Argument November 9, 2015.
of a decision of the Court of Appeals. COURT: Circuit.
COUNTY: Walworth. JUDGE: Phillip A. Koss. (L.C. No.
2013CV855). (Reported at 363 Wis.2d 655, 862 N.W.2d 903 ).
(Ct.App. 2015 -- Unpublished).
plaintiff-respondent-petitioner, there were briefs by Edward
F. Thompson, and Clair Law Offices, S.C., Delavan, and oral
argument by Edward F. Thompson.
defendants-appellants, there was a brief by David C.
Williams, and Harrison, Williams & McDonell, LLP, Lake
Geneva, and oral argument by David C. Williams.
was an amicus curiae brief by John E. Knight, Kirsten E.
Sprira, and Boardman & Clark LLP, Madison, on behalf of the
Wisconsin Bankers Association.
G. BRADLEY, J. DISSENTED: ABRAHAMSON, J. dissents, joined by
BRADLEY, A. W., J.
REBECCA G. BRADLEY, J.
[¶1] We must decide whether a condominium
policy violates Wisconsin law. Abbey Springs Condominium
Association, Inc. and Abbey Springs, Inc. (collectively,
" Abbey Springs" ) have a Membership and Guest
Policy that forbids both current and subsequent unit owners
from utilizing recreational facilities until unpaid
condominium assessments are paid in full. In other words, the
policy forbids new owners of a particular unit from utilizing
recreational facilities if there are outstanding assessments
attributable to the unit. Following a foreclosure action and
sheriff's sale of the property at issue to Walworth State
Bank, the Bank paid the former owner's outstanding
assessments under protest. Walworth State Bank then asserted
that the Abbey Springs policy violates Wisconsin law because
it impermissibly revives a lien on the condominium units that
was eliminated by the foreclosure action. As an alternative
argument, Walworth State Bank argues that the policy renders
title to the units unmarketable. The Walworth County Circuit
Court agreed with Walworth State Bank and
granted it summary judgment. The court of appeals
reversed. For the reasons that follow, we
reverse the court of appeals.
[¶2] We hold that Abbey Springs's
Membership and Guest Policy effectively revived the lien
against the property that the Order for Judgment on
Foreclosure and Judgment (hereinafter Foreclosure Judgment)
entered against Abbey Springs and the former unit owners had
extinguished. Although Abbey Springs concedes that Walworth
State Bank had no legal obligation to pay the former
owners' unpaid assessments following foreclosure, the
policy dictates that any unpaid assessments stay with the
unit and transfer to the new owners rather than travel with
the former unit's owner who actually incurred the
debt. The policy does so by preventing a new
purchaser of any unit, whose only connection to the unpaid
assessments is through the unit itself, from accessing the
recreational facilities if the prior owner failed to pay his
or her assessments. As a result, the policy effectively
allows Abbey Springs to assert a right against the property
for the prior owner's unpaid assessments in violation of
well-established foreclosure law. Furthermore, the policy
violates the Foreclosure Judgment that eliminated " all
right, title, interest, lien or equity of redemption" of
Abbey Springs in and to the foreclosed units. Because we
conclude that the condominium policy violates
well-established foreclosure law and the Foreclosure Judgment
entered in the underlying foreclosure action, we do not
address Walworth State Bank's argument that the policy
renders the unit's title unmarketable.
Units 18 and 19 at Abbey Springs
[¶3] Walworth State Bank held a first real
estate mortgage on Units 18 and 19, a single family residence
on two lots, in Abbey Springs Condominium No. 1. Unit
owners in Abbey Springs Condominium No. 1 pay assessments
that allow access to recreational facilities that include a
Yacht Club, restaurants, fitness and golf facilities, and
boat slips. These recreational facilities are not
listed as common elements of units located in Abbey Springs
Condominium No. 1.
[¶4] Abbey Springs has a Membership and
Guest Policy that suspends both current unit owners and
subsequent owners from the recreational facilities if unpaid
assessments attributed to the unit are 90 days past due. The
policy, in pertinent part, provides:
If any regular monthly or special assessment against any Unit
is delinquent for more than ninety (90) days past its due
date, the owner or owners of that Unit, and any subsequent
owners, shall automatically and without notice be suspended
from any use or occupation of the Yacht Club, Clubhouse
Grille, Pool Café, fitness facilities, golf
facilities, and boat launching facilities, until such time as
assessments are paid in full.
[¶5] In addition, Abbey Springs has Bylaws
that govern operation of the property. Article V, Section
four, titled Waiver of Use, provides that " no unit
owner may exempt himself from liability for his contribution
towards the common expenses or recreational facilities
expenses by waiver of the use or enjoyment of any of the
common areas and facilities or the recreational facilities,
or by abandonment of his unit."
Underlying Foreclosure Action
[¶6] In 2012, Walworth State Bank initiated
a foreclosure action against the owners of units 18 and 19, a
single family residence. The Complaint named Abbey Springs as
a defendant in that action due to its claim of unpaid
assessments attributable to the property. In January 2013,
the Walworth County Circuit Court entered a Foreclosure
Judgment. It determined the total amount owed Walworth State
Bank to be $855,511.41. The circuit court's order and
judgment in the foreclosure action also provided that the
current owners and Abbey Springs were " forever barred
and foreclosed of all right, title, interest, lien or equity
of redemption" in and to the property. The circuit court
retained jurisdiction in the foreclosure action " until
redemption, or confirmation of sale, whichever occurs
first." Walworth State Bank later purchased the property
in a sheriff's sale. On April 29, 2013, the circuit court
confirmed the sheriff's sale of the property to Walworth
[¶7] Prior to the sheriff's sale, Abbey
Springs sent a letter to Walworth State Bank to alert the
Bank to a policy it had adopted " to forbid use of the
recreational facilities to the owners or occupants of any
unit upon which assessments or other amounts owed to the
Association are delinquent, regardless of whether or not the
Association's lien rights were eliminated by
foreclosure." Abbey Springs suggested that Walworth
State Bank include notification of this policy in its
announcements of the sheriff's sale of the property. On
February 5, 2013, Abbey Springs sent a follow up letter to
Walworth State Bank with a copy of the Membership and Guest
[¶8] Walworth State Bank responded to Abbey
Springs's letters on June 24, 2013 and asserted that the
Guest Policy violated numerous laws and the order in the
foreclosure action. On June 26, 2013, Abbey Springs countered
that it " does not claim, and has never claimed, that
Walworth State Bank or any grantee from Walworth State Bank
is liable for past assessments due the Association."
[¶9] Walworth State Bank arranged for the
property to be sold to new buyers with a closing scheduled
for July 12, 2013. However, on July 12, 2013, Abbey
Springs's Executive Director issued a letter stating that
the outstanding assessments would be satisfied if " the
seller pays Abbey Springs $13,225.32." As a result, the
new buyers refused to close on the property as scheduled. On
the same day, July 12, 2013, Walworth State Bank sent Abbey
Springs another letter accusing the condominium association
of " thwarting" the sale and requiring Walworth
State Bank to pay the outstanding assessments. Abbey Springs
reasserted its position--the Bank was not required to pay the
prior owner's outstanding assessments--in a July 16, 2013
letter. Ultimately and under protest, Walworth State Bank
paid the prior owners' unpaid assessments in the amount
of $13,225.32 to complete the sale of the property to the new
[¶10] Walworth State Bank filed suit against
Abbey Springs and asked the circuit court to declare Abbey
Springs's policy in violation of Wisconsin law and to
order judgment in the amount of $13,225.32 for the
assessments it paid under protest. The circuit court granted
Walworth State Bank's summary judgment motion after
considering cross-motions for summary judgment. It determined
that Abbey Springs's policy violated Wisconsin law by
holding new owners jointly and severally liable for the prior
owners' unpaid assessments in violation of Wis. Stat.
§ 703.165(2) (2013-14) and by affecting the
quality and marketability of the property's title in
violation of Wis. Stat. § 703.10(6). It also granted
Walworth State Bank a monetary judgment against Abbey Springs
in the amount of $13,225.32.
[¶11] The court of appeals reversed.
Walworth State Bank v. Abbey Springs Condo. Ass'n,
No. 2014AP940, 2015 WI App 37, 363 Wis.2d 655,
unpublished slip op. (Wis. Ct.App. Mar. 26, 2015). It held
that the policy was not contrary to any Wisconsin statute and
that Walworth State Bank had " no obligation to pay the
delinquent assessments." Id., ¶ 18.
Specifically, it held that Wis. Stat. § 703.165(5)(b),
which establishes lien priority for unpaid assessments, did
not govern the issue of liability for the unpaid assessments.
Id., ¶ 16. It further held that Wis. Stat. §
703.165(2), which governs liability for assessments, does not
govern liability for unpaid assessments in an involuntary
grant, such as the sheriff's sale that occurred here.
Id., ¶ 18. It further reasoned that " [t]he
policy merely created a pay-to-play requirement, and did not
attempt to create joint and several liability in any
respect."  Id.
[¶12] Appellate courts independently review
orders for summary judgment utilizing the " same
methodology as the circuit court." Yahnke v.
Carson, 2000 WI 74, ¶ 10,
236 Wis.2d 257, 613 N.W.2d 102. " Summary judgment is
appropriate when 'the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a
judgment as a matter of law.'" Id. (quoting
Wis. Stat. § 802.08(2) (1995-96)).
Inapplicability of Wis. Stat. § 703.165(2)
[¶13] Walworth State Bank argues that Abbey
Springs's Membership and Guest Policy violates Wis. Stat.
§ 703.165(2) by holding subsequent owners who obtain
property in an involuntary sale jointly and severally liable
for the unpaid assessments of past owners. It also asserts
that the policy renders title to the units unmarketable in
violation of Wis. Stat. § 703.10(6).
[¶14] Whether the Membership and Guest
Policy is valid in light of the Foreclosure Judgment that
eliminated " all right, title, interest, lien or equity
of redemption" of Abbey Springs in and to the property,
presents an issue of first impression that is not directly
controlled by Wisconsin case law or the Wisconsin Statutes.
Although Walworth State Bank argues that Wis. Stat. §
703.165(2) governs and that the policy is invalid under this
statute, we do not agree.
[¶15] Wisconsin Stat. § 703.165 is
titled: " Lien for unpaid common expenses, unpaid
damages, and unpaid penalties." Section 703.165(2)
pertains to " liability for assessments" and
states, in full:
A unit owner shall be liable for all assessments, or
installments thereof, coming due while owning a unit,
including any assessments coming due during the pendency of
any claim by the unit owner against the association or during
any period in which the unit is not occupied by the unit
owner or is leased or rented to any other person. In a
voluntary grant, the grantee shall be jointly and severally
liable with the grantor for all unpaid assessments against
the grantor for his or her share of the common expenses up to
the time of the voluntary grant for which a statement of
condominium lien is recorded, without prejudice to the rights
of the grantee to recover from the grantor the amounts paid
by the grantee for such assessments. Liability for
assessments may not be avoided by waiver of the use or
enjoyment of any common element or by abandonment of the unit
for which the assessments are made.
Stat. § 703.165(2)(emphasis added). The statutory
language emphasized above indicates that in a voluntary
grant, a new owner is held jointly and severally liable for
unpaid assessments owed by the prior owner. Walworth State
Bank relies on this language to argue that the inverse must
be true in an involuntary grant, such as a sheriff's
sale. Specifically, Walworth State Bank's position is
that in an involuntary grant, a new owner cannot be held
jointly and severally liable
for the outstanding assessments of the prior owner. However,
we agree with the court of appeals that the language in
§ 703.165(2) pertaining to voluntary grants of property
has no bearing on the involuntary grant at issue here. The
liability of a new owner for the outstanding debt of the
prior owner under the circumstances of an involuntary grant
is not directly addressed in Chapter 703 and it is not this
court's place to speak where the legislature was
The Law of Foreclosure
[¶16] Instead, we turn to pertinent
statutory provisions governing condominiums, the Foreclosure
Judgment entered against Abbey Springs in the underlying
foreclosure action, and well-established foreclosure law to
render a decision. Chapter 703 of the Wisconsin Statutes,
known as the Condominium Ownership Act, governs condominiums.
It explains that unpaid condominium assessments "
constitute a lien on the units on which they are
assessed" as long as certain statutory requirements are
met. Wis. Stat. § 703.165(3). Assessments are defined as
" regular and special assessments for common expenses
and charges, fines, or assessments against specific units or
unit owners for damages to the condominium or for penalties
for violations of the declaration, bylaws, or association
rules." Wis. Stat. § 703.165(1).
[¶17] Wisconsin Stat. § 703.165(5) also
governs the priority given to a lien for unpaid assessments.
Applicable here is § 703.165(5)(b), which provides that
" a first mortgage recorded prior to the making of the
assessment" has priority over a lien for unpaid
[¶18] Here, it is undisputed that the former
owners of Units 18 and 19 had unpaid condominium association
assessments. As Wis. Stat. § 703.165(3) indicates, these
unpaid assessments constituted a lien against the units. It
is also undisputed that Abbey Springs filed a claim for
surplus in the foreclosure action " based on a
'Statement of Condominium Lien'" it filed
against the former owners. Furthermore, the parties agree
that Walworth State Bank's interest, as the holder of a
first mortgage on the units, takes priority over Abbey
Springs's lien based on unpaid assessments. This position
is supported by the plain language of Wis. Stat. §
703.165(5)(b), which gives a first mortgage holder priority
over any lien for unpaid assessments that was recorded after
the first mortgage.
[¶19] Prioritization of Walworth State
Bank's first mortgage over Abbey Springs's lien for
unpaid assessments is reflected in the Foreclosure Judgment
entered by the circuit court in the foreclosure action. In
that action, the circuit court entered default judgment
against the unit owners and Abbey Springs. Specifically, the
circuit court ordered that the defendants, including Abbey
Springs, " after the filing of the Lis Pendens herein,
be forever barred and foreclosed of all right, title,
interest, lien or equity of redemption in and to said
mortgaged premises . . . ." Abbey Springs did not appeal
the circuit court's Foreclosure Judgment.
[¶20] The circuit court's order in the
foreclosure action that eliminated " all right, title,
interest, lien or equity of redemption in and to" the
property aligns with Chapter 846 of the Wisconsin Statutes
and the equitable purpose of foreclosure. In Wisconsin, and
across much of the United States, judicial foreclosure is the
available method of foreclosure. 1 Grant S. Nelson et al.,
Real Estate Finance Law § 7:12, at 903 (6th ed. 2014).
Generally speaking, Chapter 846 of the Wisconsin Statutes
sets forth a two-step procedure that governs the foreclosure
process. Shuput v. Lauer, 109 Wis.2d 164, 171, 325
N.W.2d 321 (1982). The first step includes the judgment of
foreclosure and sale. Id. It is during this first
step that a circuit court determines " the parties'
legal rights in the underlying mortgage and obligation,
including the right to a deficiency judgment." Bank
Mut. v. S.J. Boyer Const., Inc., 2010 WI 74, ¶ 27, 326
Wis.2d 521, 785 N.W.2d 462. Specifically, Wis. Stat. §
846.01 addresses the first step in the foreclosure process,
the foreclosure judgment. Section 846.01(1) provides, in
[I]n actions for the foreclosure of mortgages upon real
estate, if the plaintiff recover, the court shall render
judgment of foreclosure and sale, as provided in this
chapter, of the mortgaged premises or so much of the premises
as may be sufficient to pay the amount adjudged to be due
upon the mortgage and obligation secured by the mortgage,
Id. This court has determined that § 846.01(1)
" requires the court to render judgment of foreclosure
and sale in successful foreclosure actions." Bank
Mut., 2010 WI 74, 326 Wis.2d 521, ¶ 28, 785 N.W.2d 462.
[¶21] The second step in foreclosure actions
" carries into effect and enforces the judgment of
foreclosure and sale." Id., ¶ 27. That is,
after the judgment of foreclosure is entered and sale of the
property completed, additional statutory proceedings take
place to confirm the sale, determine the rights to surplus,
if any, and enter deficiency judgment, if applicable. See
Wis. Stats. § § 846.162, 846.165, 846.167; see also
Shuput, 109 Wis.2d at 171.
[¶22] In carrying out this two-step process,
a circuit court ensures that the basic objectives of a
foreclosure action are met. Secondary sources and Wisconsin
case law have explained the objective and function of
foreclosure actions in various ways:
The basic objective of an action to foreclose is to enable
the mortgage creditor to get his debt paid out of the
security. To accomplish this end[,] it is the purpose of the
foreclosure sale to end the right to redeem of all persons
who have interests in the property subject to the mortgage
and to vest in the purchaser on the sale the title to the
property as it stood at the time of the execution of the
E. Osborne, Handbook on the Law of Mortgages § 319, at
669 (2d ed. 1970). This court has explained that " the
judgment of foreclosure and sale determines the rights of the
parties and disposes of the entire matter in litigation . . .
." Shuput, 109 Wis.2d at 172. Furthermore, the
Restatement (Third) of Property addresses the effect of
foreclosure actions on lien priorities: " A valid
foreclosure of a mortgage terminates all interests in the
foreclosed real estate that are junior to the mortgage being
foreclosed and whose holders are properly joined or notified
under applicable law." Restatement (Third) of Property
(Mortgages) § 7.1 (1997) (emphasis added). In regard to
the first priority mortgage, this court has explained that,
generally, " a proper foreclosure proceeding, when
confirmed, satisfies the debt [if there are sufficient funds]
and extinguishes the mortgage." Winter v.
Knaak, 236 Wis. 367, 370, 294 N.W. 488 (1940). With
regard to the rights of junior lienholders such as Abbey
Springs, the court of appeals has stated:
[W]hen property is sold at a foreclosure sale, the property
is transferred to the purchaser who receives the interest of
the mortgagor and whatever interest the other parties to the
suit possessed at the commencement of the action. As a
those who were parties to the action can no longer assert
any claim or right of interest against the property. The
interest of such parties is deemed " foreclosed,"
leaving them to look only to sale proceeds for satisfaction
of their claim.
First Wis. Trust Co. v. Rosen, 143 Wis.2d 468,
472-73, 422 N.W.2d 128 (Ct.App. 1988) (citations omitted). In
sum, secondary sources and Wisconsin case law demonstrate
that foreclosure actions are designed to: (1) bring together
creditors' claims to a property for disposition in a
single proceeding; (2) apply proceeds from the foreclosure
sale to satisfy the liens of those parties to the foreclosure
action in order of priority; and (3) extinguish unsatisfied
junior lienholders' rights to the property so that
title transfers unencumbered to the new purchaser.
[¶23] Abbey Springs attempts to evade the
effect of the Foreclosure Judgment in this case by
acknowledging that its lien was extinguished in the
foreclosure action but claiming that the underlying debt--the
unpaid assessments--survives due to its connection to Units
18 and 19. Indeed the underlying debt does survive and
nothing in the Foreclosure Judgment prevents Abbey Springs
from suing the former unit owners to recover that debt. What
Abbey Springs is foreclosed from doing is perpetually
saddling the property and all subsequent owners with debt
owed by the former unit owners unless and until that debt is
paid. Not only did the Foreclosure Judgment extinguish the
" lien" it also " forever barred and
foreclosed" all " right" and all "
interest" of ...