Lenders foreclosing abandoned residential properties (known as “zombie properties”) will likely regain some of the flexibility they lost as a result of the 2015 Wisconsin Supreme Court decision in The Bank of New York Mellon v. Carson, 2015 WI 15, 361 Wis. 2d 23, 859 N.W.2d 422. 2015 Assembly Bill 720 has passed both houses of the Wisconsin Legislature and if (or when) enacted, it will invalidate The Bank of New York Mellon‘s holdings.
As we have previously written about, the homeowner in The Bank of New York Mellon filed a motion with the circuit court asking that her property be declared abandoned and that a foreclosure sale be compelled upon expiration of the applicable five-week redemption period. Over 16 months had passed since the entry of the foreclosure judgment, and the bank had taken no steps to secure the property and had no plans to sell it. On appeal, the Wisconsin Supreme Court held that Wis. Stat. § 846.102 authorizes (and perhaps even mandates) circuit courts to order that foreclosing lenders bring zombie properties to sale within a reasonable time after the statutory five-week redemption period.
Assembly Bill 720 will eliminate the five-week redemption period currently found in Wis. Stat. § 846.102(1) and create Wis. Stat. §§ 846.102(3) and (4). The new Wis. Stat. § 846.102(3) will allow lenders foreclosing owner-occupied, abandoned residential property 12 months from the entry of the foreclosure judgment to either:
- Hold a sale of the property and have the sale confirmed under Wis. Stat. § 846.165; or
- Release or satisfy the mortgage lien and vacate the foreclosure judgment.
If the foreclosing lender chooses the second option, the circuit court must vacate the foreclosure judgment with prejudice. If the foreclosing lender does not complete either of the two options within 12 months after the entry of the foreclosure judgment, any party, or the city, town, village, or county in which the property is located, may petition the circuit court for an order compelling the sale of the property. In addition, the new Wis. Stat. § 846.102(4) will clarify that lenders foreclosing abandoned commercial property may, but need not, hold a sale of the property any time after a five-week redemption period.
Assembly Bill 720 will also amend Wis. Stat. § 846.102(1) to require that a motion be made by the plaintiff-lender, or by the city, town, village, or county in which a property is located, before the circuit court can deem the property abandoned. Therefore, homeowners will be prohibited from bringing motions in foreclosure actions asking that their properties be deemed abandoned, and triggering the statutory requirements specific to zombie properties themselves, as was the case in The Bank of New York Mellon.
Although Assembly Bill 720 returns control over foreclosures of zombie properties to lenders, at least to some extent, decisions regarding undesirable properties should be made prior to initiating foreclosure proceedings. Once a property is deemed abandoned, the lender has only one year to bring the property to sale and have it confirmed or to release its mortgage and vacate its foreclosure judgment. If a foreclosure judgment is vacated under the new statutory scheme, the lender will be barred from bringing a later action to foreclose its mortgage. Furthermore, lenders do not have the sole right to request that a property be deemed abandoned once the foreclosure process is underway. Thus, procedural requirements specific to zombie properties may be imposed on a lender against its wishes if the city, town, village, or county requests a finding of abandonment. In sum, if a zombie property is not worth owning, it remains best for that decision to be made before filing a foreclosure complaint.
If you have any questions about how the information in this article may affect you or your business, please contact Norm Farnam at email@example.com or Doug Scriver at firstname.lastname@example.org 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.