WI Sup Ct Invalidates HOA Policy That Revived a Lien Eliminated by a Foreclosure Sale

Wisconsin Supreme Court decision (April 29, 2016).

This case involved a dispute between a lender, who obtained title to a condominium through a judicial foreclosure sale, and a homeowners association (“Association”) over the enforceability of an Association policy that forbids subsequent unit owners from utilizing the Association’s recreational facilities until all assessments of the former owner of the condominium are paid in full.

The lender, Walworth State Bank (“Lender”), took title to the condominium in question pursuant to a foreclosure action and a subsequent sheriff’s sale of the property. Lender subsequently entered into a contract to sell the condominium to a third-party free of Association claims against the subject unit, but Association interfered with the sale by contending that under its Membership and Guest Policy, the new owner would be prevented from utilizing Association’s recreational facilities which included a Yacht Club, restaurants, fitness and golf facilities, and boat slips, until all of the unpaid assessments owed to Association by the former owners of the unit were paid. To facilitate the sale of the condominium to the third-party purchasers, Lender paid Association’s demand for the unpaid assessments, which totaled $13,225.32, under protest and then brought suit to have Association’s policy declared invalid and recover the amounts paid.

In its action, Lender contended that Association’s policy was in violation of Wisconsin law because it impermissibly revives a lien that was eliminated by the foreclosure action. The trial court granted summary judgment in favor of Lender, and Association appealed. The court of appeals reversed the trial court decision and Lender appealed to the Wisconsin Supreme Court.

The Wisconsin Supreme Court reversed the appellate court’s decision after finding that Association’s policy had the effect of reviving a lien against the condominium that had been extinguished by a foreclosure judgment and sale. The court found that the foreclosure judgment in favor of Lender eliminated “all right, title, interest, lien or equity of redemption” of Association in and to the condominium. As such, Association’s policy could not survive the foreclosure sale by restricting a current owner’s use of Association’s recreational facilities based on the nonpayment of assessments due to Association by a former owner of the condominium. Association’s policy of tying the debts of prior owners to the condominium was in violation of established foreclosure law.

See case decision: Walworth_State_Bank_v._Abbey