Receivership Proceeds 

WI Court of Supreme Court

Case Name: Marilyn Casanova v. Michael S. Polsky, Esq.

Case No.: 2019AP001728

Officials: Rebecca Grassl Bradley, J.

Focus: Receivership Proceeds

After the Atrium, a senior-living facility, defaulted on debt service payments to a group of bondholders, the facility filed a petition for receivership. The court-appointed receiver sold the Atrium’s assets, generating more than $4 million in proceeds. According to the receiver, the Atrium owed the bondholders more than $6 million, secured by a valid mortgage lien on the Atrium’s estate. Many of the Atrium’s residents claimed they were entitled to the proceeds of the sale because, under their residency agreements, they were owed reimbursement of the entrance fees they paid to the Atrium. The circuit court concluded the bondholders’ mortgage lien was superior to the residents’ entrance fee claims.

The court of appeals reversed, applying M&I First National Bank v. Episcopal Homes Management, Inc., 195 Wis. 2d 485, 536 N.W.2d 175 (Ct. App. 1995) to deem the residents’ claims superior to the bondholders’ lien.

Before the supreme court, the residents concede the bondholders possess a valid, perfected mortgage lien on the Atrium’s estate, but the residents argue (1) the bondholders contracted away the superiority of their mortgage lien, and (2) Episcopal Homes grants entrance fee claims superiority. The supreme court disagrees and hold: (1) Under Wis. Stat. § 128.17 (2021–22), the bondholders’ mortgage lien is superior to the residents’ contract claims;4 (2) the bondholders did not contract away the superiority of their lien; and (3) Episcopal Homes does not apply to the proceeds from the sale of real property with a properly perfected mortgage lien.  The supreme court reverses the court of appeals decision.

Reversed.

Decided 03/16/23

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