Governor Signs Bill Altering Redemption Periods & Property Abandonment Rules

May 6, 2016

Governor Scott Walker recently signed Act 376 which cuts in half the redemption periods applicable in residential and farm foreclosures. The Act only shortens redemption periods in foreclosure actions involving mortgages executed on or after April 27, 2016. The redemption period determines the amount of time a lender must wait after obtaining a judgment of foreclosure before taking the property to sheriff’s sale. Prior to the new legislation, the redemption period for one-to four-family residences that are owner-occupied (and also for churches, farms, and tax-exempt nonprofits) was twelve months. If the lender elected to waive the right to seek a deficiency judgment against the borrower, the redemption period was shortened to six months.

Now, for mortgages relating to residential owner-occupied property and farm property executed on or after April 27, 2016, the lender may take a property to sheriff’s sale after six months, or, if deficiency is waived, after three months if the property is less than 20 acres. The property owner may lengthen this period if the property is listed for sale with a realtor and the owner files a motion with the court before judgment is entered. In that case the court may give the property owner eight months to redeem or sell the property or five months if deficiency is waived.

Act 376 also includes the Wisconsin Legislature’s response to recent attempts by the city of Milwaukee to force lenders to take abandoned properties to sheriff’s sale. Last year, the Wisconsin Supreme Court held in The Bank of New York Mellon v. Carson that a lender was required to schedule and hold a sheriff’s sale on property that was deemed abandoned where the delinquent homeowner asked the court to force a sheriff’s sale. Act 376 modifies the abandonment statute by attempting to clearly delineate which party (lender or property owner) or non-party (city, village, town) has the authority to force a sale.

For all actions commenced after April 27, 2016, the lender or the city, town, village or county where the property is located may ask the court to specifically determine that a property is abandoned by the property owner. If the court agrees, then the lender alone has twelve months to either: (1) take the property to sale and have that sale confirmed; or (2) release or satisfy its mortgage on the property. If the lender does neither of these things within twelve months, then any party (which presumably includes the defaulted property owner) may file a motion with the court requesting sale of the property. The redemption period applicable to abandoned properties remains at five weeks.

Lenders should cheer the shortening of redemption periods for residential and farm properties to six or three months. Of course, given that the new redemption periods will only apply to foreclosures of mortgages executed on or after April 27, 2016, it will be some time before lenders will actually benefit from these changes. It is also worth noting that the redemption periods applicable to commercial property (six and three months) have not been shortened at all.

The changes to the abandonment statute are likely to be met with a mixed response by banks. Act 376’s elimination of property owner’s and city and town’s abilities to force a sale within the first twelve months after the entry of judgment of foreclosure affords an opportunity for further investigation before taking a property to sale. However, for some properties and for some banks, twelve months may not be long enough to fully determine how a property will be handled (for example, environmental issues may arise causing further delay). The statute is vague as to what happens when a bank does not take a property to sale, does not release or satisfy its lien, and a subsequent sale results in no bidders or no other party forces a property to sell.  The statute’s language requiring a bank to sell or release will likely have a chilling effect on lender’s elections to seek a determination that a property is abandoned. But, the statute clearly allows cities and towns to seek such a determination, thereby potentially forcing the lender’s hand.

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