Monthly Archives: March 2014

Title: What Exactly are you Buying?

The previous post in this series briefly discussed the “title” or “merchantable title” contingency.  Simply put, a contingency requiring that the seller provide “merchantable title” means that the property received by the buyer is not encumbered (read: limited) by any conditions or restrictions not acceptable to the buyer.  Typically, in order to provide proof of merchantable title, the seller will order and provide the buyer with a title insurance commitment.

A title insurance commitment will have two main parts, or schedules.  Schedule A typically lists the following information:

  • A commitment number;
  • The name of the proposed insured party (the buyer);
  • The policy limit.  Typically the purchase price;
  • The current owner (the seller); and
  • The legal description, tax parcel number and address of the property.

In reviewing Schedule A, it is important to verify each of the above items to make sure they match up with your understanding of the transaction (for instance, that the seller really can sell the property).

Schedule B is broken up into two subsections: Requirements and Exceptions.  As the name implies, Requirements section provides the reviewer with a list of items to be complied with before the title company will provide insurance.  These typically include satisfying any existing mortgages on the property, and the provision of a deed in proper form.

The aptly-named Exceptions section provides a list of items that will not be covered by the title insurance policy once it takes effect.  Some exceptions may be removed by providing the title company with certain proof, usually in the form of affidavits or statements from knowledgeable parties.  Some may not be removed.  It is vitally important that buyers review these exceptions carefully, and if you are unfamiliar with any of these items, this would be a great time to contact a real estate attorney.  If a buyer does not satisfy any listed requirements to get the exceptions removed before the closing, the exceptions become permanent.

Some of the most common encumbrances include:

  1. Real Estate Taxes.  You will want to ensure that all taxes are paid on the property before taking ownership.  If not, even if the taxes accrued prior to your ownership, the taxing agency may hold you responsible for their payment.
  2. Judgments.  If someone is sued, and they lose, the victorious party will sometimes obtain a judgment for an amount of money.  They can then “docket” this judgment against real estate owned by the losing party.  Once a judgment is docketed it can only be released by payment, voluntary removal or court order.
  3. Easements.  Easements are agreements to allow certain parties access or use of some or all of the property.  It is fairly common for a title commitment to include easements for utilities or municipal services if the property is located in a city, village, town, etc.  Some other examples include access easements allowing for access to the property or to waterways, or joint-driveway agreements.  You may or may not be able to remove an easement depending on the type of the easement and the circumstances involving the sale.
  4. Protective Declarations or Covenants.  If the property is located in a municipality, it may be subject to certain covenants or rules.  These rules may govern any of a number of items, from the size and location of buildings on the property, to acceptable paint colors (like this), and even the scope and types of acceptable landscaping.
  5. Unpaid Assessments or Condo Fees (if applicable).  If the property is part of a condominium, or if there has been recent work by the municipality, these charges may be linked to the property’s title.  As a buyer you will want to ensure that any unpaid assessments or condominium fees are paid prior to your taking ownership of the property.

These are just a few of the examples of items to be aware of with regards to the title of the property.  If you have any questions regarding whether your seller is providing merchantable title, or would like someone to assist you with your real estate transaction, feel free to contact one of our experienced real estate attorneys at (608) 837-7386.

P.S.  Go Brewers!

Contingencies: Providing Protection from Uncertainty

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So you’ve decided on a property.  It looks great. You think you can afford it.  And you are closing on your current home soon.  What could possibly go wrong?  Hopefully nothing. However, in the event the house isn’t as great as it looks, you can’t actually afford it, or your current house doesn’t sell, your Offer should address what happens.

A contingency is a future event that might occur, but is not certain.  Essentially, it is a paragraph in your Offer to deal with the uncertainty.

Contingencies have three basic parts:

  1. The action necessary to satisfy the contingency;
  2. A deadline for the action to occur; and
  3. Consequences if the action does not occur.

An example:

Buyer’s obligation to close this transaction are contingent upon Buyer closing on the sale of Buyer’s current home located at 100 Wilburn Road, Sun Prairie, Wisconsin by March 30, 2014.  If the sale does not close by March 30, 2014, Buyer may terminate this contract and Seller shall return the earnest money.

As set forth above, there are consequences if the contingency is not satisfied on or before the deadline.  A well-drafted contingency will clearly state these consequences so that everyone is aware ahead of the deadline.  Most often, the consequences involve the termination of the contract and a distribution of the earnest money.  A buyer or seller can always choose to waive any unsatisfied contingency.

The most common examples of contingencies in residential real estate transactions are those for financing, appraisal, inspection, and title.[1]  These “standard” contingencies are located on the form Offer.  Depending on the particulars of the transaction and the real estate, additional standard contingencies may be necessary.  These may be included on an addendum to the form Offer.

Financing

Most residential real estate purchases will involve some sort of financing.  A financing contingency will set forth not only the basic loan terms (amount, interest rate, term, etc.), but also the type of loan.  A financing contingency is satisfied when a buyer provides the seller with a loan commitment for a loan meeting the terms set forth in the Offer.

Inspections

Unless you are intimately familiar with the home you are purchasing (and even if you are), an inspection is a vital part of any transaction.  It will inform you of the current condition and any defects in the house you are purchasing.  If defects are found, the inspection contingency will provide whether the Seller will be allowed to fix – or cure – the defects.  If so, the seller will have an agreed upon time to make any required repairs.  Disputes regarding inspection contingencies often arise as to who will actually conduct the repairs, and whether the defects were sufficiently cured.

Appraisal

An appraisal is a valuation of the real estate you are purchasing.  An appraisal contingency will require that the valuation state the home is worth at least the amount of the purchase price.  If the appraisal comes back below the purchase price, the Buyer will typically have a right to terminate the Offer.  In some cases, rather than lose the transaction, parties may agree to decrease the purchase price accordingly.  If, however, the appraisal comes back higher than the purchase price, the contingency is simply satisfied and no action is necessary.

Title

When you are buying real estate, you will want to ensure that you are receiving merchantable title.  This means there are not unexpected easements, judgments or other liens, or other encumbrances preventing you from fully enjoying the real estate.  In order to satisfy this contingency, the seller will have to provide the buyer with a title insurance policy showing either (1) there are no issues on the title; or (2) if there are, they will be taken care of on or before the closing.

As stated above, this is by no means an exhaustive list of the possible or appropriate contingencies for any particular real estate transaction.  In order to determine which contingencies are appropriate for your transaction, we strongly recommend you meet with an experienced real estate attorney.  If you would like to meet with one of our experienced real estate attorneys, please contact us at (608) 837-7386.


[1] Note: This list is by no means exhaustive.  Entire books are written about contingencies for use by real estate lawyers in residential real estate transactions.

Is Your Office Bracket Pool Legal?

This is one of my favorite days of the year.  In addition to the green beer that is flowing, sports fans (and non-sports fans) get to spend an inordinate amount of time completing NCAA basketball tournament brackets in hopes of besting their friends, colleagues and often complete strangers.  The range of bracket pools varies nearly as much as the participants, from high-stakes pools involving fanatics with big money on the line, to office pools competing purely for bragging rights.

It seems like everyone completes a bracket.  But have you ever wondered if your bracket pool is legal?

According to this article on Forbes.com, free-to-enter pools are generally legal, but pay-to-enter pools are not.  As the article details, pay-to-enter pools may run afoul of at least three federal laws, and may be illegal in some states.  What about Wisconsin?

The answer comes down to whether your bracket entry is a “bet” and your pool is a “lottery.”

By statute, anyone who “makes a bet” is guilty of a Class B misdemeanor.[1]  Wis. Stat. § 945.01(1) defines a “bet” as “a bargain in which the parties agree that, dependent upon chance even though accompanied by some skill, one stands to win or lose something of value specified in the agreement.”  There are several exceptions from this definition (actual business transactions, prizes to actual competitors, etc.), unfortunately, they do not appear to exclude bracket pools.  Thus, the ability to win or lose “something of value” determines whether your bracket entry is a “bet.”  If you can win or lose money, it is a bet.  If it is for office bragging rights, it may not be (a very lawyerly answer, I know).

“A lottery is an enterprise wherein for a consideration the participants are given an opportunity to win a prize, the award of which is determined by chance, even though accompanied by some skill.”  Wis. Stat. § 945.01(5)(a).[2]  There is at least a strong argument that success in bracket pools is determined by chance.  (Do you think Warren Buffet would be putting $1 Billion if the odds for winning were better than 1 in 9 quintillion?  How many times has your friend who picked based on uniform colors won?)  Similar to the “bet” discussion above, if money is required to enter the bracket pool, and if the winner receives a prize (usually money), the bracket pool is a lottery.

Now what about those trusted friends or colleagues who take time from their busy schedules to run your bracket pool?  These pool administrators may be engaging in “commercial gambling” and guilty of a Class I felony[3] if they do any of the following:

  • For gain, operating a bracket pool;
  • For gain, becoming a custodian (holding) of entry fees or records;
  • For gain, setting up an online pool; or
  • Conducting a lottery where the entry and prize is money.

As you would suspect with laws regulating gambling, it appears that money is the principal issue in determining whether your bracket pool is illegal gambling.

Thus, while money makes many things more exciting, if you are going to engage in a bracket pool, it may be better to put the checkbook away and stick to bragging rights.


[1] The maximum penalty for a Class B misdemeanor is $1,000 and 90 days imprisonment.

[2] As an aside, a lottery does not include bingo or certain raffle contests.  Good job Lutheran churches!

[3] The maximum penalty for a Class I felony is $10,000 and 3 years and 6 months imprisonment. Yikes!

Atty. Kindkeppel Honored as Fellow of the Wisconsin Law Foundation

Joshua J. Kindkeppel, attorney and shareholder with Eustice, Laffey, Sebranek & Auby, S.C., was recently nominated and accepted membership as a Fellow of the Wisconsin Law Foundation.  The Fellows organization was created in 1999 as a special means to honor members of the State Bar of Wisconsin who have both achieved significant accomplishments in their career and contributed leadership and service to their communities. Membership in the Fellows is considered a professional honor and includes the likes of Russ Feingold, Tommy Thompson, former members of the Wisconsin Supreme Court, and other well respected attorneys and retired judges.

Attorney Kindkeppel practices in the areas of business, real estate, employment, and civil litigation.  He was elected and served as president of the Dane County Bar Association in 2012-13, and collaborated with long-time Madison attorney Joseph Melli to create the Joseph A. Melli Mentorship Program to assist young Dane County attorneys. Kindkeppel is also active in the Sun Prairie Rotary Club, and serves on the planning committee for the Sun Prairie Kindness Retreats.