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Foreclosure – Junior Lienholder

By: Derek Hawkins//January 20, 2022//

Foreclosure – Junior Lienholder

By: Derek Hawkins//January 20, 2022//

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WI Court of Appeals – District IV

Case Name: Heartland Credit Union v. Chocolaterian LLC, et al.,

Case No.: 2020AP2154

Officials: Blanchard, P.J., Kloppenburg, and Fitzpatrick, JJ.

Focus: Foreclosure – Junior Lienholder

Heartland Credit Union brought a mortgage foreclosure action against Chocolaterian LLC in the Dane County Circuit Court. Heartland appeals an order of the circuit court which granted the motion of Duane Beckett, a junior lienholder, to confirm a sheriff’s sale of real property belonging to Chocolaterian (“the property”). Chocolaterian borrowed money from Beckett, and a mortgage to secure that loan was recorded. Later, Chocolaterian executed a promissory note with Heartland (“Note 1”), and a mortgage to secure that debt was recorded. Beckett agreed to subordinate his mortgage to Heartland’s mortgage for Note 1. A few months later, Chocolaterian executed a second promissory note with Heartland (“Note 2”).

Chocolaterian failed to pay its debts to Heartland. Heartland filed a complaint against Chocolaterian requesting a foreclosure judgment. The complaint also requested a money judgment against Chocolaterian for the amounts due under Note 1 and Note 2. Beckett was named as a defendant in that action because of his status as a lienholder. The circuit court entered a judgment of foreclosure on Heartland’s mortgage. The circuit court also entered judgment against Chocolaterian for the amounts due under Note 1 and Note 2. At a sheriff’s sale of the property, Heartland made a “credit bid” of $499,000,1 an amount greater than the amount due to Heartland under Note 1, but less than the amount due under Note 1 and Note 2 combined. Heartland moved to confirm the sale, but the circuit court concluded that Heartland was not entitled to credit bid more than the amount due under Note 1. The court allowed Heartland to withdraw its confirmation motion so that a second sheriff’s sale could be held. Before a second sheriff’s sale could be conducted, Beckett moved to confirm the sheriff’s sale based on the credit bid made by Heartland at the prior sale. The circuit court granted Beckett’s motion, but did not confirm the sale based on Heartland’s credit bid of $499,000. Rather, at Beckett’s request, the circuit court allowed Heartland to have a credit bid in the amount of $451,774.29 (the amount due to Heartland under Note 1) but required Heartland to pay Beckett $47,225.71 in satisfaction of his junior lien (the difference between Heartland’s credit bid on Note 1 and the $499,000 credit bid of Heartland at the sale). Heartland appeals.

We conclude that the circuit court correctly ruled that Heartland was not entitled to credit bid more than the amount due to Heartland under Note 1. However, we also conclude that the court erred in granting Beckett’s confirmation motion regarding the sheriff’s sale that was held because Beckett lacked statutory authority as a junior lienholder to move for confirmation of the sale based on Heartland’s $499,000 credit bid. Our decision necessarily requires reversal of the circuit court’s order that required Heartland to pay $47,225.71 to Beckett to satisfy Beckett’s junior lien. We therefore remand for the circuit court to order a second sheriff’s sale of the property.

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Derek A Hawkins is Corporate Counsel, at Salesforce.

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