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Recent Noteworthy Foreclosure Opinions Issued by the Wisconsin Supreme Court

The Wisconsin Supreme Court recently issued opinions in two foreclosure cases of import for banks.  In the first case, Federal National Mortgage Association v. Thompson, 912 N.W.2d 364 (Wis. 2018), the court ruled that a lender is not barred by “claim preclusion” from bringing a second foreclosure action based upon the borrower’s continuing default on the same note where the first foreclosure action was dismissed with prejudice because lender did not validly accelerate payment of the amount due under the note.  The undisputed facts of the case are as follows.  Cory Thompson executed a promissory note to America’s Wholesale Lender (which was endorsed in blank) for $162,800.00 in November 2004.  The note contained an acceleration clause, which allowed the holder of the note to call the full amount of unpaid principal and interest immediately due under the following circumstances:

  1. Thompson defaulted by failing to make a monthly payment on the date that it was due;
  2. The holder of the note sent written notice to Thompson stating that it may accelerate the payments under the note if Thompson failed to cure the default by a given date; and
  3. Thompson was provided at least 30 days to cure his default

In November 2010, BAC Home Loans Servicing, LP, filed a lawsuit against Thompson for failure to make required payments on the note as of April 2009, and sought a money judgment in the full amount owed under the note, as well as foreclosure of the property securing the note.  On August 16, 2012, the circuit court determined that BAC Home Loans failed to present sufficient evidence of the original notice of intent to accelerate full payment and failed to present evidence that it was in possession of the original wet-ink note (i.e. that BAC Home Loans was the holder of the note with the right to enforce the note).  The lawsuit was dismissed with prejudice.

In 2011, Bank of America began servicing Thompson’s loan and in March 2014, after Thompson continued to not make payments under the note, Bank of America sent a valid notice of intent to accelerate payment of the note.  After Thompson failed to cure his default, as required under the note, Bank of America filed suit soon thereafter.  The circuit court granted FNMA a monetary judgment along with a judgment of foreclosure to satisfy the monetary judgment.  Thompson appealed, arguing that the suit was barred by claim preclusion.

In a de novo review, the court addressed whether claim preclusion barred the instant case.  In reviewing the only prong at issue in a three-prong analysis of claim preclusion, the court found that there was no identity between the causes of action in the two suits.  Therefore, the default claim against Thompson was not barred by claim preclusion.  The court reasoned that the 2010 lawsuit and the instant case did not share a “common nucleus of operative facts.”  According to the court, each lawsuit relates to operative facts that occurred at different times – in the 2010 lawsuit, the claim was that Thompson defaulted on the note as of April 2009 versus the instant case’s claim that Thompson defaulted as of September 2012.  Furthermore, the court reasoned that because there was no valid acceleration in the 2010 lawsuit, when it was dismissed with prejudice, it had the legal effect of establishing that Thompson was not in default up until the date of trial in the 2010 lawsuit. At the 2010 trial’s conclusion in August 2012, “the parties [were] simply placed back into the position they held before the commencement of the lawsuit, with the same continuing obligations….  Thompson was obligated to continue making installment payments after the dismissal of the 2010 lawsuit, and claim preclusion does not prevent Federal National from suing Thompson for failing to make those payments.”  Thompson at 624-625.

Importantly for banks, the circuit court had earlier barred Bank of America’s default claim (under the doctrine of claim preclusion) for any default that occurred prior to August 16, 2012, the date of the trial in the 2010 lawsuit; however, any default claim that occurred after August 16, 2012 remained viable, and Bank of America amended its complaint accordingly.  

Deutsche Bank Case

In the second foreclosure action, Deutsche Bank National Trust Company v. Wuensch, 911 N.W. 2d 1 (Wis. 2018), the Wisconsin Supreme Court addressed what evidence is required to prove that the entity seeking to enforce a note against a borrower is entitled to do so.  The court held that presentment by the entity’s attorney of the original, wet-ink note endorsed in blank is sufficient to enforce it against the borrower without any further evidence.  Deutsche Bank (“Bank”), therefore, had standing to bring the foreclosure action against debtor Wuensch.

In this action, Wuensch unsuccessfully argued that the Bank was required to present evidence not only that the purported original Note was in fact the original Note, but also that the Bank’s counsel had obtained the Note from the Bank.  First, the court concluded that possession of the original note was not in dispute and therefore, the Bank was a “holder” of the Note and entitled to enforce it, consistent with Wis. Stat. § 403.301.  The court rejected Weunsch’s argument and the Court of Appeal’s conclusion that possession of the original Note was “in dispute” by finding that it was appropriate for a copy of the original wet-ink note to be admitted into evidence where, at trial, the original note was presented for inspection and compared against the copy.  The court reasoned as follows:

“Wis. Stat. § 909.015(3) permits the trier of fact to compare specimens that have been authenticated, and Wis. Stat. § 909.02(9) provides that commercial paper is self-authenticating under chs. 401-411.  Because the circuit court admitted the copy of the self-authenticating Note based on proper application of the law, its exercise of discretion was not erroneous.”  Wuensch at 8.

Furthermore, the court found that Bank counsel’s physical possession of the original Note on his client’s behalf at trial was sufficient evidence to support the circuit court’s conclusion that the Bank was a “holder” of the Note, and therefore entitled to enforce it, consistent with Wis. Stat. § 403.301.  Furthermore, counsel’s possession of the Note in his capacity of legal representative of the Bank did not impair the Bank’s status as bearer.  

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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