Summary:  If a mortgage note allows a bank to seize possession of the property if the bank, in its sole discretion, determines the borrower has defaulted, the conduct is permissible and deemed consensual once the borrower signs the note.

Waterstone Bank SSB v Heller, 2011 AP 473 (Wis. Ct. App., 2012).

Facts:  Joel Heller and Teresa Clewell (collectively the “Hellers”) borrowed $1,117,500 from Waterstone Bank to build a home in Kenosha, Wisconsin. The mortgage note included a provision in the event of a default by the borrowers which assigned all the rents and profits from the property. The provision gave the bank the right, at any time and without notice, to enter upon, take possession of, and manage the property if the bank determined, in its sole discretion, that there was a default or a breach of covenant by the Hellers. By signing the mortgage note, the borrowers agreed to release and waive their right to retain possession of the premises after any default in payment.

The Hellers defaulted, their last payment being made June 4, 2009; on August 7, 2009, Waterstone wrote the Hellers about the overdue account and informed them that action would be taken if the account was not brought current, or a payment plan was not initiated. Negotiations took place but no payments were made and no further communication between the parties occurred after October 9, 2009. An inspection of the premises took place, and Waterstone placed a sign in a window with its contact information. On November 5, 2009, Waterstone changed the locks and put new keys in a lockbox n the front door. The Hellers contacted Waterstone on November 24^th to request access which the bank permitted.

When Waterstone brought a foreclosure action, the Hellers filed a counterclaim for trespass. Both parties moved for summary judgment on the trespass claim, and both parties were denied. Waterstone Bank appealed the denial of summary judgment and the Court of Appeals reviewed the circuit court’s decision de novo.

Holding:  Reversed and Remanded. The Court of Appeals remanded this case with instructions for the circuit court to grant summary judgment on the trespass counterclaim in favor of Waterstone Bank. The court first addressed whether the Hellers consented to Waterstone’s actions. The Court of Appeals held that by signing the mortgage, the Hellers consented the terms, and therefore consented to Waterstone entering upon, taking possession of, and managing the property upon default without requiring a lessor-lessee relationship or legal action, as the Hellers argued. The court reasoned that the plain language of the relevant provision did not support the Hellers’ position and establishing a lease or taking legal action was not a condition precedent to the rights to enter upon, take possession of, and manage the property.

Second, the court looked at the scope of consent granted by the Hellers to Waterstone Bank. The Court of Appeals held that placing a sign in the window, changing the locks, and placing a key for the locks in the lockbox, were within the scope of the consent given by the Hellers. The court’s reasoning relied on the common meaning of the words “possess” and “manage” in the context of the mortgage note. With this analysis, the court held as a matter of law, the Hellers consented to Waterstone’s actions regarding the subject property; therefore, Waterstone cannot be found to have committed a trespass.