Electronic delivery of condo disclosure materials
The agent is working with a buyer who does not have a computer and did not consent to e-mail delivery. The listing broker sent an e-mail with several PDF files with hundreds of pages of documents. Is this considered delivery? The agent working with the buyer was told that it is his responsibility to print the documents and give them to the buyer. What if the listing broker provided a URL to a website with the documents?
Effective May 28, 2012, Wis. Stat. § 703.33(9) provides: “ELECTRONIC DISCLOSURE. The information required under subs. (1) and (2) [condominium disclosure materials] may be disclosed electronically in accordance with 15 USC 7001(c) [federal E-Sign law] and any other requirements that are prescribed by law.” The intent of the law change was to allow for electronic delivery of the condo documents. However, the problem here relates to the qualifier that electronic delivery requires the parties give electronic consent and include e-mail as a form of delivery in the offer. Because e-mail was not an authorized method of delivery, the fact that the documents were e-mailed does not accomplish delivery as required in the offer.
With different facts, where the parties have given electronic consent and included e-mail delivery in the offer, all the legally required disclosure documents could be delivered via e-mail as PDF copies. See electronic delivery resources in the box. A link to an association’s website may not be enough to satisfy the § 703.33 disclosure requirements because that statute contemplates delivery and not just access to the documents.
Right to rescind
The buyer has a contract to purchase a condominium unit and plans to use the unit as an investment, renting it out personally and not using the rental company on-site. The buyer reviewed the bylaws and talked to the association president prior to drafting the offer, and this is allowed. Prior to closing, the board of directors issued a new policy, requiring units to be rented through the rental company, and imposing owners to a myriad of fees: check-in fee, key fee, TV fee, garbage fee, internet fee, lost key fees, towel fees and so on. Financially, these fees reduce the buyer’s potential profit, so he wants out of the deal. Does the buyer’s right to rescind apply?
Condominium law allows a purchaser certain rescission rights per Wis. Stat. § 703.33(3m) and § 703.33(4). (See box below.) The buyer has a right to review the condominium documents and rescind based on the content of the documents. If, prior to closing, there are changes to the disclosure documents that would materially affect the rights of the purchaser, the buyer may rescind in writing within five business days following receipt of the amended documents. The broker may recommend that the buyer and the seller immediately consult with legal counsel to determine if the changes to the rules and regulations are material, thereby triggering the buyer’s rescission rights per Wis. Stat. 703.33.
For further discussion about condominiums, see the June 2004 Legal Update, “Condominium Law Revisions” at www.wra.org/LU0406 and the Condo Law resource page at www.wra.org/condolaw.
Rental units
The seller has a unit in a condo and has been renting the property for many years. There is now a new board of directors, and the seller is being told that he no longer can rent the unit. Can an association disallow rentals?
An association cannot change leasing policy without a lawful or proper change in the bylaws or rules and regulations. If the governing documents are properly modified, the association may disallow rentals. The seller may consult with legal counsel and the association attorney to determine whether the association or manager are following the approved condo rules or are attempting to modify policy without actual authority to do so. When working with buyers, it is important they understand that policies may change over time, which is why the new WB-14 condo offer includes the following caution at line 160: “CAUTION: The Association may have the power to prohibit, limit or regulate Unit rentals now or in the future.”
See Wis. Stat. § 704.03 and § 704.17(3) at http://www.legis.state.wi.us/statutes/Stat0704.pdf and Wis. Stat. § 706.02 at http://www.legis.state.wi.us/statutes/Stat0706.pdf.
Choice of forms
The listing agent received an offer on a condominium on a WB-11 Residential Offer to Purchase instead of the WB-14 Residential Condominium Offer to Purchase. Should the offer be rewritten on the condo form? What should the listing agent tell their seller?
Based on license law, licensees shall present promptly all offers received (see Wis. Admin. Code § REEB 24.13). The listing agent should review the offer with the seller and explain the advantages and disadvantages of the terms as drafted on the WB-11 form and explain how the WB-14 was created specifically for condominium transactions. While a licensee should use whichever state-approved form best matches the transaction with the fewest number of changes or modifications, it is quite possible that the co-broke agent could face disciplinary action from the Department of Safety and Professional Services for failure to use the form that best fits the transaction. In order to address issues that are unique to condominium transactions, it would be prudent for the parties to enter into a WB-14 or include WB-14 provisions in the WB-11. The seller may reject the buyer’s offer and ask the buyer to submit an offer on the WB-14, counter the buyer’s offer incorporating the necessary condominium provisions or initiate a WB-14 adapting it into an offer to sell.
Is the Addendum C required now with an offer to purchase and/or listing contract for a residential condominium?
The need for Addendum C has been eliminated with the introduction of the newly revised condominium offer to purchase. Addendum C to the WB-14 Residential Condominium Offer to Purchase was originally created to supplement the 2000 version of the condominium offer and reflect the changes made to the condominium law in 2004. The addendum updated the condo offer by incorporating the then-new requirements for the condominium disclosure materials executive summary and the Condominium Addendum to the Real Estate Condition Report. It also outlined the procedures and deadlines for the delivery of missing disclosure materials and the buyer’s resulting rescission rights. These changes in the law have been integrated into the 2011 edition of the WB-14.
For additional information about the 2011 condominium offer, see “What’s New in the Condo Offer?” in the April 2011 edition of Wisconsin Real Estate Magazine at www.wra.org/WREM/Apr11/NewCondoOffer and the March 2011 Legal Update, “2011 WB-14 Residential Condominium Offer to Purchase,” at www.wra.org/LU1103.
Condo docs for small condo
The buyer is negotiating on a two-unit condo duplex and is trying to purchase half of the duplex. The seller has only provided bylaws but no condo documents. What documentation does a small condo have to provide?
Effective November 1, 2004, Wis. Stat. § 703.365 gives a small condominium, having no more than 12 units, a series of options regarding operations. The small condo law was adopted to allow fewer formal requirements, provided that the declaration of the condominium authorizes one or more of these streamlined requirements. Accordingly, per Wis. Stat. § 703.365(1) and (8), an executive summary, as well as other documents, may not be required as part of the disclosure materials for a small condominium, provided that the declaration was drafted or amended to state that the abbreviated disclosure requirements described in § 703.365(8) apply to the project.
For more detailed information about small condominium disclosure materials, see the March 2011 Legal Update “2011 WB-14 Residential Condominium Offer to Purchase” online at www.wra.org/LU1103.
Foreclosures and lien rights
Recently, a condo unit was foreclosed on and is now owned by the lender. Prior to the sheriff’s sale, the association filed liens for unpaid condo fees. The lender is saying they would only pay fees from the time they took over the property. What happens to the prior fees?
Pursuant to Wis. Stat. § 703.165, a condominium association has the right to assess and file a lien against a condominium unit owner for unpaid fees, however, the statute also provides a priority of lien rights in a foreclosure action. Wis. Stat. § 703.165(5) of the condominium law creates priority of condominium liens over all other liens with five stated exceptions:
As stated in Wis. Stat. § 703.165(5)(b), one of those exceptions is “a first mortgage recorded prior to” a condominium lien. Generally, the person or entity who has filed the first lien is entitled to be paid first, in full, before any funds are available for the second lien holder, but there are exceptions to this rule. Typically unpaid real estate taxes are always given first priority or the first lien position. Therefore, if there are not funds available after the liens are paid in the order of priority, then the condominium may be unable to recoup those fees.
For more information about the condominium associations, the law and the WB-14 Residential Condominium Offer to Purchase, review the March 2011 Legal Update located at www.wra.org/LU1103.
Tracy Rucka is Director of Professional Standards and Practices for the WRA.