Last session, the Wisconsin legislature passed 2017 Wisconsin Act 338, which in part provided a more user-friendly report for a seller
to complete when selling residential or vacant land. Since the implementation on July 1, 2018, of the revised Real Estate Condition Report (RECR) and Vacant Land Disclosure Report (VLDR), the WRA discovered the need to correct one statutory inconsistency, clarify a practice issue, address one minor technical modification to a question for clarification, and add a new disclosure.

Therefore, during the recent legislative session, AB 596 was introduced to address some of those changes. However, AB 596, along with a few other WRA legislative priorities — including AB 551 addressing the right to place a pier, which needed the last step to pass the Senate and be signed by the governor to become law — were not taken up as planned due to the Senate’s cancellation in late March in light of COVID-19. At the time this article went to press, there was little certainty as to when or if the Senate will come back to finish any bills from this session. 

However, in light of the release of the new WB-11 Residential Offer to Purchase, known as the WB-11 “Take 2” and the WB-14 Residential Condominium Offer to Purchase, both having optional use dates of August 1, 2020, and mandatory use dates of September 1, 2020, the WRA decided to take action to address some of the issues in AB 596 as much as possible outside of the legislature. If you are interested in the attempted changes to AB 596 and AB 551, see page 8. To learn more about the changes to the WB-11 “Take 2” and the WB-14, visit the WRA’s forms update webpage at www.wra.org/formsupdate.    

Changes to the WB-11 “Take 2” and WB-14 triggered updates to the RECR and VLDR

As previously mentioned, AB 596 and AB 551 made updates to the statutory disclosures in the RECR and the VLDR. Informed about the impending legislation, the Department of Safety and Professional Services’ Forms Advisory Council decided to recommend the incorporation of the changes to the WB-11 “Take 2” and the WB-14 in the respective Conditions Affecting Property or Transactions section of each form.

Although the legislation has not passed, when the forms were recommended for approval by the Real Estate Examining Board (REEB), there was general support that including the language was good public policy. Thus, the REEB approved the following language to be included in the two new forms. Further, two other items that were not a part of AB 596 and AB 551 were added due to previous pieces of legislation that passed in previous sessions or to be more consistent with statutory language.

The new language added to the two forms is underlined. Note, the language shown is from the WB-11 “Take 2”.

p. Nonconforming uses of the Property; conservation easements, restrictive covenants or deed restrictions on the Property; or, other than public rights of way, nonowners having rights to use part of the Property, including, but not limited to, private rights−of−way and easements other than recorded utility easements. (See lines 154-156 in the WB-11 “Take 2” and lines 281-283 in the WB-14.)

v. A pier attached to the Property not in compliance with state or local pier regulations; a written agreement affecting riparian rights related to the Property; or the bed of the abutting navigable waterway is owned by a hydroelectric operator.  (See lines 168-169 in the WB-11 “Take 2” and lines 295-296 in the WB-14.)

y. Agreements binding subsequent owners such as a lease agreement or extension of credit from an electric cooperative. (See line 174 in the WB-11 “Take 2” and line 301 in the WB-14.)

z. Owner is a foreign person as defined in the Foreign Investment in Real Property Tax Act in 26 IRC § 1445(f). (See line 174 in the WB-11 “Take 2” and line 302 in the WB-14.)

aa. Other Defects affecting the Property, including, without limitation, drainage easement or grading problems; or excessive sliding, settling, earth movement or upheavals. (See lines 176-177 in the WB-11 “Take 2” and lines 303-304 in the WB-14.)

With the goal to keep the WB forms’ Condition Affecting Property or Transaction section consistent with the disclosures in the RECR and VLDR as well as the rest of the WRA’s disclosure reports, the WRA decided to add the same language in italics to its respective forms. Therefore, as of September 1, 2020, the WRA’s condition and disclosure reports will include these disclosures. The language has been included in italics with a note that explains the italicized language is not a statutory disclosure. 

Added language in the RECR

In the WRA’s RECR, the following language in italics has been added. 

F8.  Other than public rights of way, are you aware of nonowners having rights to use part of the property, including, but not limited to, private rights of way and easements other than recorded utility easements?

F17m. Are you aware of a written agreement affecting riparian rights related to the property?

F17n.  Are you aware that the property abuts the bed of a navigable waterway that is owned by a hydroelectric operator?
Under Wis. Stat. s. 30.132, the owner of a property abutting the bed of a navigable waterway that is owned by a hydroelectric operator, as defined in s. 30.132 (1) (b), may be required to ask the permission of the hydroelectric operator to place a structure on the bed of the waterway.

G4m.  Is the owner a foreign person, as defined in 26 USC 1445 (f)? (E.g. a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, or foreign estate.) 
Section 1445 of the Internal Revenue Code (26 USC 1445), also known as the Foreign Investment In Real Property Tax Act or FIRPTA, provides that a transferee (buyer) of a U.S. real property interest must be notified in writing and must withhold tax if the transferor (seller) is a foreign person, unless an exception under FIRPTA applies to the transfer. 

Added language in the VLDR

In the WRA’s VLDR, the following language in italics has been added:

E8. Other than public rights of way, are you aware of nonowners having rights to use part of the property, including, but not limited to, private rights of way and easements other than recorded utility easements?

E16m. Are you aware of a written agreement affecting riparian rights related to the property?

E16n.  Are you aware that the property abuts the bed of a navigable waterway that is owned by a hydroelectric operator? 
Under Wis. Stat. s. 30.132, the owner of a property abutting the bed of a navigable waterway that is owned by a hydroelectric operator, as defined in s. 30.132 (1) (b), may be required to ask the permission of the hydroelectric operator to place a structure on the bed of the waterway.

F9m. Is the owner a foreign person, as defined in 26 USC 1445 (f)? (E.g. a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, or foreign estate.) 
Section 1445 of the Internal Revenue Code (26 USC 1445), also known as the Foreign Investment In Real Property Tax Act or FIRPTA, provides that a transferee (buyer) of a U.S. real property interest must be notified in writing and must withhold tax if the transferor (seller) is a foreign person, unless an exception under FIRPTA applies to the transfer.

The WRA recommends providing the new WRA condition and disclosure reports to sellers for any new listing taken after September 1, 2020.

Cori Lamont is Senior Director of Legal and Public Affairs for the WRA.

Attempted Changes to AB 596 & AB 551

AB 596 Intended to Address Four Revisions

Inconsistency in the statute

Two different sections of Wisconsin Statute Chapter 709 provide a buyer a two-business-day right to rescind the offer or option in writing but provide inconsistent results as to the return of the buyer’s earnest money when the buyer exercises those rights. 

For instance, Wis. Stat. § 709.05 permits a buyer to automatically get earnest money back if the buyer exercises his or her rescission rights when: 

A) The buyer receives a report after the submission of an offer or option if a defect as defined in the report is disclosed. 
B) The buyer receives an incomplete report or inaccurate assertion that an item is not applicable.
C) Or the buyer receives an amended report disclosing a defect that was not previously disclosed. 

Interestingly, Wis. Stat. § 709.02(1) also affords the buyer a two-business-day right to rescind in writing if the buyer does not receive the report within 10 days after acceptance of the offer or option, but does not provide the buyer the right to automatically receive the earnest money back after exercising these rights.  

As a result, the two sections of the statute are inconsistent, creating confusion for the parties. 

AB 596 amends Wis. Stat. § 709.02(1) to authorize the buyer to receive earnest money back if the buyer has the right to rescind the offer, creating consistency between Wis. Stat. § 709.05 and Wis. Stat. § 709.02(1). 

Practice issue clarification

Rather than answering the specific questions on the disclosure report, some sellers mark an “X” through the entire report or strike a line through all “N/A” responses. This practice creates ambiguity as to whether the seller has provided the buyer a completed report. 

AB 596 clarifies if the seller provides a report with strikethroughs or unanswered questions, that the form is considered incomplete, and the buyer then has certain statutory direction in Wis. Stat. § 709.05(1) as to their rescission rights. 

Technical modification

When sellers are completing the current report, they are unsure as to whether they are required to disclose public rights of way. However, the question was intended to ask the seller about private rights of way impacting the land. 

AB 596 modifies the items in the land use disclosure so the reports specify the disclosure applies to private and not public rights of way.

New disclosure 

Federal law imposes a withholding tax on foreign sellers when they sell real property and requires buyers involved in such transactions to potentially be responsible for the tax.   

The sale of a United States real property interest by a foreign seller is subject to income tax withholding under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). FIRPTA authorized the U.S. to tax “foreign people” selling U.S. real property interests. A “foreign person” is defined in FIRPTA as a nonresident alien individual, foreign corporation, foreign partnership, foreign trust or foreign estate; it does not include a resident alien individual. U.S. green card holders as well as U.S. citizens and non-citizens who fulfill the requirement of the substantial presence test are not subject to FIRPTA.

People buying U.S. real estate interests from foreign sellers, certain purchasers’ agents and settlement officers are required to withhold 15% of the amount realized to ensure Internal Revenue Service (IRS) taxation of the gains realized on the sale. Under FIRPTA, the buyer is the withholding agent. The buyer must find out if the seller is a foreign person. If the seller is a foreign person and the buyer fails to withhold, the buyer may be held liable for the tax.

Although at this time, these transactions are infrequent due to the significant consequences for buyers failing to comply with FIRPTA, the newly revised WB-11 Residential Offer to Purchase required for use by Wisconsin real estate licensees as of January 1, 2020, includes a FIRPTA provision on lines 516-536. 

AB 596 adds FIRPTA as a disclosure to the reports to help in determining if the seller is a foreign person for tax purposes.

AB 551 Restored Riparian Property Owners the Right to Place a Pier  

For over 140 years, Wisconsin law has recognized that owners of waterfront property have riparian rights, including the right to place a pier. Unfortunately, in the 2018 Movrich v. Lobermeier case, the Wisconsin Supreme Court declared that some waterfront property owners do not have the right to place a pier. The court held that owners of waterfront property, along flowages in artificial waterways, do not have the right to place a pier because the lakebeds of flowages and artificial waterways are privately owned. The court decided that the owners of lakebeds can prohibit any pier from touching the bed or floating above it.

The potential impacts of this decision are far-reaching. Consider the following:

• The court’s ruling applies to all flowages and other man-made bodies of water in Wisconsin.
• According to the DNR, Wisconsin has approximately 260 flowages.
• Thousands of lakes in Wisconsin are considered man-made, including large bodies of water such as Lake Koshkonong, Lake Wisconsin,
  and the chain of lakes in areas like Minocqua and Eagle River.

Because of this ruling, affected property owners could be forced to either remove their pier or pay several hundreds of dollars for a dock license fee to keep their existing pier. This would come as quite a shock to thousands of waterfront property owners in Wisconsin.

The legislation would restore a waterfront property owner’s right to place a pier. AB 551 is critical for affected property owners, including homeowners, as well as waterfront businesses such as restaurants, marinas and gas stations.

To ensure transparency for potential purchasers, AB 551 also included questions in the RECR and VLDR asking that property owners disclose if they are aware of written agreements affecting riparian rights as well as if they are aware the property abuts the bed of a navigable waterway owned by a hydroelectric operator.