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Failure to Get Signatures of Both Spouses On Homestead Mortgage Results in Invalid Mortgage

A Wisconsin Court recently determined that a mortgage on homestead property not signed by both spouses as required by Wisconsin statutes is void and cannot be enforced against either spouse.  The Bank attempted to foreclose on mortgages signed by Charles Stehno in December, 2002, and April, 2003 (called “mortgages” in this article).  The property was Stehno’s homestead at the time he signed the mortgages.  However, the mortgages were not signed by his then spouse, Candice Wells.  Wells claimed in a later foreclosure action that the mortgages were invalid against both spouses because only her “then-husband” Stehno signed them.  Stehno and Wells were divorced in 2012.  The Court agreed with Wells.  The facts in this case are a little bizarre but the result is clear – both spouses must sign a mortgage if it conveys an interest in the homestead of either spouse or both spouses.  U.S. Bank National Association v. Charles E. Stehno, III, 2017 WI App. 57 (August 30, 2017). 

Initially, the property subject to the mortgages was held in the name of both Wells and Stehno as shown in a recorded deed from Wells to Stehno and Wells in September 2002, which deed identified the property as homestead property and identified Wells and Stehno as “wife and husband.”  Wells then deeded the property to Stehno alone on December 12, 2002.  Later in December, 2002, and in April, 2003, Stehno alone signed mortgages on the property to U.S. Bank.  Wells did not sign the mortgages.  The loan documents in December, 2002, and April, 2003, incorrectly, identified Stehno as “unmarried.”  He was married to Wells at the time.  They were later divorced in 2012.  The mortgage documents correctly identified the property as Stehno’s homestead. 

Wisconsin statutes governing mortgages on homesteads clearly require that a mortgage be signed by both spouses if the mortgage alienates the interest of either spouse in a homestead.  Section 706.02(1)(f) states that a mortgage “shall not be valid unless … signed, or joined in by separate conveyance, by or on behalf of each spouse, if the conveyance alienates any interest of a married person in a homestead ….”  The Court noted that Stehno and Wells were married at the time the mortgages were executed by Stehno on his homestead in December, 2002, and April, 2003, and determined that under the plain language of this statute both spouses were required to sign the mortgages in order for the mortgages to be valid.  Since Wells did not sign the mortgages, they are invalid according to the Court.  There are two exceptions in the statute to this statutory requirement, and they are for conveyances between spouses and for a purchase money mortgage pledging that property as security where only the purchaser need sign the mortgage.  Neither of these exceptions was applicable here. 

It was undisputed that Stehno was married to Wells at the time the mortgages were executed and therefore he was a “married person”, even though he stated otherwise in the mortgages, and it is also undisputed that Stehno’s homestead was alienated by the mortgages.  So, Stehno was married and the property was his homestead at the time he executed the mortgages.  As correctly determined by the Court, the statute plainly requires the signature “of each spouse, if the conveyance alienates any interest of a married person in a homestead”, unless it is a conveyance between the spouses.  The Court confirmed that both spouses must join in a mortgage for there to be a valid mortgage on homestead property of either spouse.  All of this was determined by the Court even though at the time of the mortgages Stehno indicated in the mortgages he is “unmarried”, Stehno was the only spouse residing at the property, and Stehno was the only owner. 

The Bank attempted to make something of the fact that Stehno indicated in the mortgage he was “unmarried” at that time in 2002 and 2003, even though a divorce action was not filed until 2011.  The Bank correctly noted that under section 706.09(1), Wisconsin Statutes, the Bank takes a mortgage free of any homestead claim by a spouse if the mortgage states the person executing it is “unmarried”, as it did in this case.  However, this defense only applies if the Bank was “without notice” of the marriage as defined in section 706.09(2), Wisconsin Statutes.  Unfortunately, section 706.09(2) states that a bank has notice of a prior outstanding homestead claim if “there appears of record in the chain of title of the real estate affected, within 30 years and prior to the time at which” the mortgage arises “an instrument affording affirmative and express notice of such prior outstanding interest ….”  In this case, a recorded quit claim deed from Wells to Wells and Stehno in September, 2002, identified Wells and Stehno as “wife and husband”.  The mortgages signed by Stehno alone which identified him as “unmarried” were executed just months after this deed was recorded identifying Stehno and Wells as “husband and wife”.  Under these circumstances, the Court determined the Bank was on notice that just months prior to the execution of the mortgages Wells and Stehno were husband and wife.  This defense by the Bank failed.

Notwithstanding its legal difficulties in connection with the mortgages, the Bank persuaded the Court that the Bank should be equitably subrogated to a mortgage executed by both Stehno and Wells to Associated Bank in September, 2002, because the invalid mortgage granted to U.S. Bank in April, 2003, was used in substantial part to pay off the September, 2002, Associated Bank mortgage.  The Court determined that U.S. Bank is equitably subrogated to the September, 2002, Associated Bank mortgage which was executed by both spouses.  “Equitable subrogation” is a doctrine whereby one who pays off another’s mortgage obligation is treated as the owner of that other mortgage obligation.  U.S. Bank improved its position when it stepped into the shoes of Associated Bank with the opportunity to enforce a valid mortgage against the property. 

It is difficult to suggest that the Bank could have done more to protect itself where the person signing a mortgage states in the mortgage that he is “unmarried”, which statement presumably led the Bank to not require the signature of another person on the mortgage.  It is unclear what role title insurance played in this case, if any.  The Court’s decision does not discuss title insurance and we don’t know from the decision whether the Bank obtained title insurance or not, and if they did obtain title insurance, whether the title insurance included coverage for this event.  However, it is not uncommon for the requirements section of a title insurance commitment to be specific in its requirements for spousal signature if the mortgagor is a married person and the property is the homestead of either or both spouses.  

DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.

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