Norman D. Farnam
August 15, 2014
On July 10, 2014, the Wisconsin Supreme Court ruled that the doctrine of equitable assignment is still the law in Wisconsin. Equitable assignment, first recognized in Wisconsin cases dating from the 1880s but rarely invoked since, is a doctrine pursuant to which the holder of a promissory note also automatically holds the mortgage that secures the note. When the note is assigned, the mortgage follows the note to the new holder by operation of law. Equitable assignment does not require a written or recorded assignment of the mortgage.
In Dow Family, LLC v. PHH Mortgage, the Supreme Court ruled that equitable assignment is “alive and well” in Wisconsin. Writing for the Court, Justice Patrick Crooks clarified that section 409.203(7) of the Wisconsin Statutes (part of Wisconsin’s Article 9 of the Uniform Commercial Code) codifies equitable assignment. Furthermore, the court noted that equitable assignment does not violate the statute of frauds because of an exception to the statute for real property transferred by “act or operation of law.” Ordinarily, the statute of frauds requires any real estate transfer to be in writing, but because a mortgage automatically transfers with a promissory note under the doctrine of equitable assignment, the transfer is an automatic operation of law that does not require a writing.
In a concurring opinion, Chief Justice Shirley Abrahamson discussed the implications of equitable assignment in the 21st century, specifically examining the Mortgage Electronic Recording System (MERS). MERS is a member-based organization of lenders, servicers, investors, and government institutions. As a benefit of membership, MERS holds the legal title of a mortgage while the lender holds the note. This enables the lender to assign the promissory note without the hassle and expense of recording a mortgage assignment. Chief Justice Abrahamson expressed concern regarding the secrecy and lack of notice inherent to the MERS system. She also noted that equitable assignment might cause a great deal of confusion regarding MERS’ rights and obligations if the mortgage automatically transfers with the promissory note.
Special thanks to Diana Eisenberg, 2014 summer associate, for her assistance in preparing this post.
If you have any questions about how the information in this article may affect you or your business, please contact Norm Farnam at nfarnam@stroudlaw.com 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.
Thank you for contacting Stroud, Willink & Howard, LLC, via our website. We have included this notice to inform you that any communication with us through this website does not constitute or create an attorney-client relationship with us. Please note that we cannot act as your attorney or provide you with any legal advice until we know that doing so will not create a conflict of interest. Until we have agreed to represent you, anything you send us will not be confidential or privileged, and you should not send sensitive or confidential information through this website.
By clicking "Submit" below, you agree that our review of any information you send to us will not create a lawyer-client relationship with us, and you recognize that our review of your information, even if it is highly sensitive and even if it is transmitted in a good faith effort to retain us, does not preclude us from representing another party directly adverse to you, even in a matter where that information could and will be used against you. If you would like to discuss the possibility of potential legal representation, you may request a consultation by e-mail or by calling our office.