The Wisconsin Court of Appeals ruled at the end of August that a spouse retains homestead rights in a property even after having conveyed the property to her husband by a quitclaim deed.
The court decided, in U.S. Bank v. Stehno,1 that the homestead rights of a spouse continue after her real property interest is terminated. The Court of Appeals invalidated a $120,000 mortgage and a $450,000 mortgage signed only by the husband, and sent the case back to circuit court for a determination on whether Candice Wells, who was divorced from Charles Stehno III, is entitled to a credit for the mortgage payments made over 10 years before she challenged its validity. The result could be a credit of more than $300,000 against a subrogated mortgage that Wells did execute.
Brad L.F. Hoeschen, Marquette 2001, is Wisconsin State Manager and Underwriting Counsel for Old Republic Title National Title Insurance Co., Milwaukee, where he manages the company’s Wisconsin agency network.
Cheri Hipenbecker, Minnesota 1999, is General Counsel at Knight Barry Title, Inc., Milwaukee, where she manages the company’s legal matters.
Duane H. Wunsch, Emory 1976, is Wisconsin State Counsel at Fidelity National Title Group, Waukesha, where he specializes in title insurance.
Wells acquired the real estate in question prior to marrying Stehno in 1995.2 In September 2002, she transferred the property to herself and Stehno; they took out a joint mortgage as husband and wife.3 Just three months later, the couple transferred the property to Stehno alone, and he entered into the $120,000 and $450,000 mortgages within four months with U.S. Bank, which incorrectly identified him as unmarried.4 The couple divorced a decade later.5 While Wells and their children continued to live in the property, Stehno was required to make the mortgage payments.6 Eventually, he stopped making the payments, and U.S. Bank commenced foreclosure proceedings in 2013.7
The Homestead Law
The arguments at the appeals court centered around Wisconsin’s 169-year-old Homestead Law, currently set forth in Wis. Stat. section 706.02(1)(f). In sum, the Homestead Law requires that real estate conveyances in Wisconsin will “not be valid unless evidenced by a conveyance that is signed … by or on behalf of each spouse. …”8 In other words, with two exceptions, real estate conveyances of a Wisconsin homestead must be executed by both spouses even though only one spouse may be in title to the property. The two exceptions are for conveyances between the spouses and the purchase of money mortgages.
The historical context of the law is fairly simple. The Wisconsin Legislature thought it wise to protect the interests of a wife and her children, such that the husband should not be able to take out any mortgages after the purchase-money mortgage or sell the real estate without the wife’s consent. At a time when women primarily stayed at home and did not have separate incomes from the husband, the Legislature wanted to be certain that the wife had a say in the ownership and financing of her residence even if she was not on the title.
This premise has not been amended in substance since 1848.
Wells argued successfully that the mortgages entered into by Stehno with U.S. Bank were invalid because she did not execute or otherwise consent to them and they were therefore in violation of the Homestead Law.9
There was a catch, however. U.S. Bank argued that Wells couldn’t claim the protections of the Homestead Law because she had voluntarily waived her ownership rights by quitclaiming the property to Stehno in 2002. Wells never intended to have an interest in the property, homestead or otherwise, because she intentionally gave the property to Stehno by deed, U.S. Bank argued. She voluntarily surrendered her interest in the property, the bank claimed, and therefore cannot now claim the mortgages are invalid because she didn’t sign them.
U.S. Bank also argued the matter of Stehno’s misrepresentation to it. Stehno signed mortgages to U.S. Bank that listed him as a single person, even though he was legally married to Wells for nearly a decade after signing on to the debt. The court found that, while this may mean Stehno has personal liability, it does nothing to obligate Wells.10
Relying on the Homestead Law
Ultimately the court relied on the plain language of the Homestead Law: “As we’ve stated, ‘a conveyance that does not satisfy the statute is void and cannot be enforced against either spouse.’...”11 To be valid, a mortgage must be signed, or joined in by separate conveyance, by or on behalf of each spouse.
The fact that the court held that the mortgage was signed by Stehno on the same date as the quitclaim deed was signed by Wells (as grantor) to Stehno (as grantee) indicates that, to qualify as a “separate conveyance,” the conveyance signed by the nontitled spouse should expressly refer to or acknowledge the mortgage.
An Important Reminder
Stehno is a reminder of the importance of complying with the Homestead Law. Banks and title insurance companies run substantial risk if they make and insure loans without confirming the marital status of the borrower. The borrower intentionally misrepresenting marital status is not a defense. Title insurance providers should carefully check public records to determine if a divorce is final, where they know a borrower was once married. Banks should carefully question borrowers about their marital status, especially where the banking relationship provides clues to the possibility of a spouse.
This decision should also cause all real estate professionals to question the wisdom of retaining the Homestead Law. The change in circumstances of the family dynamic in the last 169 years may suggest spouses no longer need the Legislature to protect them from the actions of someone to whom they are married.
The idea that the real estate industry puts itself in peril by trusting the word of an individual on his or her marital status is one that must be considered when looking at potential amendments to Wisconsin’s Homestead Law.
This article was originally published on the State Bar of Wisconsin’s Real Property, Probate and Trust Law Blog. Visit the State Bar sections or the Real Property, Probate and Trust Law Section web pages to learn more about the benefits of section membership.
1 2017 WI App 57 (2016 AP 193 Aug. 30, 2017)
2 U.S. Bank v. Stehno, 2016AP193 at ¶2.
8 Wis. Stat. § 706.02(1)(f).
9 U.S. Bank v. Stehno at ¶11.
11 Id. at ¶11 (Internal citations omitted.)