Walworth State Bank v. Abbey Springs Condominium Association (WI)

Summary: Condominium association's policy that unpaid assessments prohibited owners from using recreational facilities violated foreclosure law.

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Walworth State Bank v. Abbey Springs Condo. Ass'n, Inc., 2016 WI 30, 368 Wis. 2d 72, 878 N.W.2d 170 (Wis. 2016).

 

Facts: Walworth State Bank held two real estate mortgages on units in Abbey Springs Condominium. Abbey Springs has a policy where recreational facility use is suspended if there are unpaid assessments. The suspension lasts until the assessments are paid in full.

In 2012, Walworth State Bank initiated foreclosure proceedings against the owners of the two units. Abbey Springs was named as a defendant in the complaint due to its claim of unpaid assessments from those two units. Walworth State Bank eventually purchased the units at the sheriff’s sale of the property.

Before the sale, Abbey Springs notified Walworth State Bank of the policy forbidding the use of the recreational facilities to the owners or occupants of any unit where there were unpaid assessments and suggested that Walworth State Bank include this in the announcements in the sheriff’s sale. After the sale, Walworth State Bank responded to Abbey Springs by holding the position that the policy violated numerous laws as well as the foreclosure judgment.

Walworth State Bank had a buyer scheduled to purchase the property on July 12, 2013. Abbey Springs issued a letter stating that the seller could satisfy the outstanding assessments for $13,225.32. This information caused the buyer to refuse to close on the sale that day. Walworth State Bank accused Abbey Springs of thwarting the sale and requiring Walworth State Bank to pay the outstanding assessments. Abbey Springs responded by stating an earlier position that the Bank was not required to pay the outstanding assessments. Walworth State Bank paid the outstanding assessments under protest in order to complete the sale to the new owner.

Walworth State Bank filed suit against Abbey Springs to have the circuit court declare the policy in violation of Wisconsin law and to get back the $13,225.32 paid under protest. The circuit court granted Walworth State Bank’s motion of summary judgment. First, it declared that the policy of holding new owners jointly and severally liable for the prior unpaid assessments were a violation of Wis. Stat. § 703.165(2). Second, it declared the policy a violation of Wis. Stat. § 703.10(6), because it affected the quality and marketability of title. Walworth State Bank was also granted the $13,225.32 paid under protest.

On appeal, the circuit court was reversed. The court of appeals determined that the policy did not contradict any Wisconsin statute and Walworth State Bank had no obligation to pay the outstanding assessments. The court of appeals stated that Wis. Stat. § 703.165(5)(b) did not govern the issue of unpaid assessments and that Wis. Stat. § 703.165(2) did not govern liability for unpaid assessments in an involuntary grant situation like the sheriff’s sale here. The court held the policy did not attempt to create joint and several liability in any respect. Walworth State Bank appealed.

 

Holding: Reversed and remanded. The Supreme Court of Wisconsin held that the Abbey Springs policy violated Wisconsin foreclosure law as well as the foreclosure judgment issued by the circuit court. The unpaid assessments may not be tethered to the property because that would effectively allow Abbey Springs to assert a right against the property that the foreclosure judgment eliminated.

First, Wisconsin law is silent on joint and several liability for unpaid assessments in the case of an involuntary grant. Wisconsin Stat. § 703.165 deals with liens for unpaid common expenses, damages, or penalties. Wis. Stat. § 703.165. That statute allows joint and several liability for unpaid assessments in the situation of a voluntary grant. Wis. Stat. § 703.165(2). But the court did not find that the inverse is true in a situations of an involuntary grant, like foreclosures. The legislation was silent and the court declined to speak where the legislature was silent.

Second, it is undisputed by the parties that the unpaid assessments are a lien against the units and that Walworth State Bank’s mortgage takes priority over the lien. The prioritization of the mortgage over the lien was reflected in the foreclosure judgment issued by the circuit court. A valid foreclosure of a mortgage terminates all interests in the foreclosed real estate that are junior to the mortgage being foreclosed. Restatement (Third) of Property (Mortgages) § 7.1 (1997). With regard to a junior lien, such as Abbey Springs, the Wisconsin court of appeals has stated that the parties who were in the foreclosure action can no longer assert any claim or right of interest against the property. First Wis. Trust Co. v. Rosen, 143 Wis.2d 468, 472–73, 422 N.W.2d 128 (Ct.App.1988).

Abbey Springs’ lien was therefore extinguished in the foreclosure action and they are not allowed to evade the effect of the foreclosure judgment by saddling the property with the unpaid assessments. The purpose of a foreclosure action is to determine the rights of the parties and restore title to the property as it stood at the time of the execution of the mortgage. If the lien were allowed to stay, it would be impossible for the title to be restored because it would affect the current owner’s ability to utilize the recreational facilities unless Walworth State Bank payed the former owners’ debts.

Opinion Year: 
2016
Jurisdiction: 
Wisconsin
By: ATG Underwriting Department | Posted on: Wed, 11/16/2016 - 3:48pm