Economic Loss Doctrine Applies to Residential Real Estate & Tort Cases Relating to Real Estate Fraud

On July 1st, 2008, the Wisconsin Supreme Court ruled in Below V. Norton that the Economic Loss Doctrine also applies to residential real estate and tort cases relating to real estate fraud, thus expanding its reach. The Economic Loss Doctrine (ELD) prevents a consumer from suing based on solely monetary, or economic losses when a contract is in question. As further explained by the Wisconsin Supreme Court, the “ELD is meant to encourage the purchaser, who is the party best situated to assess the risk of his or her economic loss, to assume, allocate, or insure against that risk.”

Below v. Norton, 2008 WI 77, 751 N.W. 2d 351, expanded the reach of the Economic Loss Doctrine (ELD) to bar claims of real estate fraud and intentional misrepresentation in residential real estate transactions.

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Wisconsin Statute allows lawsuits for real estate fraud that occurred after April 8th, 2009.

Wisconsin Statue § 895.10

The Wisconsin Legislature has fought back by creating Wisconsin Statue § 895.10, Tort Actions in Residential Real Estate Transactions, which states:

“In addition to any other remedies available under law, a transferee in a residential real estate transaction may maintain an action in tort against the real estate transfer or for fraud committed, or an intentional misrepresentation made, by the transfer or in the residential real estate transaction.”

This new legislation contains three (3) main provisions:

  1. It protects purchasers of land in WI, without creating the duty to draft veracity warranties as was required by Below.
  2. It strengthens the ELD in regards to all other contracts. Below v. Norton came down July 1, 2008 and by January 21, 2009, the Senate was working to overturn this decision. ELD decisions in commercial real estate contracts came down long before Below v. Norton, but no such legislation has been created and passed for commercial protection.
  3. Creates an arbitrary deadline for the cessation of fraud.

The first two effects are self-explanatory, the third requires further comment.

The legislation (creating Wis. Stat. § 895.10) includes a provision that this statute will not apply retroactively, but will apply to transactions that close on or after the effective date of the legislation. As Governor Jim Doyle signed the legislation on April 8, 2009, all falsehoods told before that date are immune, but falsehoods told after are punishable by tort. Yes, according to the Below v. Norton you can go after a seller for “false advertising” carrying far lessor penalties and a greatly shorter statute of limitations. So, for the next six (6) years, attorneys in this state must remember the magical April 8, 2009 deadline in determining whether tort actions can occur.

If you have questions about the new real estate legislation, or feel you may have been a victim of real estate fraud, please contact me, Attorney Terry J. Gerbers.