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“Buying a home is a big investment, and when you do that, you should have civil protections if the seller perpetrates fraud against you,” said state Sen. Dave Hansen, D-Green Bay.
Hansen, who faces re-election in November, and state Sen. Jon Erpenbach, D-Middleton, said they’re working on a bill to address the ruling handed down this month.
The ruling limits home buyers to suing for the cost of repairs only and prevents them from seeking punitive damages through fraud claims.
“Without the threat of punitive awards, the consequences for sellers who lie will be less severe,” according to an analysis of the ruling by the Wisconsin Realtors Associa-tion. “If the worst a seller could face would be to pay for the defect that they should have paid to fix in the first place, then sellers may decide to not be truthful when making (disclosures).”
In the ruling, a divided court applied a complex legal principle to residential home sales.
The principle, known as the economic loss doctrine, states parties to a contract must rely on that document to resolve disputes, and any liability must be included in the contract. The principle previously applied only to commercial real estate transactions, but the high court in its ruling said it also governed residential real estate contracts.
The decision makes Wisconsin the only state that bars civil fraud cases in residential real estate transactions, Justice Ann Walsh Bradley wrote in a dissent accusing the four-member majority of creating law the Legislature didn’t intend.
But the majority said home buyers who are misled still will be able to sue for breach of contract and false advertising.
The Realtors association said that will make it harder for buyers to collect damages, and such lawsuits have more restrictive time limits.
Republican leaders in the Legislature said their members haven’t discussed whether to address the ruling. But some said they are open to doing so.
“If it turns out that the only real effect of the ruling is that trial lawyers can’t run up huge punitive damages, then we may be satisfied that home buyers are still protected by current law to recover economic damages,” said Ryan Murray, a spokesman for state Sen. Scott Fitzgerald, R-Juneau, the Senate minority leader. “If, on the other hand, it turns out that this ruling is having a real and adverse effect on buyers, then corrective legislation may be needed.”
Lawmakers aren’t scheduled to take up new proposals until a new Legislature is sworn in next year.
Hansen called it a “red flag” that Wisconsin is the only state that bars home buyers from suing for fraud.
Members of the Realtors group also said they’re reviewing options to ensure homebuyers are protected. One option would be legislation of the type Hansen and Erpenbach are working on, said Mike Theo, vice president for legal and public affairs for the Realtors association.
But others include rewriting the standard, state-issued real estate contracts and home disclosure forms to provide more legal protections for buyers, putting “more teeth” in state laws governing home sales and beefing up consumer protection laws related to selling and buying homes, Theo said.
“The whole goal here is to get as honest information as possible from everybody involved in the transaction,” Theo said.
Dennis Kruger of Madison, owner of Southern Wisconsin Home Inspection and president of the Madison-area chapter of the Wisconsin Association of Home Inspectors, said the court decision won’t directly affect home inspectors. But he said inspectors are expecting home buyers to rely even more on their work.
“It’ll put more pressure on us,” he said.
Inspectors, who look for flaws and defects that are visible in and on a home, are legally liable for two years for the quality of their inspections, Kruger said, but they do not review parts of the home they cannot see.
They also cannot be held liable for not uncovering defects that home sellers conceal, he said.
Mark Pitsch is a reporter for the Wisconsin State Journal in Madison.
