Lenders Must Exercise Caution with Wisconsin Foreclosure Decision
A recent decision from the Wisconsin Supreme Court, The Bank of New York Mellon v. Carson, held that a lender was required to schedule and hold a sheriff’s sale on property that was deemed abandoned as part of a foreclosure proceeding. The import of this decision is that lenders must consider, before filing a foreclosure action, whether they actually want to carry through with the entire foreclosure proceeding. This presents problems where the actual condition of the subject property is unknown, or where the condition of the subject property deteriorates during the course of the foreclosure proceeding. As can be seen in the discussion below, the decision leaves more questions than it answers and invites substantial uncertainty into the foreclosure process.
In Carson, the lender foreclosed on the home of its borrower.1 The lender was unable to serve the borrower because she could not be located, and the home the lender was foreclosing on appeared abandoned. Typically, a homeowner is entitled to a 12-month redemption period for property that is owner-occupied, or, if the lender agrees to waive the right to a deficiency judgment, six months.2 If a property is determined to be abandoned, the applicable redemption period is five weeks.3 A lender is not entitled to take a property to sheriff’s sale until the end of the applicable redemption period. The trial court in Carson (located in Milwaukee County) determined the property was not owner-occupied, which resulted in a three-month redemption period (the redemption period for non-owner-occupied property is six months, or three months if deficiency is waived).4 The lender in Carson did not ask for a determination that the property was abandoned pursuant to the Wisconsin foreclosure statute.
After the entry of its judgment of foreclosure, the lender did not schedule a sheriff’s sale. During this period, the property deteriorated. The City of Milwaukee issued notices regarding trash and maintenance issues, and a fire destroyed part of the property. The borrower, because she still owned the property, received these notices – and fines were levied against her. Based on comments in the court’s decision, it appears the lender decided not to take the property to sale because of its poor condition. After more than 16 months following the entry of the judgment of foreclosure, the borrower filed a motion asking that the Milwaukee County Circuit Court determine the property was abandoned and order the sale of the property. The trial court denied the borrower’s request. She appealed, and the Wisconsin Court of Appeals agreed with the borrower. The appellate court ordered that the property, if abandoned, be “sold without delay.” The lender appealed to the Wisconsin Supreme Court, which agreed with the Court of Appeals.
The abandonment statute in Wisconsin provides, in part, that “if the court makes an affirmative finding upon proper evidence being submitted that the mortgaged premises have been abandoned by the mortgagor,” judgment of foreclosure “shall” be entered and “the sale of such mortgaged premises shall be made upon the expiration of 5 weeks from the date when such judgment is entered.”5 The Wisconsin Supreme Court in Carson found that the “plain language” of the abandonment statute grants Wisconsin courts the authority to order a lender to sell the property. The court further recognized that parties (or non-parties as the case may be, i.e., the local municipality) are able to ask the court to determine that a property is abandoned. Therefore, even if a lender does not seek abandonment, another person may appear and ask for such a determination. The Wisconsin Supreme Court found that the Wisconsin legislature’s use of the term “shall” in the abandonment statute was conclusive and that, if a property was deemed abandoned, the court must order a sale of the property pursuant to the statute. The court further determined that the abandonment statute requires a Wisconsin court to bring a property deemed abandoned to sale “within a reasonable time” after the expiration of the five-week redemption period applied to abandoned properties.
The Carson opinion is important for a number of reasons. The decision as to whether a property is abandoned and, in some circumstances, whether and when to take an abandoned property to sale, is no longer entirely within the lender’s control. The Carson court discussed extensively the problems presented by abandoned and blighted properties, especially in Milwaukee County, and offered that the abandonment statute was drafted and amended to address these concerns. One practical problem presented by Carson is that a lender may not have sufficient information prior to commencement of a foreclosure action as to the condition of the subject property. A borrower may allow a property to deteriorate or commit further waste after the entry of a judgment of foreclosure to the point where the property loses any value, and sale would be a waste of time and money. We may see municipalities taking a more aggressive posture by intervening in foreclosure actions seeking the sale of abandoned properties that lenders have deemed not worthy of taking to sale.
The Carson decision does not hold that a lender must bid on or buy an abandoned property at a sheriff’s sale. Such a decision would appear to raise significant legal issues. However, the decision unquestionably provides that Wisconsin courts may force a lender that has commenced a foreclosure proceeding on property deemed abandoned to schedule, pay for, advertise, and proceed with a sheriff’s sale on that property. Accordingly, lenders must be wary when considering whether to bring a foreclosure action of a property that may be or may become abandoned. Of course, whether a property may become abandoned or whether a borrower commits substantial waste with regard to a property are out of the lender’s control and often cannot be planned for before commencing a foreclosure action.
1 The Bank of New York Mellon, fka The Bank of New York, as Trustee for CWABS, Inc. Asset-Backed Certificates, Series 2007-13 v. Shirley T. Carson, 2015 WI 2015.
2 Wis. Stat. § 846.10(2); Wis. Stat. § 846.101(2).
3 Wis. Stat. § 846.102.
4 Wis. Stat. § 846.103.
5 Wis. Stat. § 846.102(1)
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