When "Shall" Means "May": Wisconsin Court of Appeals Allows Mortgage Lenders to Slow the Foreclosure Sale Process

Last week we discussed the Wisconsin Supreme Court’s decision in Bank of New York v. Carson permitting circuit courts to force a mortgagee to hold a sheriff’s sale. Today we rewind the clock a bit to a decision last December by the Court of Appeals on a different aspect of Wisconsin’s foreclosure regime. In Bank of America, N.A. v. Prissel, 2015 WI App 10 (Dec. 9, 2014), the court held that a mortgagee is not required to publish a notice of sale before the expiration of the six-month redemption period in Wis. Stat. § 846.101. The case presents an interesting juxtaposition to the Carson case because it interprets the same word in a neighboring statute.

Chapter 846 of the Wisconsin statutes provides five mechanisms for completing a foreclosure sale, depending on the type of property involved and whether the mortgagee elects to pursue a deficiency judgment, but the procedure is basically the same under each. After entry of a foreclosure judgment, the mortgagor is entitled to a post-judgment redemption period before the mortgagee can conduct a sheriff’s sale. Notice of the sale must be given for at least three weeks (an attempt to garner outside interest in the property that could benefit both borrower and lender). The mortgagee can post notice of the sale during the redemption period so that the sale can be held immediately when the period expires, but is the mortgagee required to move that fast?

The Prissel case involved two foreclosure actions brought by Bank of America, consolidated for appeal. In each case, the bank had elected to proceed under § 846.101, which applies to owner-occupied one- to four-family residences where the mortgagee has not sought deficiency. The statute provides that notice of sale “shall be given” within the six-month redemption period. In contrast, the other four sections pertaining to foreclosure sales provide that notice of the sale “may commence” during the redemption period. The question in Prissel was whether a mortgagee proceeding under § 846.101 is required to commence advertising the sale before the redemption period expires.

The court answered with a resounding No.  As in Carson, the court had to determine whether “shall” in the statute is mandatory or directory. The court performed a lengthy analysis under Karow v. Milwaukee County Civil Service Commission, 82 Wis. 2d 565, 263 N.W.2d 214 (1978), a case that the Supreme Court cites in Carson without following its prescribed analysis. Karow dictates that courts examine four factors when determining whether “shall” is mandatory or directory: (1) the omission from the statute of a prohibition or penalty; (2) the consequences resulting from one construction or the other; (3) the nature of the statute, the evil to be remedied, and the general object sought to be accomplished by the legislature; and (4) whether failure to act within the time limit works an injury or a wrong.

In Prissel, the court thought the Karow factors all indicated that “shall” in § 846.101 is directory, rather than mandatory. The court found no apparent reason why the Legislature used “shall” in § 846.101 but used “may” in every other section relating to posting of notice. The court also noted the potential prejudice if mortgagees are required to notice a sale before the six-month redemption period is up. Forcing a sale so quickly could severely hamper a mortgagor’s loan modification or redemption efforts.

Importantly, the court said its decision was compatible with the Court of Appeals’ decision in the Carson case, which the Supreme Court affirmed. The policy considerations for abandoned properties favor a quick sale, but they are not the same for owner-occupied properties. Nevertheless, just from the face of the statutes, it’s hard to reconcile the Supreme Court’s Carson decision with the Court of Appeals’ Prissel decision. Essentially, “shall” in § 846.101 means “may” but “shall” in § 846.102 means “must,” and we’re left with a scheme in which neighboring statutes using the same words have different meanings based on the court’s interpretation of the policy considerations at play. Though Prissel is a published opinion and, therefore, has statewide precedential effect under Wis. Stat. § 752.41(2), the Carson decision doesn’t mention it. The mortgagor in Prissel didn’t seek Supreme Court review, so we don’t know how long it will remain good law.

In any event, it’s probably time to revise the foreclosure statutes. The Legislature clearly intended to set up a series of mechanisms to accomplish essentially the same purpose, yet there are slight, unexplainable differences in the wording of the statutes. These recent cases magnify the problems stemming from the differences in wording, perhaps leading to significant, unintended consequences for mortgage lending practices across the state. We wonder how long it will take the mortgage lending industry to propose such a revision, given the potential difficulties presented to it by Carson and the undeniable confusion in the case law that Prissel helps highlight.