Wisconsin Earnest Money Law

[katanajo]

Wisconsin
We are Sellers of a Wisconsin home and accepted a 2nd offer from a Buyer. We rejected the first offer she presented. The contract was dated and signed by all involved. It stated she had 5 days to deliver $1000 Earnest Money. On the 5th day we were contacted by our Realtor stating the Seller was cancelling the sale and not going to provide the earnest money with reason being, and I quote, "my child doesn't want to move". We took her to small claims court today, AFTER WE consulting a local WI real estate attorney who assured us it was breach of contract. In court today Judge Morin told us "If the Offer was not accompanied by Earnest Money the contract was never valid in the first place". He also agreed with her for the reason for wanting to cancel the sale. This IS not what our real estate attorney told us. If he had we would not have taken her to court. He told us it was breach of contract and her child not wanting to move is not a legal reason to get out of the contract. The Judge did agree we were inconvenienced by the cancellation of the contract .as we had to change the status of our home to "Offer No Show". If it was never a contract why would he say this? The Judge set a new court date of of 6/19 with instruction to the three of us to work out a settlement or we were going to have a jury trial date set. She offered $500 and we rejected it. We paid out $400 in lawyer and court fees alone. Is the Judge correct? I cannot find WI case law on this subject and every site I read seems to have a difference of opinion. WHAT IS WISCONSIN LAW? The WI Residential Offer to Purchase has a blank space where you fill in the amount of days prior to delivery of Earnest Money. That says to me that Judge Morin's assumption is incorrect. And if it was never a contract, how can he then state we have been inconvenieced? And if Judge Morin is wrong, how do we go back in to court to tell a judge he is incorrect in his assumption? There is nothing more to this story. All parties signed a real estate offer to purchase and the Seller refused to provide earnest money and cancelled the sale due to their child crying.

 

[justalayman]

This isn’t a matter of Wisconsin law. It’s a matter of what the contract says.

I used to be an agent in Michigan. We used the standard contract provided by the Michigan Association of Realltrs. It was written that until the earnest money is tendered it is not fully executed and as such, not enforceable. You need to read your contract closely to determine if your contract was written in a similar manner. It appears the judge reads it that way.

If the contract is not enforceable, it doesn’t matter the reason the party doesn’t wish to move forward with the contract.

And how you go back to court is you show up on the date the judge set for a trial and go to trial

 

[katanajo]

Thank you for the quick response. Judge Morin didn't read the contract in court. He stated "I didn't read it and I don't have time to read it after the morning I've had". However, being an auditor, I went through it with a fine tooth comb prior to us signing it, before contacting a real estate attorney and prior to filing the Summons and Complaint. We used WI WB-11 Residential Offer to Purchase. It states on line 10 "EARNEST MONEY of __(blank line) accompanies this offer and earnest money of $1000 will be mailed, or commercially or personally delivered with ___5___ days of acceptance to listing broker or _______(blank line).
That's it. The next line refers to line 13 - THE BALANCE OF PURCHASE PRICE.
The subsequent WI Counter Offer made no reference to this line.

In addition, I found the following "Although no law requires it, sellers typically do require it. If a Seller agrees to pay earnest money but do not make the required payment or your earnest money check "bounces", you will probably be considered in breach of contract.

The Wisconsin Realtors Association Explanation of the State of Wisconsin Residential Offer to Purchase guide states "Earnest money can be paid when the offer is submitted to the Seller, after the offer is accepted by the Seller, or both."

What we really need to is what does WI law state? If a Judge is going to make a statement such as this certainly there must be a law or case law to back it up, right?

 

[justalayman]

What we really need to is what does WI law state?

Again, it is what your contract states.

We used WI WB-11 Residential Offer to Purchase. It states on line 10 "EARNEST MONEY of __(blank line) accompanies this offer and earnest money of $1000 will be mailed, or commercially or personally delivered with ___5___ days of acceptance to listing broker or _______(blank line).

Ok, I tend to agree with your attorney BUT what is it you hope to win? This is what the contract says you have a right to seek should the buyer default;

(1) sue for specific performance and request the earnest money as partial payment of the purchase price; or
(2) terminate the Offer and have the option to: (a) request the earnest money as liquidated damages; or (b) sue for
actual damages.

In the time is was under contract it is unlikely you have any actual damages. You can toss out specific performance. While an option, unless this was a full cash offer with no contingencies, there are too many ways to escape the contract.

So that means you can seek the earnest money.



The attorneys fees are not recoverable. That means if you win you’ll put $600 in your pocket. If you lose you’re out $400 for your attorney.

 

[katanajo]

There were no contingencies. Thank you for the replies. I was hoping to better to understand the actual law. Not only for this issue but for future real estate dealings. We won't accept or write offers in the future without check in hand even though Realtors see telling Sellers to give 'grace periods'. It seems to us breach of contract doesn't mean anything.

 

[justalayman]

Breach of contract means a lot but you need to realize your options when there is a breach are also specified in the contract you used. If you don’t want to accept any given terms in an offer, strike them out or add what you want in there are return it as a counteroffer. You do need to understand that a counter offer invalidates the offer you are countering.

To better understand the law, start researching contract law. While there are idiosyncrasies in each state specifically, what you are asking about here is based in good ol’ general contract law.

And I agree with you 100%. I would suggest not accepting any offer that doesn’t come with earnest money attached. If they insist on waiting, I would reject (almost any) offer and tell them to come back when they are serious about the offer. If they are earnest in their offer, they’ll plop down the earnest money to prove it.


$1000 is also on the light side, in my opinion. I don’t know what price point you are selling at but $1000 in just about any market is way less than the buyer will be putting out in cash by the time the sale closes. There isn’t really a reason the bulk of their ultimate cash outlay shouldn’t be placed as a earnest money deposit.

 

[Zigner]

Where's the consideration?

 

[Litigator22]

This "so-called judge" would be hard pressed to explain to his superiors the rationale of resetting the case and encouraging the parties to seek a settlement of a claim for breach of contract in face of his finding that no contract existed! Pretty strange!


Anyway other than in the realm of contract you will find no specific laws relating to earnest money agreements. Not in Wisconsin or elsewhere. What you have in writing is what you get.


So, if that writing can be interpreted to mean that your acceptance of the 2nd offer is conditioned upon the payment of the E money, then there is substance to the judges finding. And if the shoe was on the other foot and you wanted out because of a better offer, you'd be praising the court's wisdom in finding that no valid agreement came into being.

 

[justalayman]

Where's the consideration?

The purchase price of the house.

If you are suggesting the contract is not binding until the earnest money is paid, that would be an incorrect interpretation of contract law. You do not have to act on a contract for it to be binding. The promise of the contract is adequate as long as the rest of the requirements of a contract are met. In this case each party provided consideration. The seller pledged the house and the buyer pledged the contracted sales price.

Using your argument, if it required the actual transfer of the tendered considerstion, there would never be a sales contract that is binding since the seller cannot transfer the house upon acceptance of the contract and very few buyers can write a check for a home purchase.

The earnest money, if writtten into the contract properly, can be such that the contract is not enforceable unless it is delivered but in this contract the earnest money was pledged to be delivered at a future date. Upon acceptance of the terms, the contract is then binding.

 

[justalayman]

This "so-called judge" would be hard pressed to explain to his superiors the rationale of resetting the case and encouraging the parties to seek a settlement of a claim for breach of contract in face of his finding that no contract existed! Pretty strange!


Anyway other than in the realm of contract you will find no specific laws relating to earnest money agreements. Not in Wisconsin or elsewhere. What you have in writing is what you get.


So, if that writing can be interpreted to mean that your acceptance of the 2nd offer is conditioned upon the payment of the E money, then there is substance to the judges finding. And if the shoe was on the other foot and you wanted out because of a better offer, you'd be praising the court's wisdom in finding that no valid agreement came into being.

The judges superiors? Just who would that be? Judges have the right to act without approval of any superior. If the state board or commission has issue with a judge, they can initiate an inquiry but the case would be decided long before.

The judge merely offered an opinion (not enforceable especislly since the judge admittedly didn’t read thebcontract. and told the parties to attempt to hammer out an agreement. If they can’t, there is now a scheduled trial date.

If you read the document the op specified was used you will see the acceptance of the contract is not predicated upon receiving the earnest money. If the money is not delivered by the date specified in the contract, it would be a breach by the buyer. The seller can either terminate the contract (an allowed action within the contract) or allow the buyer to tender the earnest money to keep the contract in force.