Here is a brief synopsis of a recently published case which may be of interest to you. It illustrates a failure that would be protected by the timely purchase of a title commitment before embarking on a foreclosure or sale of a property being foreclosed.
Federal Nat'l Mortg Ass'n v Lewis, 2008AP2, 779 NW2d 723 (Wis Ct App 2009).
Facts: In 2003, Federal National Mortgage Association (Federal) foreclosed on a residential property as the first mortgage holder. The complaint named the homeowner and the second mortgage holder, First Bank Midwest (Midwest). However, Midwest was not served with process and thus did not enter an appearance in the case. Federal bought the property at sheriff's sale for $206,236.82 and sold it to new residents, the Parises, for $166,000.00. Eight months later, Midwest petitioned to reopen the original judgment, which the court subsequently vacated.
The case was tried in November 2007, at which time the court crafted an equitable remedy for Midwest. First, Midwest could obtain the original deed for one dollar more than what Federal paid, $207,236.82. If Midwest exercised this right, the Parises were entitled to damages against Federal for their original purchase price plus improvements and paid real estate taxes, all totaling $218,730.13. Finally, if the Parises wanted to retain the home, they could purchase it from Midwest for Midwest purchase price, plus interest, attorneys' fees, and other litigation costs, for a total of $301,244.89. The Parises appealed.
Holding: Reversed and remanded. The lower court's equitable remedy could not stand because it put the innocent Parises in a much worse position and granted a windfall to Midwest. The court found no evidence that the property had any value beyond Federal's first mortgage, because no one offered to pay more than the first mortgage value at the sheriff's sale, the property was subsequently sold for much less than the first mortgage amount, and no contrary evidence had been present.
Therefore, although Midwest was not properly served with notice, it " had no prospect of gaining an advantage by exercising its options. " Presumably if Midwest had bought the property at sheriff's sale it could not have realized the large profit it would realize under the trial court's remedy. Therefore, the court held that Midwest's only remedy was an option to purchase the property from the Parises for its current fair market value, an option that Midwest would not likely exercise because it would realize no gain.
