Harvest Sav. Bank v. ROI Investments

• Decision Date: 27 March 1997
• Docket Number: No. 96-0998,96-0998
• Citation: 563 N.W.2d 579,209 Wis.2d 586
• Parties: 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.
• Court: Wisconsin Court of Appeals

Page 579

563 N.W.2d 579

209 Wis.2d 586

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.

No. 96-0998.

Court of Appeals of Wisconsin.

Submitted on Briefs Dec. 9, 1996.

Opinion Released March 27, 1997.

Opinion Filed March 27, 1997.

[209 Wis.2d 588] For the defendants-appellants the cause was submitted on the briefs of Linda S. Balisle of Balisle & Roberson, S.C. of Madison.

For the defendant-respondent the cause was submitted on the brief of Daniel W. Stolper and Meg Vergeront of Stafford, Rosenbaum, Rieser & Hansen of Madison.

Before DYKMAN, P.J., and ROGGENSACK and DEININGER, JJ.

DYKMAN, Presiding Judge.

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 $272,464.44. 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 estate 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,...