Last week the Wisconsin Supreme Court issued its decision in Bank of New York v. Carson, 2015 WI 15, a case we previewed here. The case is significant for its potential lasting effects on mortgage foreclosures in Wisconsin.

The Carson case involves interpretation of Wis. Stat. § 846.102, which applies to foreclosure of “abandoned” properties. In 2007, Shirley Carson granted a mortgage on her home in Milwaukee to secure a loan from Countrywide Home Loans. After Carson defaulted on the loan, Bank of New York (the trustee of the securitized mortgage trust to which Countrywide had transferred the mortgage loan) filed a foreclosure action, and the Milwaukee County Circuit Court entered a default foreclosure judgment in June 2011. Because the property appeared vacant at the time, and the bank did not seek a deficiency judgment against Carson, the judgment provided for a 3-month statutory redemption period under § 846.103(2), but the bank did not sell the property after the redemption period expired.

Carson could not care for the property, and it fell into severe disrepair. But she was still the owner of record, so she received many citations from the City for violating various ordinances. With the fines mounting, Carson tried to force the bank to sell the property. More than a year after the original redemption period had expired, Carson asked the circuit court to find that the property had been abandoned and to change the judgment to one under § 846.102, which provides that the sale of an abandoned property “shall be made upon the expiration of 5 weeks from the date” judgment is entered. Carson argued that once the court found the property to be abandoned, § 846.102 compelled the bank to hold a sale.

The circuit court denied Carson’s motion, finding that it did not have authority to order the bank to hold a sale. The Court of Appeals reversed, holding that § 846.102 “directs the court to ensure that abandoned property is sold without delay.” The Wisconsin Supreme Court affirmed, agreeing that the Legislature intended to require mortgagees to sell abandoned properties to prevent blight.

Although § 846.102 uses the term “shall,” the Supreme Court has, in the past, held that “shall” can be directory, rather than mandatory, and that courts should look to the context of the statute. Here, the court determined that “shall” is mandatory. The court started with the text, noting that the same section uses both “shall” and “may” so they must have different meanings, but the court’s analysis quickly became mired in policy considerations, including a recitation of the problems caused by abandoned properties in Milwaukee and across the state. According to the court, requiring mortgagees to sell such properties was the Legislature’s attempt to address these problems. The court was particularly persuaded by a 2012 revision to the statute, which shortened the redemption period for abandoned properties from 2 months to 5 weeks.

The court rather inartfully distinguished § 846.101 and § 846.103(2), both of which contain the same language as § 846.102 indicating that a sale “shall be made upon the expiration” of the statutory redemption period. Those sections, the court said, have restrictions, such as requiring the mortgagee to waive deficiency and to permit the mortgagor to remain in possession of the property, whereas § 846.102 contains no such requirements (although one wonders how the presentation of evidence of abandonment is not a similar hurdle).

Justice Prosser, joined by Justices Ziegler and Gableman, concurred in the judgment, but on much different grounds. He criticized the majority for being “a bit too eager to depict mortgage lenders as the source of the problem” of abandoned properties, and he suggested the majority’s opinion “radically revises the law on mortgage foreclosure” by requiring lenders to apply their collateral to the underlying debt. In his view, the court’s opinion effectively transformed Wisconsin’s traditional lien theory of mortgages into title theory, for the mortgagee’s right to apply its collateral is now an obligation to do so at a particular time. Justice Prosser nonetheless found support for Carson’s position in another statute. Section 840.03 provides that anyone with an interest in real property can bring an action seeking, among other remedies, judicial sale of the property.

The Carson decision raises more questions than it answers: Can a lender simply release a defaulted mortgage on an abandoned property, as the mortgagee did in Deutsche Bank National Trust Co. v. Matson, 2012AP1981 (Ct. App. July 30, 2013)? Do municipalities have standing to intervene and seek a finding of abandonment? Will a mortgagor have a claim for damages (e.g., reimbursement of municipal fines) if the mortgagee does not sell within a reasonable time? And, most importantly, does the Carson decision apply to § 846.101 and § 846.103(2)? If circuit courts answer the latter question in the affirmative, Justice Prosser’s prediction of a “radical” change in mortgage foreclosure law will almost certainly come to pass.