Property — options to purchase

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Wisconsin Court of Appeals

Civil

Property — options to purchase

This is a dispute between two banks over the relative priorities of (1) an option to purchase commercial property, held by one bank and (2) a lien created by a real estate mortgage on the same property, held by the other bank.

The option to purchase the property at issue was first created in 1986 between the property owner, Jess Levin, and the Bank of Elmwood, as part of a lease. In 2009, the lease containing Elmwood’s option to purchase was assigned by a receiver to one of the banks that is a party to this appeal, Tri City National Bank.

The real estate mortgage at issue was secured by this same property. The mortgage was executed and recorded in 2007, in connection with a loan of $1.55 million that Levin took from the other bank that is a party here, National Exchange Bank and Trust.

In 2011, Tri City executed its option to purchase the property from Levin, while Levin still owed an outstanding balance on the National Exchange mortgage note. Levin failed to produce to Tri City a fee title to the property, free of the lien created by the National Exchange mortgage. In response, Tri City initiated this litigation, seeking an order granting it clear title to the property based on its willingness to pay the price called for under the option to purchase.

The circuit court ruled for Tri City, with relief that included discharging the lien created by the National Exchange mortgage, on the grounds that the lien is an interest subordinate to Tri City’s option to purchase.

On appeal, National Exchange argues that Tri City never validly exercised its option to purchase the property from Levin. In addition, National Exchange argues that Tri City’s option is subordinate to the mortgage for the following reasons: Tri City executed the option only after National Exchange had executed and recorded the mortgage deed with Levin; the 2009 assignment by which Tri City obtained the option states that the option is subordinate to such encumbrances; the doctrine of equitable subrogation must be applied to avoid the unjust enrichment of Tri City; and, under Wis. Stat. § 706.11(1)(d) (2011-12),[1] the National Exchange mortgage “shall have priority” over Tri City’s “lien[] upon the mortgaged premises.” National Exchange also argues that the 1986 lease between Levin and Elmwood provides for the exclusive remedies available to lessee Elmwood (and now Tri City, in Elmwood’s place) in the event of a non-curable “title defect,” which the mortgage debt represents under these circumstances, and that these exclusive remedies do not include any of the remedies granted by the circuit court. We reject each of these arguments and accordingly affirm. Not recommended for publication in the official reports.

2013AP2060 Tri City National Bank v. Levin et al.

Dist II, Racine County, Jude, J., Blanchard, P.J.

Attorneys: For Appellant: Callan, Laura E., Madison; For Respondent: Long, Russell S., Milwaukee; Ambrose, Dillon, Milwaukee