Hidden Home Problems

Listen to this article

A proposed law may soon restore the ability of homebuyers to seek punitive damages from sellers who fail to disclose major defects of a house.

But given the state of the residential real estate market and the nature of most home contracts, some say the change will endanger as many consumers as it will protect.

Attorney Catherine M. Rottier suggested that Senate Bill 9 and its companion, Assembly Bill 6, ignore the fact that sellers are also consumers and the law puts a bigger bull’s-eye on the backs of people who happen to sell their house with an unknown problem.

“The danger when you talk about consumer legislation, and people are promoting this as such, is there are two sides of these cases,” said Rottier, president-elect of the Wisconsin Defense Counsel (WDC), formerly the Civil Trial Counsel of Wisconsin.

Legislators said the proposed law, which passed both the Assembly and Senate, was motivated by last year’s state Supreme Court ruling in Below v. Norton.

The 4-3 decision established that the “economic loss doctrine” barred buyer Shannon Below’s tort claim for alleged intentional misrepresentation on the part of sellers, Dion and Dana Norton, who did not disclose a broken sewer line that ran from their house to the street.

“I think the expectations are pretty clear,” said Sen. Jon Erpenbach, D-Madison, a co-sponsor of SB 9. “This gives buyers back the protection that the Supreme Court ruling took away and I expect it will give buyers more confidence.”

Costly Inspection

Erpenbach said he expects Gov. Jim Doyle to sign the bill into law and the Legislature’s timely response to reverse the Supreme Court ruling has nothing to do with the slumping real estate market.

But attorney Vicki E. Zick suggested that the law could have an adverse effect on buyers.
Zick represented the Nortons in the Supreme Court case, and said sellers will likely have to protect themselves against the possibility of being sued for punitive damages by charging more for their houses.

“If I don’t mention one thing on a condition report and it turns out the buyer has a problem and I’m going to get sued, I’ll need more money than I originally asked for to protect myself,” Zick said.

Attorney Richard E. Petershack said that sellers who knowingly hide defects should be liable for extensive damages, but he said those instances usually occur soon after a sale is completed.

Petershack is a member of the State Bar of Wisconsin’s Real Property, Probate & Trust Section, which supports the legislation.

Still, the law would change the starting point for the statute of limitations from the date the contract is completed, to the date the problem is discovered.

“In a situation where you can demonstrate a causal relationship between hiding a defect and the resulting problem, there should be a remedy from the date that the defect was discovered,” Petershack said.

The statute of limitations for breach of contract is six years from the date of the contract.
“So if for some reason you discover something six years and one day after the contract, you don’t have a claim,” Petershack said. “Under tort law, the statute is tied to date of discovery.”

Do Your Research

Supporters of the law say that instances where buyers may pursue punitive damages will probably be few and far between, but the option should be there as a safeguard.
Petershack notes that if anything, the threat of punitive damages should persuade sellers to make sure they have accounted for any known defects in a contract.

“I think this puts sellers in a position they should have been anyway,” Petershack said. “Be honest about what’s there, so the buyer can make an informed evaluation.”

But Rottier said “innocent” sellers may be more inclined to settle their cases, rather than engage in costly litigation.

“These cases cost money right from the get-go,” Rottier said. “The defendant may feel totally innocent, but think, do I want to spend $20,000 to say I’m right, or spend $5,000 to make it go away.”

“People may settle for reasons that have nothing to do with the merits,” Rottier added.
Zick added that even in cases where a seller is sued for punitive damages, plaintiffs could have a tough time collecting, given that most residential owners do not have deep pockets.

Punitive damages are more common in commercial cases, noted Zick, and before the Below decision, the economic loss doctrine only applied to commercial transactions.

“I doubt buyers will ever be able to recover if a jury comes out and gives a huge punitive award,” Zick said. “Where are you going to get the money if the seller has moved on and there’s not enough equity in the house they purchased say, one year ago?”