Feb. 17, 2015 – Circuit courts must order mortgagee banks to sell foreclosed and abandoned property, known as “walkaway” foreclosures, within a reasonable time after obtaining a foreclosure judgment, the Wisconsin Supreme Court has ruled.
Shirley Carson obtained home mortgage loan for $52,000 but subsequently defaulted. The Bank of New York Mellon, as loan trustee, sought a judgment of foreclosure and sale of the premises, waiving its right to a deficiency judgment against Carson. But the bank could not locate Carson to serve the complaint, and served by publication.
The process server said Carson’s house in Milwaukee appeared to be abandoned. The mortgage loan servicer filed a “registration of abandoned property in foreclosure” and the bank obtained a default judgment determining that Carson owed the bank more than $81,000. The circuit court ordered the property to be sold at any time after expiration of the three-month redemption period during which Carson could redeem the property.
The order prohibited the bank and Carson from committing waste on the property, and said the bank could take steps to secure the property if it was abandoned. However, the circuit court did not definitively rule that the house was an abandoned property.
The bank did not secure the property and it was burglarized, vandalized, and became subject to fines and building code violations. Carson incurred $1,800 for failing to maintain the property, and the bank did not maintain it despite an order from the city.
More than 16 months after the foreclosure judgment was entered, the property still wasn’t sold, and it wasn’t up for sale. The bank said it elected not to bring a sale because it wasn’t fit for selling. Carson remained owner with legal right to possession.
Carson, who could not maintain the property or pay the fines, filed a motion to find the property abandoned, and sought an order that the bank sell the vacant property.
Carson filed the motion under Wis. Stat. section 846.102, which says the sale of abandoned property “shall be made upon the expiration of 5 weeks from the date when such [foreclosure] judgment is entered.”But the circuit court denied the motion, concluding that circuit courts don’t have authority to compel a sale of abandoned property under the statute. Carson appealed, and the appeals court reversed.
In Bank of New York Mellon v. Carson, 2015 WI 2015 (Feb. 17, 2015), a four-justice majority ruled that section 846.102 authorizes circuit courts to order mortgagee banks to sell abandoned foreclosures, and must order sales within a reasonable time.
“The plain language of the statute grants the circuit court the authority to order a bank to sell the property,” wrote Justice Ann Bradley wrote in a majority opinion. “Indeed, under the statute the court’s judgment must include a requirement that the property be sold.”
The majority noted that mortgagee banks can delay sales on other types of foreclosure properties, but state law treats abandoned property differently.
In addition, the majority ruled that mortgagee’s “must” sell, despite the bank’s argument that it must wait five weeks to sell but has a five-year window to sell after that.
The bank had argued that like other foreclosure statutes, section 846.102 merely creates a delay mechanism to give homeowners one last chance to redeem.
“Wisconsin Stat. § 846.102 addresses properties that have been abandoned, properties which borrowers no longer have an interest in retaining,” Justice Bradley wrote. “Thus, the policy concern of creating a delay does not appear to be implicated.”
The intent of the statute is to help municipalities deal with abandoned properties promptly, the majority explained, since abandoned properties attract crime.
“Interpreting Wis. Stat § 846.102 as permitting sale at any time within five years after judgment is entered would exacerbate the problem that the statute was meant to ameliorate,” wrote Bradley, noting studies on the negative impact of vacant property.
The majority remanded the case for a determination on abandonment, and an order of sale within a reasonable time after the five-week period. What constitutes a “reasonable time” should be based on the totality of the circumstances, the court noted.
Justice David Prosser wrote a concurring opinion, joined by Justices Annette Ziegler and Michael Gableman. The concurring justices would affirm the lower appeals court decision, agreeing that Carson could seek judicial sale of the abandoned property.
But they disagreed that section 846.102 requires circuit courts to order the prompt sale of abandoned properties, stating the majority’s mistaken interpretation “is likely to have profound ramifications on real estate financing in Wisconsin.”
Justice Prosser noted that mortgagee banks normally have incentives to promptly sell foreclosed property, since they normally recoup debts upon the sale. Thus, mortgagee banks would only delay sales if there’s a rational economic reason to do so.
“[I]f the mortgagee is expected to assume responsibility for abandoned property, the mortgagee must be given reasonable options, even if unpalatable, rather than be forced into unwanted sale without the protection of the equitable principles upon which mortgage foreclosures rest,” Justice Prosser wrote.
Justice Prosser said banks with less flexibility to determine the timing of abandoned home sales might increase financing costs or deny certain mortgage loans. He said the majority’s decision may require prompt sale of thousands of abandoned properties.