New legislation would allow for punitive damages against fraudulent home sellers

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SAT., MAR 21, 2009 - 6:54 PM

When dreams turn to nightmares: New legislation would allow for punitive damages

against fraudulent home sellers

Wisconsin State Journal - Madison,WI,USA

By DEE J. HALL

608-252-6132

dhall@...

http://www.madison.com/wsj/home/local/444016

When ph and were looking to buy a 100-year-old farm house near

Beloit in 2007, they liked what they saw: A " completely remodeled " home with a

new concrete foundation and upgraded wiring. Spots of mold in the basement were

chalked up to a frozen pipe that had been repaired.

It wasn't until the couple moved in with their two young sons — and a chance

conversation with a neighbor — that they discovered the house wasn't what it

appeared.

" We thought that we had that American dream, " ph said, adding, " It's

just been a total nightmare. "

The s have sued the seller, real-estate agent and home inspector in Rock

County Circuit Court for what they allege are misrepresentations and breach of

contract. They are asking a judge to order the seller to buy back the $192,000

property — and repay the couple for $40,000 in improvements — because of what

they charge are serious defects with the town of Newark house.

But getting punitive damages is out of the question, thanks to a Wisconsin

Supreme Court ruling last summer. A bill being considered by the Legislature

would allow home buyers who believe they've been lied to by a seller to sue for

that extra compensation — a tool the Supreme Court took away in a controversial

4-3 decision decried by home buyers and Realtors alike.

Brookfield attorney Dan s was on the losing end of that case. He now

represents the s, who he alleges in a lawsuit are the victims of

misrepresentation by seller Cash, the couple's home inspector and Cash's

real estate agent. The inspector and the agent have been disciplined by the

state Department of Regulation and Licensing for failing to investigate and

disclose defects in the property.

Cash's attorney, Terry Monahan of Beloit, disputes the allegations, saying some

of the problems with the house were disclosed and others weren't known to Cash,

who fixed up the old house on Highway K but never lived in it.

s, who said his firm handles about 100 cases a year brought by home

buyers, said the problems alleged in this case are " more profound " than most

he's seen.

The problems

For starters, the foundation the s were told was concrete turned out to be

a " permanent wood " foundation covered with stucco. ph said he

discovered that fact after a neighbor informed him the home was flooded 15 years

earlier and its limestone foundation replaced by wood.

didn't believe him. " I tapped on the foundation and it was hollow, "

recalled. " It was wood. "

A second inspection of the home after the sale also found the remodeling —

billed as including new bathrooms and flooring — was much less extensive. The

wiring, some of which violated building codes, was 60-amp service rather than

the promised 100 amps.

And the mold, which the seller and real estate agent assured the s was an

isolated problem, turned out to be much more troublesome. The 2008 inspection

found mold throughout the family room. " The amount of mold present was

significant and should be addressed with concern, " said Schilling of

Residential Inspections of Madison.

Monahan noted the original home inspector did point out the of mold in the

basement and urged the s to further investigate it.

" There's no showing that Mr. Cash knew anything about any infestation of mold in

the house, " Monahan said. " He can't disclose things he doesn't know about. "

He said there's nothing " defective " about wood foundations in general, or the

one under this house in particular. Statistics from the state Department of

Commerce show wood foundations — generally load-bearing walls framed with

pressure-treated lumber and covered with pressure-treated plywood — are

increasingly common in Wisconsin. In 2007, wood comprised half of all new home

foundations, figures show.

" Sellers have a duty to disclose known defects, " Monahan said. " There's nothing

defective there. "

Seeking damages

A proposal that would allow home buyers such as the s to seek punitive

damages is quickly making its way through the Legislature.

Senate Bill 9, introduced by Sen. Dave Hansen, D-Green Bay, passed the Senate. A

companion proposal, Assembly Bill 6, sponsored by Rep. Mark Radcliffe, D-Black

River Falls, also appears headed for approval, Hansen aide Jay Wadd said.

The legislation, which enjoys wide support from the Wisconsin Realtors

Association and others, is in response to the July ruling by the Supreme Court

that home buyers can't sue sellers for fraud if that remedy isn't specifically

spelled out in the real estate contract.

The majority ruled a principle known as the " economic loss doctrine " governed

home sales, and that any question of liability must be covered in the contract.

Previously, the doctrine was limited in Wisconsin to commercial real estate

transactions.

The new law would again give home buyers the right to sue for punitive damages.

" This is a case that can affect every single person who purchases a home in

Wisconsin, " Justice Ann Walsh Bradley wrote in dissent. " For many citizens of

this state, buying a home will be one of the most important purchases that they

will make in their lifetime. According to the majority, a person selling a home

can look the buyer in the eye, lie about the condition of the home, and escape

legal consequences ... "

The State Bar of Wisconsin also favors changing the law, saying existing laws

" offer less protection to buyers because sellers are subject only to

compensatory (actual) — not punitive — damages.

" Thus, sellers who misrepresent the condition of their home could only be

compelled to pay for repairs that should have been done in the first place ...

creating less of an incentive for sellers to be completely honest with buyers, "

the bar said in a position statement.

ph said a new law wouldn't help his case, which is scheduled for a

July trial in Janesville. But, said, " That will definitely be a victory

for the rights of home buyers in Wisconsin. "