Mortgages; Foreclosure; Contracts

Associated Bank-Milwaukee v Wendt, 625 NW2d 359 (Wis App Ct 2001).

Facts: In order to purchase a home, Wendt executed a promissory note for $109,500 to Associated Bank-Milwaukee (the Bank) in August 1992. He later added another note of $6,000. Both notes were secured by a mortgage on his home and were due in full on August 18, 1998. Wendt failed to pay the amount in full on that date and was in default as specified by the terms of the mortgage. He met with the Bank to negotiate an extension of his financing but the negotiations failed. Throughout this time, Wendt continued to send mortgage payments. The Bank accepted them and subtracted them from the balance due. In December 1998, the Bank notified Wendt that it would not extend his financing because he failed to cooperate during negotiations. Wendt put his house on the market and soon after accepted an offer of $195,000.

On March 10, 1999, the Bank commenced a foreclosure action against Wendt. Wendt moved to dismiss the action. He claimed that the Bank's continued acceptance of his mortgage payments was a waiver of the default. He then filed a counterclaim alleging malicious prosecution. The Bank moved for summary judgment. The trial court granted summary judgment in favor of the Bank on both the foreclosure action and Wendt's counterclaim. The court held that Wendt's claim of malicious prosecution was unsupported by evidence. Wendt appealed both rulings. He further contended that the Bank had no equitable basis for continuing the foreclosure action after learning he accepted an offer to purchase his house.

Holding: The appellate court affirmed the judgments of the trial court. Mortgages are treated as contracts. Therefore, the court looked at the language of the note. The note stated that if Wendt failed to pay the note when it was due, the Bank "may declare the entire balance of principal and accrued interest to be payable immediately...." According to this language, when Wendt failed to pay the loan at its due date, the Bank was entitled to begin a foreclosure action. Wendt contended that upon the accepted offer to purchase the property, there was no equitable basis for the action because there was a substantial amount of equity in the home. Foreclosure actions are subject to equitable consideration; however, an accepted offer to purchase is not the same as a completed sale. The sale may not have actually closed. The court held that the Bank was not equitably barred from pursuing the action.

Wendt also contended that the Bank waived its right to foreclosure by continuing to accept his mortgage payments after the due date passed. The court did not accept this argument because when the Bank began the foreclosure action, Wendt owed the entire balance of the principal and the interest, not just a few installments. Therefore, the court held that the trial court correctly granted summary judgment in favor of the Bank on the foreclosure action. Wendt's counterclaim alleged that the Bank began the action without good faith negotiations and acted with malicious conduct toward him. The record contained no evidence that the Bank acted in bad faith. Therefore, the court upheld the summary judgment and dismissal of the counterclaim.

EDITOR'S NOTE: Under Illinois law, a mortgagee's acceptance of partial payments does not take away the mortgagee's right to commence a foreclosure action for default. Fed Natl Mortgage Association v Bryant, 62 Ill App 3d 25, 378 NE2d 333, 18 Ill Dec 869 (5th D 1978). However, if the late payments sufficiently cure the default, the refusal to accept them is inequitable. Because Wendt's payments were not enough to cure the default, Illinois courts would have upheld the summary judgment and allowed the Bank to continue the foreclosure proceedings. If Wendt's late payments constituted the entire principal and accrued interest, an Illinois court would have required the Bank to accept the payment and discontinue the foreclosure action.

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