk County
In this situation, the question is whether the ordinance requiring short-term rentals of no more than seven days per month within the months of May through September violates Wis. Stat. § 66.1014. The WRA filed a lawsuit against Polk County on March 20, 2023, challenging the legality of the ordinance.
WRA v. Village of Ashwaubenon
This case questions whether an ordinance requiring a short-term property manager to (a) be located within a specific distance from the property, (b) be available 24 hours a day, and (c) disclose criminal history as well as carry casualty and liability insurance violates Wis. Stat. § 66.1014. Annual permit renewals for short-term rentals can be denied if there have been any complaints about the property while similar requirements are not imposed on rentals for 30 days or longer. A notice of claim was filed.
WRA v. Town of Rib Mountain
Here the issue is whether an ordinance requiring short-term rentals be owner-occupied for a certain number of days violates Wis. Stat. § 66.1014. The WRA filed a lawsuit on November 9, 2023, challenging the legality of the ordinance.
Two-year limit on brokerage liability: Claims of contribution attempt to circumvent statute
Hanetti Properties LLC case
The issue raised is whether Wis. Stat. § 452.142, the two-year limitation for real restate licensee liability, applies to instances of contribution and indemnification.
On March 30, 2020, the seller entered into a listing contract with a real estate agent. The agent knew part of the premises rest on a post-and-beam foundation but advertised the property as having slab-on-grade foundation. On May 20, 2020, the property was sold to buyers who discovered the foundation discrepancy. The buyers brought action against the seller, alleging misrepresentation. On October 20, 2022, the seller filed a lawsuit against the agent, alleging breach of fiduciary duties and contribution for damages.
Under Wis. Stat. § 452.142(1), a real estate firm and a licensee associated with the firm may only be sued relating to brokerage services provided within two years after the transaction is closed. This two-year period applies to all actions concerning the brokerage service.
The legislative history supports the legislative intent was to have the two-year time frame to file litigation apply without exception when brokerage services were provided.
The WRA filed an amicus brief in the case on November 28, 2023, urging the dismissal of the action against the agent because two years have passed between closing and the seller’s lawsuit.
Time of sale limitation on POWTS inspection
In WRA v. Manitowoc County, the question is whether an ordinance requiring a full private onsite wastewater treatment systems (POWTS) inspection after a transfer of a property is a time of sale violation. A time of sale (TOS) requirement is an obligation imposed by local government that must be performed when a property is sold, title is transferred, the property is refinanced, or the purchaser takes title or occupancy. A TOS requirement needs to be accomplished either before, at the time of, or within a certain period of time after the property is sold, conveyed, refinanced or occupied. TOS requirements are illegal under Wis. Stat. § 706.22.
The WRA filed a lawsuit challenging the ordinance. The county amended the ordinance to no longer prohibit occupancy if there is not a TOS POWTS inspection, but the ordinance still imposes various penalties if a buyer does not conduct the inspection. Thus the WRA litigation continues.
Relief outside of court
Sometimes a Legal Action Program case or issue is effectively resolved outside of the courtroom.
Sales tax on MLS fees
Are Wisconsin MLSs required to pay sales tax? In November 2021, the Wisconsin Department of Revenue (DOR) expanded the scope of “digital goods” to include access to online databases. Examples included access to an online database or website of current or historical information that allows the user to view and/or download the information, such as price or valuation information. This revised guidance creates confusion because Wisconsin Multiple Listing Service (MLS) services potentially could be construed as digital goods subject to the retail sales tax.
Rather than taking action in court, the WRA is seeking statutory clarification that MLS services are exempt from the sales tax, as detailed at action.wra.org/2023/04/24/clarify-wisconsin-mls-sales-tax-exemption.
Hot tubs in short-term rentals
The Department of Agriculture, Trade and Consumer Protection (DATCP) proposed new rules regarding the regulation of short-term rentals with pools and hot tubs. Essentially, the rules would have required short-term rental property owners with pools and hot tubs to meet the same requirements as commercial pools and hot tubs, creating unnecessary burdens on residential property owners and making it financially impractical for property owners to rent their property.
The DATCP’s proposed regulation effectively prohibited short-term rentals with a pool or hot tub, which goes far beyond the DATCP’s authority to “license and regulate” commercial pools. The WRA Legal Action Program filed a lawsuit against the DATCP that was put on hold when the Wisconsin Joint Committee for Review of Administrative Rules temporarily suspended the new rules. The DATCP has now submitted a final proposed rule that does not negatively regulate short-term rentals with pools and hot tubs.
Retention of eviction records on CCAP
Legal Action of Wisconsin Inc., petitioned the Wisconsin Supreme Court to override the Wisconsin Statutes and shorten the Consolidated Court Automation Programs (CCAP) record retention period for eviction cases in which no money judgment is entered to one year.
Under Wis. Stat. § 758.20, cases where a writ of restitution has been granted must be searchable for 10 years on CCAP, and cases without money judgments become non-searchable after two years. Shortening the record retention time frame to one year would extinguish records landlords currently rely on to assess a tenant’s credibility and rental history.
Action by the Wisconsin Supreme Court to override the two-year record retention period would be in direct violation of the separation of powers doctrine and would set a precedent to change policies through the court rather than the legislature. The WRA Legal Action Program was part of a group filing a response opposing the petition.
For additional information about the Legal Action Program, see “Advocacy You Don’t See,” in the August 2023 Wisconsin Real Estate Magazine at www.wra.org/WREM/Aug23/Advocacy or visit the Legal Action Program webpage at legalaction.wra.org.