Accession Law LLC


Mar 11, 2015

Wisconsin Supreme Court vs. Zombie House

In foreclosure parlance, a "zombie house" is a home that has been abandoned by the owner/borrower where the lender/mortgagee does not move promptly to obtain a sheriff's sale and confirmation.  The house sits uncared for indefinitely in a state of legal limbo.  The Wisconsin Supreme Court addressed this situation in the case of Bank of New York Mellon v. Carson, 2015 WI 2015(Feb. 17, 2015).

In that case, mortgagee Bank of New York Mellon filed a foreclosure action and obtained a judgment.  However, the lender did not move to obtain a sheriff's sale after the redemption period passed.  Often in cases such as this, the lender assumes that it will be the high bidder at sheriff's sale and thereafter will become the owner of the property.  For various reasons, the lender may wish to delay or defer its ownership.

In Carson, the lender opted not to complete the foreclosure process.  The borrower, Shirley Carson, felt aggrieved by this decision.  Carson had abandoned the property, had apparently conceded to or at least defaulted to a judgment and apparently wished to be done with the matter.  A borrower's credit recovery generally does not begin until the foreclosure process is complete, so Carson may have been concerned with the continuing damage to her credit score.  As title owner to the property, Carson may have been concerned with other liability arising from ownership.  Carson moved the trial court to order the lender to complete the sheriff's sale.

The trial court determined that it did not have authority to order this relief.  The court found that  Wis. Stat. § 846.102 (2011-12), the statute governing foreclosure of abandoned properties, permits but does not require sale of a property after the redemption period has passed and that the statute also does not contain any deadline.

The court of appeals reversed and concluded that the trial court did have the authority to grant Carson's motion.  The Wisconsin Supreme Court affirmed and held:
¶3 Based on the statute's plain language and context, we conclude that when the court determines that a property is abandoned, Wis. Stat. § 846.102 authorizes the circuit court to order a mortgagee to bring the property to sale after the redemption period. We further conclude, consistent with the purpose of the statute, that the circuit court shall order the property to be brought to sale within a reasonable time after the redemption period. The circuit court's determination of what constitutes a reasonable time should be based on the totality of the circumstances in each case.
Thus, under Wisconsin law, a lender in a foreclosure action must expect that it will be required to bring a property to sheriff's sale within a reasonable time after the redemption period expires.

Mar 10, 2015

Short Sale vs. Foreclosure

"Short sale" refers to the sale of a property in circumstances where a secured party such as a mortgagee will not be paid in full.  The mortgagee's cooperation will be necessary because, absent payment in full, the mortgagee is not necessarily required to satisfy the mortgage.

There are a variety of reasons why a home owner may consider a short sale.  Debt on the home may be greater than the home's market value.  This can occur when the debt-to-ratio is high and then the property depreciates in value.  Another common reason is that financial distress due to a job loss or a medical emergency may cause a borrower to default on a mortgage note.  Once a borrower is in default, the lender typically calls the note due meaning the entire principal balance must be repaid.  However, the fact of a default damages the borrower's credit such that it may be impossible to refinance the debt in order to repay the entire principal balance.

When a home owner/borrower either is in default or is considering defaulting, the borrower has 2 basic options.

Short sale: One choice is the "short sale" whereby the owner sells the property for market value and the creditor "bank" agrees to release its mortgage even though it is not paid in full on the mortgage note.  This requires the owner to market the property (let in prospective buyers, etc), to negotiate a proposed sale, and then to seek the bank's cooperation.

Default/foreclosure  Alternatively, the owner could default (stop paying) and lose the house through foreclosure.  Typically, the bank serves notice and then files suit, eventually obtains a judgment, and then has a sheriff's sale after which the owner must leave.

How do these two options compare?

A short sale involves substantial cooperation between the borrower/seller and the lender.   From the perspective of the borrower/seller, the short-sale approval process often is long and frustrating.  The lender often gives conflicting or unclear direction as to when or whether the short sale will be approved.  The lender typically requests numerous documents from the borrower such as the borrower's budget, income, expenses, wage statements, tax returns, utility bills etc.  Often, the lender requests these same documents numerous times and/or in numerous different formats.  The process can take an unlimited amount of time since the lender need not necessarily agree to the short sale.  The short sale process is entirely a process of negotiation.

 The foreclosure process, to the contrary, is a legal proceeding with timeliness set by statutes and the court.  A typical owner-occupied home foreclosure typically takes 7-18 months depending upon a few key factors.  At the conclusion of the process, if the lender is entitled to and obtains a judgment, there will be a sheriff's sale.      

One key concept related to either option is the "deficiency."  The deficiency is the amount owed to the bank less the amount received by the bank.  Either option could result in the owner owing the deficiency amount to the creditor(s).  However, with respect to the first mortgage debt, either option typically results in forgiveness or waiver of the deficiency.  (Caution:  this is not necessarily the case and is an important area for review by an attorney.  Also, there may be important tax consequences to how this situation is treated.)

Contrary to conventional wisdom, according to FICO Banking Analytics Blog 2011, there is no difference in credit score damage between a short sale and a foreclosure.  Depending upon where the borrower's credit started, either a short sale or a foreclosure will cause the credit score to drop 100-160 points.  The time needed for the borrower's credit to recover is estimated to be the same for a short sale as for a foreclosure (3-7 years).  The only difference between the two options with respect to credit score seems to be that the credit score recovery will begin earlier in the case of a successful short sale since the timeframe presumably will be shorter for a successful short sale than for a foreclosure.

Feb 3, 2015

Confirmation of sheriff's sale in WI

The "final" step in the foreclosure process typically is the confirmation by the court of the sheriff's sale.

After the sheriff's sale, the plaintiff typically moves to confirm the sale so that a deed can be given and the proceeds paid to the plaintiff.  The court must confirm that the sale was conducted in accordance with the judgment entered in the case and the law.

The Court of Appeals explained the process as follows in Countrywide Home Loans v. Russ, 09AP2873, (WI App 2010) unpublished, so not legal precedent:

The statute's command that the circuit court must be "satisfied that the fair value of the premises sold has been credited on the mortgage debt, interest and costs" is triggered by three things: (1) a deficiency judgment is sought; (2) the mortgaged property "sell[s] for less than the amount due and to become due on the mortgage debt and costs of sale"; and (3) the property's "fair value" "has been credited on the mortgage debt, interest and costs." Significantly, "mere inadequacy of price is not a sufficient reason for failing to confirm a sale." Citizens Bank of Sheboygan v. Rose, 59 Wis. 2d 385, 387, 208 N.W.2d 110, 111 (1973). Rather, "[t]here are two situations where refusal to confirm is warranted. The first is where there is an inadequate price which has resulted from circumstances such as a mistake, misapprehension, or inadvertence. The second is where the price is so inadequate as to shock the conscience of the court." Id., 59 Wis. 2d at 387­388, 208 N.W.2d at 111. Stated another way, a circuit court does not have the unfettered freedom to deny confirmation of a mortgage-foreclosure sale; there must be a demand for a deficiency judgment (so that if the sale is not for "fair value" the mortgagor is unjustly saddled with a deficiency judgment) and one or both of the conditions set out in Rose are present. See First Wisconsin Nat'l Bank of Oshkosh v. KSW Investments, Inc., 71 Wis. 2d 359, 367, 238 N.W.2d 123, 128 (1976) ("The language of the statute that 'no sale shall be confirmed and judgment for deficiency rendered[,] until the court is satisfied that the fair value of the premises sold has been credited on the mortgage debt, interest and cost' was subsequently interpreted by this court to mean nothing more than 'such reasonable value as does not shock the conscience of the court.'") (citation omitted). 

Nov 2, 2014

Advertising Real Estate in Wisconsin

For the following discussion relating to the advertisement of interests in real estate and Wisconsin real estate practice law, consider that those conducting advertising relating to interests in real estate may include 1) people who are not required to have a license, or 2) people who have a real estate license (licensees, licensed brokers), or 3) people required to have a license but who have failed to become properly licensed.  (Figuring out which classification applies to a particular circumstance is the subject of other discussions).

All persons (all 3 classes) conducting advertising may be liable for misrepresentation.

Statutory fraudulent representation claims.
100.18  Fraudulent representations. (1) No person, firm, corporation or association, or agent or employee thereof, with intent to sell, distribute, increase the consumption of or in any wise dispose of any real estate ...  or with intent to induce the public in any manner to enter into any contract or obligation ... shall make ... an advertisement, announcement, statement or representation of any kind to the public  ... which advertisement, announcement, statement or representation contains any assertion, representation or statement of fact which is untrue, deceptive or misleading.
There are numerous deceptive advertising practices defined by statute.  For example, it is a deceptive practice to fail to "affirmatively and unmistakably" indicate when a transaction involves someone engaged in a business rather than by a private party not engaged in a business.  100.18(3), Stats.  Another deceptive practice involves misleading advertising as to the plan or scheme involved in a transaction.  100.18(9), Stats.  Finally, and more generally, any material representation or statement of fact relating to a transaction which is untrue, deceptive or misleading may be actionable.

Violation of sec. 100.18, Stats., will subject the violator to an action for civil damages plus attorney fees (sec. 100.18(11)(b) (except a real estate licensee isn't liable for attorney fees) and forfeitures, fines, and possible imprisonment (sec. 100.26).

Common law misrepresentation claims.

There also remain additional, cumulative common law claims which can arise from the same facts.  A statement made by someone who knew or should have known it was false and which was (reasonably) relied upon by another to their detriment can give rise to a tort claim for negligent misrepresentation. 

A false statement also may give rise to a strict liability misrepresentation claim. The elements of strict liability misrepresentation are: (1) statement of fact made by the defendant on personal knowledge or where he should have known whether the statement was true (2) which is false (3) that the injured party believed and relied upon to his detriment (reasonableness of reliance may or may not be an element) (4) in circumstances in which the defendant had an economic interest.  Kailin v. Armstrong, 2002 WI 70, 252 Wis.2d 676, 643 N.W.2d 132, 148, fn. 23.

A person making statements in advertising relating to a real estate transaction could be liable under several different theories if the statements are not true.  Further, the law recognizes that misrepresentation can occur by omission,  In other words, the failure to make a statement of fact in circumstances where silence misleads the other party can be a misrepresentation.


Real estate licensees are further restricted by REEB 24.04
 (1)  False advertising. Licensees shall not advertise in a manner which is false, deceptive, or misleading.
 (2) Disclosure of name. (a) Except for advertisements for the rental of real estate owned by the broker, a broker shall in all advertising disclose the broker's name exactly as printed on the broker's license or disclose a trade name previously filed with the department, as required by s. REEB 23.03, and in either case clearly indicate that the broker is a business concern and not a private party. (b) Except for advertisements for the rental of real estate owned by the licensee, a licensee employed by a broker shall advertise under the supervision of and in the name of the employing broker. (c) A licensee may advertise the occasional sale of real estate owned by the licensee or the solicitation of real estate for purchase by the licensee without complying with pars. (a) and (b), provided that the licensee clearly identifies himself, herself or itself as a real estate licensee in the advertisement.
(3) Advertising without authority prohibited. Brokers shall not advertise property without the consent of the owner.
 (4) Advertised price. Brokers shall not advertise property at a price other than that agreed upon with the owner; however, the price may be stated as a range or in general terms if it reflects the agreed upon price.


A person who should be but is not licensed as a broker has numerous liability concerns in addition to the sec. 100.18 fraudulent representation liability noted above.

Certain types of advertising activity relating to interests in real estate falls within the definition of the activity of a "broker" under sec. 452.01, Stats.,  The fact that the broker is not licensed obviously would not provide any liability shield.  Instead, the person would stand exposed to liability for violating the law relating to the practice of real estate.  Penalties can include forfeitures, fines and imprisonment. Sec. 452.17.

In addition, any contract agreeing to compensate an unlicensed broker is void at inception.  Badger III Ltd. v. Howard, Needles, Tammen & Bergendoff, 196 Wis. 2d 891539 N.W.2d 904 (Ct. App. 1995), 94-2531  The unlicensed broker is not entitled to compensation.

For example, a "broker" includes anyone who, for another and for consideration, offers or promotes an interest in real estate.  This paragraph does not apply to a person who only publishes or disseminates verbatim information provided by another person.  So some advertisement may be done for "another" provided that the advertiser is only publishing or disseminating verbatim information. 

This exception for publishers would not seem to apply to a company that seeks out owners, contracts with them to obtain an option of some type on the property, and then advertises the property for sale, lease, lease option, land contract, etc.  That activity almost certainly constitutes acting as a "broker."

A "broker" also includes anyone engaged in the business of selling real estate interests.  There is a presumption that 5 sales in 1 year or 10 sales in 5 years shows that one is engaged in the business. A person engaging in such practice without a license

Note that a "broker" has a host of statutory duties.  See, ex. 452.133, Stats.  These duties do not apply only to licensed brokers.  Rather, a broker who violates a duty and is unlicensed is violating 2 laws instead of one.

Advertising by an unlicensed "broker" almost certainly will not contain the disclosures required of brokers by Wisconsin law.  Presumably the "broker" does not realize that they need to obtain a license to do what they are doing.

There are a host of varieties of misrepresentation that can arise in the advertisement of real estate.  There also are considerations as to what must be said depending upon whether the person making the statements is an owner, a licensed broker, or a "broker" who should be licensed.

Oct 22, 2014

What is "legal advice" and why can't brokers give it?

In Wisconsin, as in many jurisdictions in the United States, it is illegal for a person to practice law without a license.  The practice of law includes, but is not limited to, giving legal advice to someone in exchange for some type of consideration.

Wisconsin Supreme Court Rules chapter 23.01 contains the definition of the practice of law in Wisconsin.
SCR 23.01 Definition of practice of law.
The practice of law in Wisconsin is the application of legal principles and judgment with regard to the circumstances or objectives of another entity or person(s) where there is a client relationship of trust or reliance and which require the knowledge, judgment, and skill of a person trained as a lawyer.  The practice of law includes but is not limited to:(1) Giving advice or counsel to others as to their legal rights or the legal rights or responsibilities of others for fees or other consideration.(2) Selection, drafting, or completion for another entity or person of legal documents or agreements which affect the legal rights of the other entity or person(s).(3) Representation of another entity or person(s) in a court, or in a formal administrative adjudicative proceeding or other formal dispute resolution process or in an administrative adjudicative proceeding in which legal pleadings are filed or a record is established as the basis for judicial review.(4) Negotiation of legal rights or responsibilities on behalf of another entity or person(s).(5) Any other activity determined to be the practice of law by the Wisconsin Supreme Court.
So what does this mean?  Every time one person gives another advice clearly does not always implicate the practice of law.  Barbershops and taverns would be out of business.  The advice has to relate to "legal rights or responsibilities." The idea of "legal rights and responsibilities" also implicates the portion of the definition which includes "the knowledge, judgment, and skill of a person trained as a lawyer."

Isn't this definition somewhat circular?  "Legal advice" seems to mean advice given by lawyers.

The definition also indicates that the practice of law is "for fees or other consideration."  So, if a person doesn't collect a fee, they aren't practicing law, right?  Wrong.  The consideration could be the commission earned on a sale, a profit realized in conjunction with the advice, or any number of other possibilities.

The definition indicates that the practice of law involves "a client relationship of trust or reliance."  When does a "client relationship" begin?  Elsewhere in the attorney rules of professional conduct, it is clear that the client relationship can begin without the "attorney" necessarily agreeing to represent the "client."  Trust and reliance are examined from the perspective of the client or potential client.  Attorneys must consider "inadvertent clients" to whom they owe duties.

People not licensed as lawyers are not permitted to engage in the practice of law.  If a person wants to practice law, they must complete law school, meet the Wisconsin Board of Bar Examiners standards, subscribe to the code of professional conduct stated in the Supreme Court Rules and then get admitted.  These requirements set a minimum threshold of competency and create a strict code of professional conduct with attendant enforcement provisions.  Lawyers also typically carry malpractice insurance to insure against liability arising in the event they make a mistake.

Unlicensed people have not proven the minimum level of competency.  They do not generally know, let alone agree to be bound by, the attorney's code of professional responsibility.  Further, they almost certainly do not carry legal malpractice insurance.

Real estate brokers are exempt from the law license requirement when they are practicing within the scope of practice authorized by Chapter 452, Stats.  Among the duties of a real estate broker to a client is the "duty to provide, when requested by the client, information and advice to the client on matters that are material to the client's transaction and that are within the scope of the knowledge, skills, and training required under (Chapter 452, Stats.).  

A real estate broker has a duty to provide advice within the scope of the knowledge, skills and training required of real estate brokers, and a broker does not need a law license to give such advice.  However, a broker would need a law license to give advice of the type typically given by lawyers which is outside of the scope of knowledge, skills and training required of real estate brokers. (Incidentally, although most brokers are insured for errors and omissions, many E&O policies exclude coverage for legal malpractice claims).

Whether a broker has crossed the line in giving legal advice not exempted by the broker's scope of training clearly is a fact-specific question.  Client Question: What can I write in this State approved form contract?  A licensed broker's clearly is excluded from needing a law license to give this advice.  Client Question: What are my options if I want to cancel this contract?  A broker answering this question almost certainly would be practicing law.

 A client who wants or needs advice as to their legal rights and responsibilities is seeking legal advice.  A person who wants to give such advice should be licensed to practice law. 

Sep 10, 2014

Lease can be regulated financial product

We have received numerous inquiries for clarification (or to argue with the conclusion) that the Dodd/Frank legislation implicates lease/option transactions.

If interested, please see:
4) A transaction which includes a "lease" in which, at the inception of the lease, the intention is to transfer ownership of the property to the tenant is a "financial product or service."

This does not mean that all leases are financial products or that lease/option deals are impossible.  This does mean that lease/option deals may involve a regulated financial product or service in some circumstances.  In those cases, the lease/option deal would need to comply with the applicable regulations.

Aug 14, 2014

Lease-options and Land Contract Sales of Homes?

"That can't be right!  The government can't restrict my right to sell my real estate over time by land contract!  The government can't stop me from granting my tenant an option to purchase my property!"

I regret to inform you that the landscape regarding seller financing of homes has changed drastically.  I have been contacted by numerous people over the past two years who insist that they are able to use lease and option contracts to sell homes.  I also have argued with potential clients who insist that they can take a seller carry-back mortgage when selling a home.  Many times, the people tell me about how they have done it in the past.

I remind them that now isn't the past.  "The past" was before the SAFE act and Dodd/Frank.  For reasons that are not clear, those two pieces of legislation included regulation of seller-carry financing.

Land contracts are clearly implicated by the SAFE Act as I have noted previously.
/seller-financing-of-homes-requires.html   In many cases, a person selling a home cannot lawfully use a land contract or even a seller mortgage note.  Whether and when these tools can be used depends entirely on the facts.  One cannot assume that one of these techniques is permissible simply because it was permitted in the past.

Likewise, lease/option contracts for homes may be impermissible in many cases by virtue of the Dodd/Frank Act. The text of the Dodd/Frank act can be located at: /PLAW-111publ203/html/PLAW-111publ203.htm

Note the following definition:

A) In general.--The term ``financial product or service'' means--
            (i) extending credit and servicing loans, including acquiring, purchasing, selling, brokering, or other extensions of credit (other than solely extending commercial credit to a  person who originates consumer credit transactions);
(ii) extending or brokering leases of personal or real property that are the functional  equivalent of purchase finance arrangements, if—
(I) the lease is on a non-operating basis;
                        (II) the initial term of the lease is at least 90 days; and
                        (III) in the case of a lease involving real property, at the inception of the initial lease, the transaction is intended to result in ownership of the leased property to be transferred to the lessee, subject to standards prescribed by the Bureau;

The implications of offering a financial product of service are substantial.  The financial service provider must comply with a myriad of regulations set by the consumer financial protection bureau.  Compliance costs alone are prohibitive.  Further, many commonly used elements of a lease option may be prohibited.  

For example, a typical lease and option arrangement provides that a potential buyer will have an option to purchase a home for a period of 3 years for a stipulated price.  The potential buyer also will have the right to occupy the home by virtue of a lease.  If this arrangement is determined to be a financial product regulated by CFPB, it is conceivable that these two transactions in concert could be construed as non-amortizing financing in violation of the Dodd/Frank Act. 
Until litigation establishes the parameters of these regulations, it is unclear whether a landlord can safely grant an option to purchase (or perhaps even an offer to purchase) to a residential tenant. 

Aug 7, 2014

Investors involved in alternative financing must exercise caution

2010 Mortgage Fraud Report of FBI

  • Interthinx reports that property owners are fraudulently decreasing their income and property values to get their debt reduced for their loan modifications.29 They are fabricating hardships and filing false tax returns to this end. Also, individuals who first perpetrated fraud in loan origination are now attempting to defraud again during their loan modification.
  • Freddie Mac reports that 2010 loan modification fraud trends include strategic defaults, which are accompanied by false statements about income, assets, or the homeowner’s inability to pay.30  Loan modification perpetrators are misrepresenting occupancy and income (by stating it is lower), altering pay stubs, and seeking modifications without an actual financial hardship.31
  •  HUD reported 2010 loan modification scams in the form of principal reduction scams, rent-to-own-leaseback, bankruptcy fraud, and false reconveyance.32 In addition, HUD reported that fraudsters are trolling unemployment offices, churches, and public foreclosure rescue fairs targeting vulnerable homeowners. 

Feb 1, 2014

Listing Contract is Not a Mere Formality

Do not consider a listing contract to be a mere formality, it can have long-term ramifications.  Consider the case of First Weber v. Horsfall.  This case initially involved a claim from a 2002 transaction by First Weber Group Inc against a seller with whom it had a prior listing agreement as well as against its former agent.  First Weber's claim against its former agents arising from this 2002 transaction was finally rejected on appeal by the United States Court of Appeals for the Seventh Circuit in 2014 nearly 12 years after the underlying transaction.

In this case, a home seller signed a listing contract presented by a First Weber Group agent.  The agent later left First Weber.  After the listing contract expired, the agent presented an offer from a buyer who was a "protected party."  The buyer had been shown the property during the term of the listing agreement.  Therefore, even though the listing agreement between the seller and First Weber had expired, First Weber had a potential claim if the buyer presented an offer within 1 year after the listing agreement terminated.  The buyer eventually purchased the house, and the transaction closed with the seller paying a commission as it had agreed in the contracts entered into after the First Weber listing expired. Almost six years later, First Weber sued the seller and its former agent claiming to be entitled to a commission!!!  Litigation then ensued for the subsequent 6 years!?!

Takeaway #1 for consumers -  Be careful with whom you do business.  The listing contract a home seller signs is a contract with the broker and not with the agent.  The agent can sign for the broker when entering into the agreement but cannot modify or cancel the listing agreement without the broker's consent.  You may believe that the agent would be fair and reasonable in making accommodations under a listing agreement, but it is not the agent's prerogative to change the contract.  Some brokers are simply more litigious than others.  When considering hiring a real estate brokerage, search the CCAP records for the company to see how many times the listing broker has been involved in litigation.

Takeaway #2 for consumers - Give careful consideration and seek legal advice before entering into a real estate listing agreement.  People often treat the listing agreement as a mere formality.  Sellers assume that the form must be fair since it is standard.  They also assume that they know generally what it says without reading it.  THIS IS DANGEROUS.  Most people do not realize, for example, that a commission is earned regardless of whether a transaction closes!!?!  The fact of closing does not affect whether a commission is earned under the standard form listing agreement.  The agent presenting the agreement may offer assurances such as, "we never try to collect when the deal doesn't close."  Do not believe it.  The agent does not have the authority to modify the agreement to that effect and does not have the ability to live up to that promise even if he or she wants to.  The contract is between the seller and the broker.  Further, there are many cases where a listing company has sued a seller for a commission even though the transaction did not close.  

Takeaway #3 for consumers.  At a minimum, read the contract.  For example, many sellers do not realize that the standard form listing contract default language includes a 1 year "tail" for protected buyers.  This means that the listing company may have a claim for commission up to 1 year after the listing agreement has expired.  Given a 6 year statute of limitations on contract claims, a broker may be able to bring a commission claim against a seller almost 7 years after closing.

Dec 4, 2013

Congratulations to the Graaskamp Program and the UW BSchool

The University of Wisconsin real estate program was rated as the best in the country.  Congratulations and keep up the fine work.