On April 25, 2016, Wisconsin Governor Scott Walker signed a new foreclosure bill into law. The 2015 Wisconsin Act 376 (Act 376) contains a number of important changes to the foreclosure process in Wisconsin. The provisions shorten redemption periods and clarify the foreclosure process for abandoned properties.
Entry of a foreclosure judgment in Wisconsin starts the running of the redemption period, the time during which the property owner may redeem the property (and removing the mortgage and the foreclosure judgment) by paying the foreclosure judgment amount. Once the minimum statutory redemption period has run, the mortgaged property may be sold at sheriff’s sale. Any amount still due on the mortgage debt after application of sale proceeds is referred to as the “deficiency.” In Wisconsin, a redemption period could be shortened if the mortgage allowed it and if the foreclosing mortgage holder agreed to waive collection of the deficiency against the party or parties personally liable for the debt secured by the mortgage.
Prior to Act 376, the redemption period applicable to noncommercial property (which includes a one-family to four-family residence that is owner-occupied at the commencement of the foreclosure action, a farm, a church or a tax-exempt nonprofit charitable organization) was 12 months if the deficiency was not waived by a plaintiff and six months if the deficiency was waived. The new law reduces the redemption period applicable to noncommercial property from 12 months to six months when a plaintiff seeks a deficiency judgment and from six months to three months when a plaintiff elects to waive judgment for any deficiency.
Act 376, however, provides that if a mortgagor of a noncommercial property attempts in good faith to sell the mortgaged premises and has entered into a listing agreement with a real estate broker, the circuit court may extend the redemption period to eight months when a plaintiff seeks a deficiency judgment and five months when a deficiency judgment is waived. The law also addresses when sheriff’s sale advertisements may begin, which differs depending upon the types of properties and sales. The law also makes it clear that the parties may, by stipulation filed with the court, consent to an earlier sale.
Next, the new law significantly revises the foreclosure procedure for abandoned properties in Wisconsin. Act 376 was a direct legislative response to last year’s decision of the Wisconsin Supreme Court in Bank of New York Mellon v. Carson, 2015 WI 15. Prior to Act 376, the law, Wis. Stat. §846.102, provided that if a court could find that the mortgaged property was abandoned, then it could shorten the redemption period to five weeks. In Carson, the Wisconsin Supreme Court interpreted section 846.102 to permit any party, including a mortgagor homeowner, to move a circuit court for an order to deem the mortgaged property abandoned and to require that sale of such premises be made as soon as reasonable upon expiration of five weeks from when the date of judgment is entered.
The Carson decision was met with frustration by lenders who were under the belief that they were not compelled to take a foreclosure case through sheriff’s sale; that they could make a business decision to stop a foreclosure action after judgment but before sale. However, the Carson decision concluded that foreclosure on an abandoned property actually required the foreclosing lender to proceed through a sale (which was not required for a property not found to be abandoned).
During the real estate recession, when property owners were abandoning their properties, property owners claimed that they were surprised to learn that they continued to own a property after judgment of foreclosure because they either misunderstood when title would pass, or assumed that a sale would occur and that the property owner would then be relieved of the burdens of property ownership (upkeep, insurance, property taxes and the like). Consequently, property owners began to bring motions and actions to force sheriff’s sales of their abandoned properties, claiming that the foreclosure statute required such sales to be conducted. The Supreme Court agreed.
The Supreme Court in Carson reasoned that the legislature intended a prompt sale of the abandoned properties and that the Bank’s interpretation of Wis. Stat. §846.102 “would allow mortgagees to initiate foreclosures, but fail to bring the properties to sale for an extended period of time, leaving the properties in legal limbo.” Id., ¶37. The Supreme Court pointed out to various studies on the effects of abandoned properties on local communities and concluded that the legislative intent of Wis. Sta. §846.102 was to help municipalities deal with abandoned properties in a timely manner. Id., ¶40. The Supreme Court concluded that the circuit court must order the abandoned property to be brought to sale within a reasonable time after the redemption period, and that it is up to the circuit court’s discretion to determine what constitutes a reasonable period of time. This ruling injected both certain (a sale must be conducted) and uncertain (but when?) into the process.
The new law invalidates the holding of Carson and eliminates the five-week redemption period previously found in Wis. Stat. §846.102. However, the law does address the problem of abandoned foreclosed properties within relatively short time periods. New Wis. Stat. §846.102(3), allows a lender foreclosing on an abandoned noncommercial property to do one of the following within 12 months after judgment is entered:
- Hold a sale of the mortgaged premises and have the sale confirmed; or
- Release or satisfy the mortgage lien and vacate the judgment of foreclosure.
The new law also strips powers granted by the Carson court to a mortgagor to move the court to declare the mortgaged property abandoned for the purposes of reducing the redemption period. Under the new law, only the plaintiff or a city, town, village or county may move the circuit court to declare the property abandoned. The new law, however, provides that if a lender fails to exercise one of two options provided in Wis. Stat. §846.102(3) within 12 months from the date of entry of judgment, any party, including a mortgagor homeowner, may petition the court for an order compelling sale of the property.
The new law brings more clarity to the foreclosure process, providing lenders with a bright-line one year rule and returns them some flexibility regarding foreclosing on an abandoned property that they had pre-Carson. Nevertheless, because lenders have only a 12-month period to decide what to do with an abandoned property, lenders need to carefully weigh their options and do their homework on the value of properties before instituting foreclosure proceedings.
The new shortened redemption periods and procedures relating to foreclosure of abandoned noncommercial properties apply only to mortgages executed on or after April 27, 2016. Lenders should be sure to use updated Wisconsin mortgages reflecting the shortened redemption periods provided by the new Wisconsin law.