March 6, 2018 – A who man signed guaranty on a $5 million mortgage loan secured by a sprawling Door County property recently won an appeal to the Wisconsin Supreme Court on the issue of a guarantor “credit” towards a money judgment against him.
In its foreclosure action, Horizon Bank alleged that Marshalls Point Retreat LLC (Marshalls) defaulted on the $5 million loan. The bank also sought a money judgment against Allen Musikantow, a member of Marshalls Point, who signed the guaranty.
The parties stipulated to a judgment on both claims. The circuit court entered a judgment of foreclosure and a money judgment against Musikantow, as guarantor, for about $4 million. The stipulation provided that subsequent sale proceeds would be credited towards Musikantow’s obligation to pay the money judgment.
Horizon Bank was the sole bidder at a sheriff’s sale and bought the property for $2.25 million, which was to be credited towards Musikantow’s $4 million obligation.
Horizon Bank then moved for confirmation of the sale under Wis. Stat. section 846.165, which requires court confirmation that the property sold for “fair value.” The bank’s motion indicated that it would not seek a deficiency judgment against Marshalls.
The bank also requested that the court apply the sale price as a credit toward the judgment against Musikantow, which would reduce Musikantow’s obligation as stipulated but still render Musikantow, in the bank’s mind, on the hook for $1.75 million.
Parties Disagree on Credit Issue
This is where the parties begin to depart ways. Musikantow agreed to sale confirmation. But he wanted language in the court order that would still allow him to challenge the amount of the credit that would be applied toward the money judgment against him.
Musikantow, through counsel, said the property had a market value above $10 million. He wanted the opportunity to argue that the “credit” towards his guaranty obligation, which would satisfy the money judgment, should be more than $2.25 million.
But Musikantow’s lawyer said the court did not need to decide the credit issue – the guaranty that Musikantow signed was governed by federal law, or by Indiana law if not preempted by federal law, and Horizon Bank already filed a federal lawsuit in Florida.
Musikantow’s counsel said the federal district court in Florida, where Musikantow resided, could decide how much to credit towards Musikantow’s obligation.
But Horizon Bank argued that that issue was over – prior judgments governed how much to credit towards Musikantow’s obligation. It was the sale price of $2.25 million.
The circuit court confirmed the sale, finding the $2.25 million as a “fair price.” But the circuit court declined to rule on the credit issue unless the federal court kicked it back.
Horizon Bank appealed, and a state appeals court reversed, directing the circuit court to apply a sole credit of $2.25 million towards the money judgment against Musikantow.
But in Horizon Bank v. Marshalls Point Retreat LLC, 2018 WI 19 (March 6, 2018), a supreme court majority (6-1) reversed, concluding section 846.165 “does not require a circuit court to make a determination of a guaranty credit at the time the foreclosure sale is confirmed” and “does not apply to credits toward a judgment on a guaranty.”
The majority also ruled that a circuit court has discretion to decide “the amount of a credit to be applied to a judgment on a guaranty either at the time the sale is confirmed or at another time,” even if those actions are brought in the same proceeding.
The majority explained that the credit to be applied toward a judgment on the guaranty is a separate issue from the question of “fair value” for purposes of sale confirmation.
The circuit court was not wrong when it “decoupled the confirmation of sale from the determination of the guaranty credit,” wrote Judge Ann Walsh Bradley, also noting that “the stipulation in this case does not establish that the amount of the winning bid at the sheriff’s sale shall be the sole credit toward the money judgment against Musikantow.”
Justice Rebecca Bradley was the sole dissenter. She said the parties stipulated that Musikantow’s guaranty credit would be the amount fetched at sheriff’s sale.
The majority ignores the stipulation and order which, by its plain terms, “resolves the entire proceeding against both Musikantow and Marshalls Point and requires the issue of ‘fair value’ and the guarantor’s credit to be resolved concurrently,” R. Bradley wrote.