PUBLISHED OPINION
Case No.: 96-0998
Complete
Title
of
Case:HARVEST SAVINGS
BANK a/k/a HARVEST
SAVINGS BANK, F.S.B,
Plaintiff,
v.
ROI INVESTMENTS, a Wisconsin general
partnership, JOHN R. AMMERMAN,
ROBERT L. KLEIN,
Defendants-Appellants,
PAYNE AND DOLAN, INC.,
Defendant,
COMMUNITY NATIONAL BANK,
Defendant-Respondent,
RICHARD SENN and DENISE SENN,
Defendants,
BANK OF SUN PRAIRIE,
Interested Party-Appellant.
Submitted
on Briefs: December 9, 1996
COURT COURT OF APPEALS OF
WISCONSIN
Opinion
Released: March 27, 1997
Opinion
Filed: March
27, 1997
Source
of APPEAL Appeal from an order
Full
Name JUDGE COURT: Circuit
Lower
Court. COUNTY: Dane
(If
"Special" JUDGE: Paul
B. Higginbotham
so
indicate)
JUDGES: Dykman, P.J., Roggensack and Deininger, JJ.
Concurred:
Dissented:
Appellant
ATTORNEYSFor the defendants-appellants the
cause was submitted on the briefs of Linda S. Balisle of Balisle
& Roberson, S.C. of Madison.
Respondent
ATTORNEYSFor the defendant-respondent the
cause was submitted on the brief of Daniel W. Stolper and Meg
Vergeront of Stafford, Rosenbaum, Rieser & Hansen of
Madison.
|
COURT OF
APPEALS DECISION DATED AND
RELEASED March
27, 1997 |
NOTICE |
|
A party may file with the Supreme Court a petition to review an
adverse decision by the Court of Appeals.
See § 808.10 and Rule
809.62, Stats. |
This opinion is subject to further editing. If published, the official version will appear in the bound
volume of the Official Reports. |
No. 96-0998
STATE OF WISCONSIN IN
COURT OF APPEALS
HARVEST
SAVINGS BANK a/k/a HARVEST
SAVINGS
BANK, F.S.B.,
Plaintiff,
v.
ROI
INVESTMENTS, a Wisconsin general
partnership,
JOHN R. AMMERMAN,
ROBERT
L. KLEIN,
Defendants-Appellants,
PAYNE
AND DOLAN, INC.,
Defendant,
COMMUNITY
NATIONAL BANK,
Defendant-Respondent,
RICHARD
SENN and DENISE SENN,
Defendants,
BANK OF SUN PRAIRIE,
Interested
Party-Appellant.
APPEAL
from an order of the circuit court for Dane County: PAUL B.
HIGGINBOTHAM, Judge. Reversed and
cause remanded with directions.
Before
Dykman, P.J., Roggensack and Deininger, JJ.
DYKMAN,
P.J. ROI Investments (ROI) appeals from an order granting
Community National Bank (CNB) the entire $235,380.20 surplus resulting from the
foreclosure and sheriff's sale of a commercial office building owned by
ROI. CNB included in its claim
$58,131.69 for real estate taxes on the property that it paid after confirmation
of the sheriff's sale and $15,252.75 in attorneys' fees incurred after
August 3, 1995. ROI argues
that: (1) CNB is not entitled to reimbursement for the real
estate taxes paid from the surplus because CNB's mortgage was extinguished on
the date of confirmation; and (2) the trial court erroneously exercised
its discretion in awarding the $15,252.75 in attorneys' fees.
We
conclude that CNB is not entitled to recover the real estate taxes paid from
the surplus because its mortgage was extinguished on the date of
confirmation. We also conclude that the
trial court did not erroneously exercise its discretion in awarding $15,252.75
in attorneys' fees if all fees were incurred prior to confirmation. We conclude, however, that because CNB's
mortgage was extinguished upon confirmation of the sheriff's sale, CNB cannot
recover from the surplus any attorneys' fees incurred after the date of
confirmation. We therefore reverse and
remand to the trial court for a redetermination of the distribution of the
surplus.
BACKGROUND
ROI
owned a commercial office building on which Harvest Savings Bank (HSB) held a
first mortgage and CNB held a second mortgage.
ROI defaulted on the first mortgage, and HSB commenced a foreclosure
action. The court entered a judgment of
foreclosure on March 3, 1995. At the
July 11, 1995 sheriff's sale, CNB was the highest bidder at $1,164,000.00. ROI filed a petition in bankruptcy on July
18, 1995.
On
September 21, 1995, ROI and CNB entered into a stipulation in which ROI agreed
that, as of October 31, 1995, it owed CNB $218,312.02 for principal, interest
and late charges and $8,493.47 for attorneys' fees incurred between May 1, 1994
and August 3, 1995. The total amount
for principal, interest and late charges was later increased to $220,590.02
when ROI did not make its October payment to CNB as anticipated at the time of
the stipulation. Pursuant to the
stipulation, the court lifted the automatic stay as it applied to CNB.
On
November 14, 1995, the trial court confirmed the sale. After payment to HSB pursuant to its first
mortgage, a surplus of $235,380.20 remained.
CNB filed a claim for the surplus, claiming a total amount of
$272,476.44. This amount represented
the September stipulated amount plus interest; $15,252.75 in attorneys' fees
incurred after August 3, 1995; $58,131.69 in outstanding real estate taxes on
the property that CNB paid after confirmation of the sheriff's sale; and
miscellaneous maintenance expenses submitted by the tenant of the commercial
property.[1] On January 4, 1996, the trial court granted
CNB's claim for the surplus, finding that ROI owed CNB the entire
$272,476.44.
ROI
appeals. ROI does not contest
$199,092.00 of the surplus award.
Rather, ROI objects only to the award of $58,131.69 for real estate
taxes and $15,252.75 for attorneys' fees incurred after August 3, 1995.
REAL ESTATE TAXES
ROI argues that CNB's
mortgage was extinguished upon confirmation of the sheriff's sale, and
therefore any real estate taxes paid by CNB after confirmation are not
recoverable from the surplus. CNB
argues that the covenants of its mortgage remained in effect until ROI's debt
was paid in full. Whether CNB may
recover the real estates taxes from the surplus is a question of law that we
review de novo. See First
Wisconsin Trust Co. v. Rosen, 143 Wis.2d 468, 471, 422 N.W.2d 128, 129
(Ct. App. 1988).
Section
846.162, Stats., allows the
parties to a foreclosure action and nonparty lienholders to file a claim for
surplus proceeds. Section 846.162
provides in relevant part:
If there shall be
any surplus paid into court by the sheriff or referee, any party to the action
or any person not a party who had a lien on the mortgaged premises at the time
of sale, may file with the clerk of court into which the surplus was paid, a
notice stating that the party or person is entitled to such surplus money or
some part thereof, together with the nature and extent of the party's or
person's claim. The court shall
determine the rights of all persons in such surplus fund ....
Section 846.162 is a procedural statute and does not create
or affirm any rights or priorities in the surplus. Rosen, 143 Wis.2d at 472, 422 N.W.2d at 129.
ROI
argues that this case is analogous to Hitchcock v. Merrick, 18
Wis. 375 [*357] (1864), in which the supreme court concluded that the
mortgagee, who purchased the property at a foreclosure sale, could not recover
in a suit against the mortgagor for unpaid taxes. We agree.
In
Hitchcock, Thomas Hitchcock brought a foreclosure action against
Merrick and obtained a judgment of foreclosure for $13,631.55 plus costs. Id. at 375-76 [*357]. Hitchcock purchased the mortgaged property
at the November 8, 1862 foreclosure sale, leaving a balance of $98.04 due on
the judgment. Id. at
376-77 [*357-58]. Merrick subsequently
paid the $98.04 deficiency. Id.
at 377 [*358].
When
Hitchcock purchased the property at the foreclosure sale, certain taxes and
assessments on the property remained unpaid.
Id. at 376 [*357-58].
Several lots of the mortgaged premises had been sold for the unpaid
taxes. Id. at 376
[*358]. On December 20, 1862, Hitchcock
paid $1,660.90 for the outstanding and unredeemed certificates of tax sales to
protect his title. Id.
Hitchcock
brought suit against Merrick to recover the $1,660.90 pursuant to a covenant in
the mortgage. The covenant provided
that the mortgagor must pay "all taxes and assessments of every nature
that might be assessed upon the premises described therein, previous to the day
appointed, in pursuance of any law of this state, for the sale of land for
taxes." Id. at 375
[*357].
The
supreme court rejected Hitchcock's claim, concluding that Hitchcock could not
bring an action upon the covenant to pay taxes after extinguishment of the
mortgage. Id. at 379
[*361]. The court reasoned:
As part and parcel of the mortgage, the covenant to pay
taxes expires with the mortgage. It is
no more capable of separation from the mortgage than the mortgage from the
debt. It ceases with the debt for the
better protection of which it was made, and can perform no office after the
debt has been paid. Now if this is true
where the mortgagor voluntarily pays the debt, we think the same must be true
where the mortgagee extinguishes the debt by buying in the mortgaged premises
at the foreclosure sale. Both are
payments, the one voluntary, the other compulsory under the mortgage. In either case the debt is satisfied, and
the lien of the mortgage, to which the covenant is annexed, is extinguished.
Id. at 380 [*361-62].
Consistently,
we conclude that ROI's covenant under the mortgage to pay taxes expired when
CNB's lien was extinguished upon confirmation of the sheriff's sale. Because the covenant to pay taxes expired
upon confirmation of the sale, CNB's payment of taxes after confirmation cannot
be recovered from the surplus.
CNB
argues that Hitchcock is distinguishable because in that case the
debt had been paid in full at the time the mortgagee paid the taxes on the
property, while here the taxes were paid while the debt was still owing. We disagree with CNB's contention for two
reasons. First, it is unclear from Hitchcock
whether the debt had been paid in full when Hitchcock paid the taxes. The reported facts only provide that Merrick
paid the $98.04 balance due on the judgment before commencement of Hitchcock's
action against him to recover unpaid taxes; the facts do not provide whether
Merrick paid the $98.04 before or after Hitchcock purchased the certificates of
tax sales.
Second
and more importantly, the Hitchcock court did not conclude that
the covenant to pay taxes expired upon Merrick's payment of the $98.04 balance
due. Instead, the court compared its
facts to the situation in which a mortgagor voluntarily pays the debt in full
and concluded that if a covenant to pay taxes expires when the debt is paid in
full voluntarily, it must also expire when "the mortgagee extinguishes the
debt by buying in the mortgaged premises at the foreclosure sale." Id. at 380 [*361-62]. Therefore, the determinative event was not
Merrick's payment of the $98.04, but Hitchcock's purchase of the property at
the foreclosure sale. Accordingly,
ROI's covenant to pay taxes expired not when the debt was paid in full, but
when CNB's purchase of the property was confirmed.
Our
conclusion is supported by First Wisconsin Trust Co. v. Rosen,
143 Wis.2d 468, 422 N.W.2d 128 (Ct. App. 1988). In Rosen, we reversed the trial court's award of
$4,647.57 in surplus funds to two municipalities holding real estate tax liens
on the foreclosed property. Because the
municipalities were not parties to the foreclosure action, their interests in
the property were not "foreclosed" under § 846.17, Stats.[2] Id. at 473, 422 N.W.2d at
130. Therefore, the municipalities
conceivably had access to two assets from which to satisfy their liens: the
property and the sale proceeds. Id. The lienholders that had their interests
foreclosed, however, only had access to the sale proceeds. Id. Under those circumstances, we concluded that it would be
inequitable to allow the municipalities to receive surplus funds through
§ 846.162, Stats., to the
detriment of other lienholders. Id.
Likewise,
in this case the municipalities to which ROI owed real estate taxes were not
parties to the action. Their interests
were not foreclosed under § 846.17, Stats.,
and the property was sold subject to "any and all legal encumbrances upon
the property, including but not limited to any outstanding real estate
taxes." If CNB had not paid the
real estate taxes, the municipalities still would have maintained a lien on the
property under § 70.01, Stats.[3] And under Rosen, the
municipalities would not have been able to recover unpaid taxes from the
surplus to the detriment of other lienholders.
CNB cannot circumvent Rosen by paying the taxes itself and
then adding the taxes to its surplus claim.
CNB
argues that Rosen is distinguishable because in Rosen
the mortgagee did not have a contractual agreement with the mortgagor under
which the mortgagee could claim reimbursement for taxes, while CNB did. This argument fails to recognize, however,
that at the time CNB paid the taxes, it also did not have a contractual
agreement with the mortgagor under which it could claim reimbursement for taxes
paid. As provided by Hitchcock,
ROI's covenant to pay taxes ceased to exist when the mortgage was extinguished
upon confirmation of the foreclosure sale.
CNB
also argues that Tobin v. Tobin, 139 Wis. 494, 121 N.W. 144
(1909), dictates that we conclude that ROI's covenant to pay taxes survives
until CNB's debt is paid in full. In Tobin,
the court provided, "A mortgage is extinguished by payment of the debt it
was given to secure." Id.
at 499, 121 N.W. at 146. We agree that
a mortgage is extinguished upon payment of the underlying debt. Tobin, however, did not
involve the foreclosure of a mortgage.
Payment of the mortgage is only one way to extinguish a mortgage. As provided by Hitchcock, a
mortgage is also extinguished upon confirmation of the foreclosure sale.
Finally,
CNB argues that ROI has waived the issue of whether CNB may recover the real
estate taxes from the surplus because ROI failed to bring its theory that the
mortgage covenants cease to exist as of the date of confirmation before the
trial court. See Wirth v.
Ehly, 93 Wis.2d 433, 443, 287 N.W.2d 140, 145 (1980). ROI argues that it is raising only a new
"argument," not a new "issue," and therefore the argument
is not waived. See State
v. Weber, 164 Wis.2d 788, 789-90 & nn.2 & 3, 476 N.W.2d 867,
868 (1991).
We
do not need to determine whether ROI is raising a new "argument" or a
new "issue" within the meaning of Weber. The general rule that appellate courts will
not consider issues not raised in the trial court is a rule of judicial
administration and is subject to exceptions.
Wirth, 93 Wis.2d at 443-44, 287 N.W.2d at 145-46. These exceptions involve questions of law
which, though not raised below, may nevertheless be raised and decided by the
court on appeal. Id. at
443-44, 287 N.W.2d at 145. Both parties
have fully briefed the question of whether CNB may recover the real estate
taxes from the surplus, and we believe that this is an important question of
law that merits discussion.
ATTORNEYS' FEES
CNB's surplus claim
includes a total of $23,746.22 for attorneys' fees. ROI approved $8,493.47 in attorneys' fees incurred through August
3, 1995 by stipulation, but disputes the $15,252.75 in attorneys' fees incurred
subsequent to August 3, 1995.
First,
ROI argues that fees generated by two law firms are directly attributable to
ROI's bankruptcy action, and as such, are not attorneys' fees recoverable under
the mortgage. The mortgage provides
that ROI "shall pay all reasonable costs and expenses before and after judgment,
including without limitation, attorneys' fees ... incurred by [CNB] in
protecting or enforcing its rights under this Mortgage."
We
do not need to reach the issue of whether these attorneys' fees were
"incurred by [CNB] in protecting or enforcing its rights under this
Mortgage." The mortgage also
provides that it secures prompt payment to CNB of "interest and charges,
according to the terms of [the May 25, 1993 business note]." The note provides that ROI agrees "to
pay all costs of collection before and after judgment, including reasonable attorneys'
fees (including those ... incident to any action or proceeding involving [ROI]
brought pursuant to the United States Bankruptcy Code) ...." Therefore, the mortgage secures the
attorneys' fees incurred by CNB incident to ROI's bankruptcy proceeding, which
occurred prior to confirmation.
ROI
next argues that the benchmark standard of reasonableness for attorney fees in
the noncommercial real estate loan context is five percent. See Fellenz v. Gonring,
113 Wis.2d 228, 231, 335 N.W.2d 884, 885 (Ct. App. 1983). CNB's attorneys' fees were 10.8 percent of
the stipulated amount of debt. ROI
contends that absent evidence that warrants a substantial departure from the
five percent benchmark, it was error for the trial court to find the entire
$23,746.22 in attorneys' fees to be reasonable.
We
reject ROI's argument. Fellenz
discusses § 428.103(1)(e)2, Stats.,
which allows a creditor to charge attorney fees of five percent when
foreclosing a first lien real estate mortgage securing $25,000 or less. This case involves the foreclosure of a real
estate mortgage on a commercial office building that sold for more than
$1,000,000 at the foreclosure sale. And
ROI filed a petition in bankruptcy during the foreclosure action, making the
proceeding more complicated. We do not
see how this foreclosure action and proceedings covered by
§ 428.103(1)(e)2 are analogous.
Our
analysis does not end with our conclusion that CNB's attorneys' fees were
reasonable. To be recoverable from the
surplus, the attorneys' fees must have been incurred before confirmation. As we have already determined, the mortgage
terminated upon confirmation of the foreclosure sale, which occurred on
November 14, 1995. Therefore, any
attorneys' fees incurred after November 14, 1995 are not recoverable from the
proceeds, although there may be an independent right to collect them under the
note.
Because
CNB cannot recover real estate taxes paid and attorneys' fees incurred after
the date of confirmation from the surplus, we reverse the trial court's order
for payment of the surplus and remand for the trial court to redistribute the
surplus consistent with this opinion.
By
the Court.—Order reversed and
cause remanded with directions.
[1] These figures totalled $305,074.23. The building's tenant, however, held
$32,597.79 in rent for September, October and November. This amount was credited to the amount CNB
claimed from ROI.
[2] Section 846.17, Stats., provides in relevant part:
Upon any such sale
being made the sheriff or referee making the same, on compliance with its terms,
shall make and execute to the purchaser, the purchaser's assigns or personal
representatives, a deed of the premises sold, setting forth each parcel of land
sold to the purchaser and the sum paid therefor, which deed, upon confirmation
of such sale, ... shall be a bar to all claim, right of equity of redemption
therein, of and against the parties to such action, their heirs and personal
representatives, and also against all persons claiming under them subsequent to
the filing of the notice of the pendency of the action in which such judgment
was rendered....
[3] Section 70.01, Stats., provides in relevant part:
Real estate taxes and personal property taxes are deemed
to be levied when the tax roll in which they are included has been delivered to
the local treasurer under s. 74.03. When
so levied such taxes are a lien upon the property against which they are
charged. That lien ... is effective
as of January 1 in the year when the taxes are levied....
(Emphasis added.)