Shorter redemption period applies

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A lender can foreclose on property, using the accelerated redemption period, even though it has obtained a separate judgment on a second mortgage on the property.

A divided Wisconsin Court of Appeals also held on Feb. 17 that, to redeem the property, the borrower must pay the total of the two mortgages.

Harbor Credit Union had two mortgages on a home owned by Christopher D. Samp. When Samp defaulted, Harbor sought foreclosure on the first mortgage, electing to waive any deficiency judgment, and thus shortening the period for Samp to redeem from 12 months to six months.

After obtaining summary judgment, Harbor initiated a second action on the second mortgage and obtained a money judgment of more than $120,000.

Harbor submitted the only bid at the sheriff’s sale in the first action, for approximately $411,000, and moved for judicial confirmation.

Samp appeared at the confirmation hearing on Jan. 27, 2010, and said he was able to pay the amount due, but requested a few days to do so. The court denied the request, but gave Samp until the end of the day to redeem by paying $411,000. Samp did not, and the sale was confirmed.

On Feb. 12, Samp moved to vacate the order, but the circuit court denied the motion. Samp appealed, but the Court of Appeals affirmed in an opinion written by Judge Brian Blanchard and joined by Judge Paul Lundsten. Judge Margaret J. Vergeront dissented in part.

Redemption

The court first held that Harbor was entitled to the accelerated redemption period, notwithstanding its judgment on the second mortgage.

Samp argued that the money judgment on the second mortgage represented a de facto deficiency judgment in the foreclosure proceedings on the first, but the court disagreed.

The court explained, “The debt that the second mortgage secured was reduced to a judgment; the separate debt that the first mortgage secured resulted in a sheriff’s sale but no deficiency judgment.”

Failure to redeem

The court next held that circuit court properly exercised its discretion in refusing to vacate the confirmation order.

Noting that a defendant in foreclosure has months in which to redeem the property, and that the only purpose of a confirmation hearing is to ensure the property sold for fair value, the court concluded that it was within the circuit court’s discretion to deny additional time to redeem after that hearing.

Judge Blanchard wrote for the court, “While redemption is remedial in nature, even liberal construction will not save a mortgagor who has ‘ample opportunity’ to redeem ‘within the time provided’ and fails to do so.”

The court acknowledged that it would not have been unreasonable for the court to allow more time, but that it could not be unreasonable not to. “A mortgagor who has the ability and desire to redeem must make payment before the commencement of a properly scheduled confirmation hearing in order to avoid the risk of losing the opportunity to redeem permitted under Wis. Stat. sec. 846.13.”
Payment
Finally, the court held that Harbor was not required to pay the balance of the purchase price to the clerk of court, within 10 days of the sale, as required by sec. 846.16.

As noted, the bid at the sheriff’s sale was $411,000. The amount owed on the first mortgage was approximately $288,000. Samp contended that Harbor was required to pay the difference to the clerk, but the court disagreed.

The court found that, had Harbor made such a payment, the clerk of court would have simply turned around and wrote a check back to Harbor for the same amount, because of the outstanding money judgment in the separate action.

The court thus concluded, even assuming that payment should have been made, the failure to do so did not affect any of Samp’s rights, and so, a new sheriff’s sale is not required.

Dissent

Judge Vergeront dissented from that part of the opinion holding that Samp was obligated to pay $411,000 to redeem the property, rather than the amount of the judgment, which was approximately $272,000.

Vergeront wrote, “Wis. Stat. sec. 846.13 plainly provides that the mortgagor may redeem ‘by paying to the clerk of the court in which the judgment was rendered or to the plaintiff or any assignee thereof, the amount of the judgment, interest thereon and costs.…’ (emphasis added by court). The judgment in this case was for $272,125.73, the amount due on the mortgage at issue in this action…”

Case analysis

The case is a good candidate for review in the Wisconsin Supreme Court, for the reason stated in the partial dissent by Judge Vergeront.

The lender effectively did an end run around the statutes providing for a reduced redemption period, but only if the lender waives the right to a deficiency judgment.

The lender could have filed just one lawsuit on both mortgages, but chose to instead file two actions — one a foreclosure, and the other just an action on the note.

Given the case law, however, that is a perfectly legitimate way to proceed. Bank of Sun Prairie v. Marshall Dev. Co., 2001 WI App 64, 242 Wis.2d 355, 626 N.W.2d 319, makes clear that each mortgage creates its own cause of action, and it is the lender’s right to pursue either judgment and foreclosure, or just a judgment, on each.

Since that is the case, however, the borrower should be able to redeem property foreclosed on merely by paying the judgment on the mortgage that was the subject of the foreclosure action.

If the lender wants to create a situation in which it must be paid on both mortgages before redemption can occur, the lender has the option of seeking foreclosure on both.

The majority opinion criticizes the dissent as resting on an unreasonable premise — that it was improper for the circuit court not to give the borrower more time to redeem.

But that is not what the dissent says. The dissent merely took issue with the amount the circuit court required the borrower to pay in order to redeem. At no point does the majority opinion explain why the borrower should have been required to pay off both mortgages to redeem the property, when the lender only foreclosed on one mortgage.

The lender made a strategic choice to pursue two separate actions. It benefited from that choice by being able to get the shorter redemption period on the foreclosure, yet still obtain a judgment against the borrower on the other loan.

But a consequence of that strategic choice should be the borrower need not pay off both mortgages to redeem the property from foreclosure on only one.

It is not as if the lender’s remedies would be impaired. As Bank of Sun Prairie makes clear, a lender’s decision to pursue only a money judgment does not bar it from later pursuing foreclosure in a separate action.

If the lender wants to be paid the total due on both mortgages, it need only do what it could have done in the beginning — foreclose on both mortgages.

What the court held

Case: Harbor Credit Union v. Samp, No. 2010AP974

Issues: Can a lender with two mortgages obtain a money judgment on one, and sue for foreclosure on the other, and, by waiving the right to a deficiency judgment, benefit from the reduced redemption period.

Was it an abuse of discretion not to allow the borrower additional time to redeem after the confirmation hearing?

Must a lender who is the high bidder at foreclosure pay the clerk of court the difference between the judgment and the bid?

Holdings: Yes. The two actions are separate, and the money judgment in one is not the equivalent of a
deficiency judgment in the other.

No. A borrower has ample time to redeem prior to the hearing, and a court is not required to offer more.

Even if it is required, if the borrower suffers no prejudice, a new sheriff’s sale is not required.