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UPDATE: WISCONSIN REDUCES FORECLOSURE REDEMPTION PERIODS; TARGETS ‘ZOMBIE’ PROPERTIES
A new law signed by Governor Scott Walker reduces the foreclosure redemption period available to property owners who have defaulted on their mortgages. When an owner defaults on a mortgage and the bank initiates foreclosure proceedings to recover the property as collateral, Wisconsin law affords the owner a certain period of time within which to “redeem” the mortgage (i.e., to pay off the mortgage, for instance, through refinance or voluntary sale of the property, agreement with the bank, or other some means short of forced sale). The period is called the redemption period.
Historically, in Wisconsin, that period has been 12 months from the date of the foreclosure judgment for large parcels of farm land, 6 months for owner occupied residential property (or 12 months if the bank wishes to reserve the right to pursue the homeowner personally for a deficiency where the value of the property has fallen below the balance of the loan), 3 months for non-owner occupied residential or commercial property (or 6 months if the bank wishes to reserve the right to pursue the borrower for a deficiency), and 5 weeks where the owner has abandoned the property.
Act 376 drops the redemption period for farm foreclosures from 12 months to 6 months and matches the redemption period for owner occupied properties to that of non-owner occupied properties (3 months if any deficiency claim is waived, or 6 months if not). The Act gives the owners of farm or homestead property the ability to extend their redemption period by 2 months by making a motion to the court prior to entry of judgment demonstrating that the property has been listed for sale with a broker. The new redemption rules apply only to mortgages signed after the signing of the Act on April 26, 2016.
Finally, the Act modifies the foreclosure rules applicable to abandoned properties. It is not uncommon for homes in foreclosure to simply be abandoned in the middle of the mortgage default/foreclosure process, resulting in a scenario where no one is securing or maintaining the property. Incidents of vandalism and neglect involving such properties have created a frightening new breed of home called the “zombie property.” See Justin M. Mertz, Benjamin Patrick Payne, and Kail J. Decker, “Foreclosures in Limbo: Zombie Properties” Wisconsin Lawyer, Vol. 88, No. 9, Oct. 2015. Last year, the Wisconsin supreme court held that banks can in some cases be forced to complete the foreclosure of such a property (and thereby take responsibility for bringing the property up to code), potentially placing the burden on lenders to affirmatively care for their loan collateral at their expense. Bank of New York Mellon v. Carson, 2015 WI 15. Critics of the ruling argue that it sets up the potential for lending institutions, who are already certain to lose money in the loan transaction, “to go even further out of pocket to clean up the owner’s mess.” Mertz et al., “Foreclosures in Limbo: Zombie Properties.”
In response to the Carson case, the Act sets up a more defined approach to zombie properties by requiring lenders who foreclose on an abandoned property to decide either to (a) complete the foreclosure within 12 months from the entry of judgment or (b) release their mortgage lien and vacate the judgment of foreclosure. If the bank fails to pursue either option, the city or town in which the property is located may petition the court for an order compelling the sale of the property. This gives the lender an opportunity to walk away from the property without incurring further loss by satisfying its mortgage, while balancing the community’s need to obtain a final resolution of foreclosure of an abandoned property before it becomes a blight to the neighborhood.