Wisconsin Appeals Court OKs Home Foreclosure Where Refinanced Mortgage Lacked One Co-Owner's Signature; Says Bank Steps Into Former Lender's Shoes

The State Bar of Wisconsin News reports:

• After the brother defaulted on a separate mortgage loan, the District I Wisconsin Court of Appeals recently applied the doctrine of equitable subrogation to uphold a foreclosure judgment against his sister’s interest in a home they both owned.

• Nora Dallas and Fredie Rogers, brother and sister, obtained a quit-claim deed to their mother’s home. In 2003, both executed a mortgage and mortgage note on the acquired home with Fair Finance Corporation (Fair Finance) so Rogers could buy a different house.

• In 2004, Rogers refinanced with Wachovia Mortgage (Wachovia), formerly known as World Savings Bank. This loan, secured by a mortgage on the home Rogers owned with Dallas, discharged the Fair Finance mortgage. Dallas was not a party to the new loan.

• Then Rogers defaulted on the Wachovia mortgage, and Wachovia brought a foreclosure action against Dallas’s interest. The circuit court granted summary judgment to Wachovia. Dallas appealed, arguing foreclosure was not warranted because she did not sign the Wachovia loan.

• In Wachovia Mortgage v. Dallas, 2010AP1359 (March 15, 2011), the appeals court affirmed the circuit court based on the doctrine of equitable subrogation, ruling that “Wachovia is entitled to foreclose on Dallas’s interest in the house because the encumbrance on that interest was discharged by the [Wachovia] loan.”

• Noting that subrogation is an equitable doctrine invoked to avoid unjust enrichment, Judge Ralph Fine explained that Wachovia “paid the debt for which Dallas was liable.”(1)

For more, see Appeals court applies doctrine of equitable subrogation to uphold foreclosure judgment (Where one party refinances a mortgage loan secured by a home owned by two people, the other party is not immune from foreclosure on the refinanced mortgage).

(1) The Wisconsin appeals court court explained the doctrine of equitable subrogation, and its application, as follows:

• “Subrogation is an equitable doctrine invoked to avoid unjust enrichment, and may properly be applied whenever a person other than a mere volunteer pays a debt which in equity and good conscience should be satisfied by another.” Rock River Lumber Corp. v. Universal Mortgage Corp. of Wisconsin, 82 Wis. 2d 235, 240–241, 262 N.W.2d 114, 116 (1978). Thus, “[e]quitable subrogation is a doctrine whereby one who has paid off another’s mortgage obligation is treated as the owner of that obligation.” Countrywide Home Loans, Inc. v. Schmidt, 2007 WI App 243, ¶1, 306 Wis. 2d 200, 202, 742 N.W.2d 901, 902 (permitting subsequent mortgagee to step into the shoes of an earlier mortgagee to the extent that the subsequent mortgagee satisfied the earlier mortgage).
  
  Further, equitable subrogation does not require that there be a contract between the parties. Rock River Lumber Corp., 82 Wis. 2d at 241–242, 262 N.W.2d at 117 (“The object of subrogation is ‘to do substantial justice independent of form or contract relation between the parties.’”) (quoted source and ellipses omitted). It is thus immaterial that Dallas signed neither the World Savings Bank mortgage note nor the World Savings Bank mortgage because the loan was used to satisfy the Fair Finance mortgage, which Dallas executed and on which she was liable, and because Wachovia, as World Savings’s successor, does not seek any deficiency judgment against her.

***

• Wachovia steps into Fair Finance’s shoes, and there is nothing unfair about this result. See Countrywide Home Loans, Inc., 2007 WI App 243, ¶14, 306 Wis. 2d at 208, 742 N.W.2d at 905 (The “equitable subrogation doctrine [is] one of ‘pure, unmixed equity.’”) (quoted source omitted).

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Contrast this ruling with the recent court ruling in Deutsche Bank National Trust Co. v. Boswell, 2011-Ohio-673, 2011 Ohio App. LEXIS 589 (Ohio App. 1st Dist., February 16, 2011), where an Ohio state appeals court refused to apply the doctrine of equitable subrogation to aid a lender out of a jam, holding that a mortgagee was not entitled to the benefits of equitable subrogation where the screw-up in making the loan was due to its own negligence. See also:

• Lexology: Recent Ohio decision reinforces negligence exception to doctrine of equitable estoppel (requires subscription; if no subscription, GO HERE, or TRY HERE - then click appropriate link for the story.).
• Secured Lender's Negligent Screw-Up When Failing To Pay Off All Existing Real Estate Liens Gives Unpaid Lienholder Priority Over New Mortgage In Ohio.

In the Wisconsin case, either the lender's negligence was apparently never raised as an issue before the trial court, or it may be that (unlike Ohio law) there is no "negligence exception" to the doctrine of equitable subrogation under Wisconsin law (or if there is, it may not have been applicable to the specific set of facts at issue).