In a decision issued on December 9, 2014, in the consolidated appeals of Bank of America, N.A. v. Prissel and Bank of America, N.A. v. Gerlach (Prissel), the Wisconsin Court of Appeals held that a lender foreclosing with a shortened redemption period is not required to publish notice of the foreclosure sale within the six-month redemption period following entry of the foreclosure judgment.
The Court of Appeals affirmed the Circuit Court’s refusal to vacate foreclosure judgments for failure to publish sale notices within six months after judgment. The decision involves interpretation of Wisconsin’s foreclosure statutes in one of a number of cases where the foreclosure defendant is seeking to force the foreclosing lender to finish the foreclosure process and relieve the defendant of his or her responsibilities as a property owner.
In Wisconsin, foreclosure requires a court proceeding. The process for foreclosing real estate includes entry of a foreclosure judgment followed by a redemption period in which the defendant may “redeem” the foreclosure property. The property is redeemed by the mortgagor (the property owner who mortgaged the property to the lender) paying the judgment amount (plus interest, costs and taxes paid by the plaintiff) to the foreclosing lender. Redemption releases the property from the foreclosure judgment.
The length of the redemption period depends upon several factors, including whether a property has been abandoned (shortest redemption period (Wis. Stat. § 846.102)), what type of property it is (longer redemption periods for owner-occupied one-to-four family residential property, farms, churches and tax-exempt charitable organizations (referred to as “residences” in this article for ease of reference), and shorter redemption periods for commercial real estate (Wis. Stat. §§ 846.10(2) and 846.101; 846.103)), and whether the lender will seek a deficiency judgment (any shortfall between the sheriff’s sale proceeds and the judgment amount).
Specifically, the statutes establish a twelve-month redemption period for residences (§ 846.10(2)), a six-month redemption period for commercial properties (§ 846.103(1)), and a five-week redemption period for abandoned premises (§ 846.102(1)). If the mortgage holder agrees to waive its right to a deficiency judgment, the redemption period for owner-occupied one-to four-family residences is reduced to six months, and the redemption period for commercial properties is reduced to three months (Wis. Stat. §§ 846.101(2), 846.103(2)). Sales are generally scheduled for dates after the statutory redemption period has run. Because Wisconsin courts have concluded that a mortgagor may generally redeem the property until a foreclosure sale is confirmed by the court, and confirmation by the court follows the sheriff’s sale, the times for redemption set out in these statutes are actually minimum (not maximum) times for redemption. See, e.g., GMAC Mortgage Corp. v. Gisvold, 215 Wis.2d 459, 485 n.14, 572 N.W.2d 466 (Wis. 1998).
In Prissel, the bank was foreclosing on owner-occupied residences and did not seek a deficiency judgment, so the borrowers’ statutory redemption periods were shortened from 12 months to six months. Wis. Stat. §§ 846.10(1), 846.101(2). The bank did not publish notices of foreclosure sale during the six months after foreclosure judgment. The borrowers asked the Court to set aside the foreclosure judgments, claiming that the bank was required to publish notices of the foreclosure sales within the six-month period.
The borrowers’ motions were based on Wis. Stat. § 846.101, which sets forth the procedure for foreclosing a mortgage on a residence when the lender elects not to pursue a deficiency judgment. Section 846.101(2) states, in relevant part:
[T]he sale of such mortgaged premises shall be made upon the expiration of 6 months from the date when such judgment is entered. Notice of the time and place of sale shall be given under ss. 815.31 and 846.16 within such six-month period except that first printing of a copy of such notice in a newspaper shall not be made less than four months after the date when such judgment is entered.
The borrowers argued that because the notices were not “timely” published, the bank could not hold valid foreclosure sales, and it had no way to satisfy the foreclosure judgments. The bank asserted that the statute permits – but does not require – publication of the notices within the redemption period.
While the use of the word “may” in a statute is often considered directory, but “shall” is often considered mandatory, there are circumstances when the word “shall” can still be construed as “directory” based upon the application of four factors: “(1) the omission of a prohibition or a penalty; (2) the consequences resulting from one construction or the other; (3) the nature of the statute, the evil to be remedied, and the general object sought to be accomplished by the legislature; and (4) whether the failure to act within the time limit works an injury or a wrong.” Karow v. Milwaukee Cnty. Civil Serv. Comm’n, 82 Wis. 2d 565, 572, 263 N.W.2d 214 (1978). The court concluded in Prissel that all four of these factors favor interpreting the word “shall” in the foreclosure notice provision as directory, rather than as mandatory.
The Prissel court pointed out that for all types of property for which a lender seeks no deficiency – except residential – “the foreclosure statutes explicitly provide that notice within the redemption period is permitted, but not required. The [b]orrowers do not suggest – and we cannot discern – any reason why the legislature would have decided to require notice during the redemption period for owner-occupied one-to four-family residences with deficiency waivers, but not for any other type of property.” So the foreclosure judgments would not be vacated for failure to notice the sheriff’s sales within six months after the foreclosure judgment.
The court rejected arguments by the borrowers that they were harmed by the bank’s delay in publishing a notice of (and presumably having the sheriff conduct) a foreclosure sale. The borrowers argued that they would be subjected to additional property taxes and homeowner’s insurance premiums before a foreclosure sale occurs. But the court pointed out that the borrowers would be in no worse position due to the lender’s delay in publishing the sale notice than they would have been if foreclosure proceedings had never been commenced, in which case the borrowers would also have been required to pay property taxes and insurance premiums. In addition, the borrowers would have the benefit of continuing to reside in the home with significantly reduced expenses until a foreclosure sale occurs, and without the threat of being subject to a deficiency judgment.
The Court distinguished the situation in Prissel from a case in which the foreclosure property is abandoned. It had to, in order to reconcile the Prissel decision from its conclusion in Bank of New York v. Carson, 2013 WI App 153, 352 Wis. 2d 205, 841 N.W.2d 573, review granted, 2014 WI 50, 354 Wis. 2d 860, 848 N.W.2d 857. In Carson, the Appeals Court concluded that a Circuit Court has authority to order a lender to sell an abandoned property upon the expiration of the five-week redemption period. According to the Carson decision, a contrary conclusion would “strip [owners of abandoned premises] of any remedies at law and allow lenders to leave properties in limbo for years.” Id., ¶14. The Appeals Court in Carson also noted that requiring prompt sales of abandoned premises promoted the public’s interest in preserving the condition and appearance of residential properties. Id. In its Carson opinion, the Court did not analyze the Karow factors to determine whether the word “shall” in § 846.102(1) was mandatory.
Both the Carson and Prissel cases present examples of mortgagors pushing the courts to force mortgage holders to take foreclosed properties through sheriff’s sale, and relieve the mortgagors of the burdens of property ownership – taxes, insurance, basic upkeep. Oral argument was held in Wisconsin Supreme Court in the Carson case in September, 2014, and we await the Wisconsin Supreme Court’s decision on whether Wisconsin courts can compel a foreclosing lender, once a foreclosure judgment is entered, to notice and request the sheriff to conduct a foreclosure sale.