Sheriff’s Sale at 55% of Fair Market Value Does Not Shock the Conscience When Homeowners are Only Playing for Time

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By Norman D. Farnam

December 20, 2017

The Wisconsin Court of Appeals recently held in Green Tree Servicing v. Lorang (December 14, 2017) (per curiam), that a trial court did not erroneously exercise its discretion when it confirmed a sheriff’s sale in a foreclosure action at a purchase price that was as little as 55% of the property’s fair market value.  The trial court concluded that the difference between the price paid and the fair market value alleged by the homeowners was not “so grossly inadequate as to shock the conscience of the court.”  The Court of Appeals affirmed.

In December 2012, the lender brought a foreclosure action against the homeowners.  The lender waived its entitlement to a deficiency judgment which reduced the homeowners’ redemption period to six months.  It appears from the record that, as a result of extensive motion practice, a foreclosure judgment was not entered until 2016, dramatically lengthening the effective redemption period and permitting the homeowners to live in the property for years without paying their mortgage note.

The homeowners failed to redeem the property within the redemption period and instead filed a federal lawsuit against the lender and sought to stay enforcement for the foreclosure judgment.  The trial court denied the requested stay and permitted the sheriff’s sale to take place.  The property was sold for $306,500 which was significantly less than the $525,000-$559,000 value claimed by the homeowners.  The trial court confirmed the sale over the objections of the homeowners.

On appeal, the homeowners argued that the purchase price at the sheriff’s sale was too low.  However, the Court of Appeals pointed out that when a lender has waived its claim to a deficiency judgement, the presumption is that the sale price represents fair value.  The burden falls to the homeowners to demonstrate that the purchase price shocks the conscience in order to avoid confirmation.  The Court of Appeals further explained that a sheriff’s sale is not the open market and accordingly, the “mere inadequacy of the bid price is not a sufficient reason for the court to refuse to confirm the foreclosure sale.”  The trial court and Court of Appeals noted that the homeowner had five years since the commencement of the foreclosure action to test the market and sell the property at the claimed fair market value but had failed to do so.

The Court of Appeals quickly focused on what the requested relief would really mean to the homeowners.  The lender had waived its entitlement to a deficiency judgment.  That means the homeowners had no personal liability to the lender beyond the loss of the house no matter what the winning bid was at sheriff’s sale.  However, the homeowners would be entitled to any surplus generated by the sheriff’s sale after the lender and any other lienholders were paid.  The homeowners might have cause to complain if the winning bid deprived the homeowners of significant equity.

In this case, the homeowners owed the lender $387,321.77.  Therefore, the winning bid of $306,500 would have needed to be more than $80,000 higher before the homeowner could see any money from the sale.  The Court of Appeals determined that it was not reasonable to expect such a dramatically different outcome from a second sheriff’s sale and that there was no evidence that the lender’s credit bid of $306,500 negatively affected the bidding at the sheriff’s sale.  Based on this analysis, the Court of Appeals determined that the homeowners’ true motivation – and the only benefit from permitting another sheriff’s sale – would be to allow the homeowners to remain in the property longer.

In deciding whether the trial court properly exercised its discretion in determining that the sale at a 55% value did not “shock the conscience,” the Court of Appeals appeared to look less to the alleged fair market value offered by the homeowners and instead focus on the practical effect of the bid.  In the estimation of the Court of Appeals, the homeowners had no realistic hope of getting equity out of the property and had made no effort to do so on the open market during the foreclosure proceedings.  The only value that the homeowners could hope to achieve was to delay the proceedings and retain their home for a longer period of time.  The Court of Appeals was unwilling to reverse the trial court’s determination to allow the homeowners to effectively extend the redemption period further.

Based on this outcome, it is not clear whether the difference between purchase price at sheriff’s sale and the fair market value offered by a defendant is relevant if the deficiency has been waived and the homeowner has no realistic possibility of receiving any surplus from a sheriff’s sale.  The conclusion of the Court of Appeals in this case is that the homeowners have nothing to gain from a higher purchase price and no legitimate complaint about the lower price.  Theoretically, an opening bid of $1 would have the same effect; although perhaps the homeowners would have a better argument that an extremely low bid would affect other bidders’ perception of the property.

It also is not clear how influenced the Court of Appeals was by the fact that the homeowners had retained possession of the house since the foreclosure action commenced in 2012, effectively living for free without any personal liability to the lender.  Would a low bid be more likely to shock the conscience if the case had not been open for five years?  The reality may be that it is difficult to shock the conscience of the court when the homeowner is just looking to delay the inevitable and extend the redemption period.

If you have any questions about how the information in this article may affect you or your business, please contact Norm Farnam at or (608) 257-2281 or your Stroud attorney.

DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice.  This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship.  You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.