September 2011 Vol. 4, No. 8



Contracts; Foreclosure

Cambridge Financial Services, LLC v Rolon, 2010 AP 469 (Wis Ct App 2011).

Facts: Manuel Rolon took out a short-term high interest "bridge loan" for $375,000 from Cambridge Financial Services, using two properties as collateral. Both properties were located in Fond du Lac, Wisconsin, one on Park Avenue and the second on Division Street. A year into the loan, Rolon sold the Division Street property for $550,000, financing $400,000 for the buyer. Rolon assigned the note and mortgage from the sale of the Division Street property to Cambridge in an "agreement to substitute collateral."

The original draft of the agreement to substitute collateral indicated that the assignment would satisfy the mortgage on the Park Avenue property. Cambridge maintained that this was an error and that the agreement meant to release Cambridge's interest in only the Division Street property.

Prior to the closing, Cambridge recognized the mistake and had Rolon's attorney draft a revised agreement, listing the Division Street property instead of the Park Avenue property. Rolon did not sign this agreement. However, he did continue to make payments on the bridge loan. Four months before the final payment on the bridge loan was due, Rolon stopped making payments.

Cambridge brought an action for foreclosure and Rolon then argued that in the agreement to substitute collateral Cambridge had released its mortgage interest in both properties that Rolon had used as collateral for the loan. The circuit court found in favor of Cambridge, holding that while the contract was ambiguous because of the mistake regarding the property, neither party intended the agreement to release Cambridge's mortgage interest. Rolon appealed.

Holding: Affirmed. The court of appeals found that the agreement to substitute collateral was ambiguous because it was subject to more than one reasonable interpretation. When a contract's terms are ambiguous, the court may look at external evidence to try to determine the intent of the parties. In this case, the court looked at Rolon's actions subsequent to the agreement to substitute collateral and found that "the course of dealings between Rolon and Cambridge demonstrated that neither party intended to release the Park Avenue property from Cambridge's mortgage." Rolon continued to make payments on the loan for nearly two years after the agreement.

He also testified at trial that he continued making the payments because he did not have a release on the Park Avenue property. In addition, while continuing to repay the loan Rolon requested a payoff statement from Cambridge while trying to sell the Park Avenue property. The court found that these actions were enough to show that Rolon did not truly believe Cambridge had released its mortgage interest and therefore it affirmed the foreclosure judgment.

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[Last update: 9-21-11]