Assembly Passes Residential Real Estate Change
This is a bad bill and will hurt homeowners.
The history of this stems back to last year when the Wisconsin Supreme Court ruled that the economic loss rule applies to residential real estate sales. Basically (yes, the lawyers in the audience will yell at me for boiling it down this much) the economic loss rule means that the contract holds supremacy instead of tort law. So, if you have a problem with a real estate sale, you can only sue based on violations of the contract.
In real terms, this is huge. If real estate sales are subject to the contract, then it limits the liability of the parties involved to actual economic loss. For example, if you buy a home and find out that the seller failed to tell you about a basement water issue that resulted in some mold, then you could sue the seller for the cost to repair the problem and clean it up. If the same problem was subject to tort law, then the buyer could sue the seller for the actual costs of fixing the problem PLUS punitive damages. So the seller might sue for the $10,000 to fix the problem plus an additional $150,000 in punitive damages.
Putting the real estate sales under tort law would result in a substantial increase in risk for the sellers. If you sell your house, there wouldn’t be any guarantee that the seller doesn’t come back and sue you for a million dollars years after the sale. The logical reaction would be to either increase the price of the home to offset the risk of selling it, or for insurance companies to create a new product to cover it (or just use an umbrella policy).
As the law is today, there’s nothing to prevent a buyer from recouping the costs of a fraudulent seller. Everybody can be made whole under current law. By putting residential real estate sales under tort law, the only people who will benefit are the lawyers and those buyers who want to try to cash in.