The uncleanest of hands?

I like to tell clients that foreclosure law, for about 2008 years, was unchanged -- that from the dawn of time (billions of years ago or so, or 2000 years ago or so, depending on your beliefs) until about 2008, foreclosure law was relatively settled: you took out a loan, you paid or didn't pay, and the bank foreclosed (or didn't.)  Because mortgages were not complex transactions, there was not a great deal of law about them and because there weren't many factual issues or defenses there was relatively little litigation about them.

I also like to point out to clients (and opponents) that much of foreclosure defense relies on the lender screwing up something. (Or their lawyers, as will be seen soon by some law firms in Wisconsin and Illinois)<Palisades
claims.  Absent banks hiring negligent servicers, there's no Dorothy Chase Stewarts.
That's the case in all law, after all: Someone has to screw something up before there's a suit, but to present a defense, someone else has to screw something up, too: You don't have a legal case unless there've been two messups.

Or three. Because (some) circuit courts only just barely pay attention to foreclosure cases, and that's been going on for decades, as evidenced by State Bank of Drummond v. Christopher, a case in which a wife took out a refinancing mortgage without the husband knowing about it, and then of course defaulted on it, leading the bank to foreclose on the property.

Here is a quick list of screw-ups by the Bank:

1. The husband didn't sign the mortgage.  He didn't even appear in the office.  The wife said he worked a lot and couldn't be there.

2.  No problem, says the bank, and had an employee sign an affidavit saying the husband had been there in person when the documents were signed.

3.  The bank foreclosed without (apparently) ever serving the husband, John, with any papers.  John found out about the new loan a month after the foreclosure judgment was entered.

4.  Did I mention that the Bank's attorney in the foreclosure was the guardian ad litem for the husband and wife in their divorce, and that he never bothered to mention the foreclosure to John? That seems important, that the Bank's lawyer represented a bank against John while simultaneously representing the best interests of John's kids in a divorce.  Seems important.

So John tried to reopen the foreclosure case and the circuit court agreed that the mortgage was void as against John, because, you know, that's the law, and after agreeing to that the circuit court then required John to pay half of the void amount anyway to redeem the property, giving him only 90 days to do so.

And an appeal ensued, in which John won, kind of, but mostly because the Supreme Court was confused:

The record reveals a tangled skein of misrepresentation, negligence, and legal and factual error. We cannot on this appeal fully resolve the rights of the parties. The best that can be done on the basis of the record before us is to set aside the trial court's judgment, direct the dismissal of the action, and leave the parties to seek whatever remedies may be appropriate. We set aside the order and the underlying judgment and remand with directions to dismiss the complaint.

The Supreme Court held that the mortgage was void as against John, and his wife, and that John couldn't be held responsible for any of the new money, but that left the old mortgage, which had been satisfied by the new one, still valid; the Court went over the idea of unclean hands and in pari delicti without talking about those as such, and said:

  Here, however, there was not only gross and culpable negligence on the part of the bank, but fraud committed by Emily Christophersen. Accordingly, we do not believe that justice would be done by concluding that the admittedly unpaid original mortgage should be discharged.

But because John had benefitted from the original mortgage, the Court unsatisfied that one,

  Despite the negligence of the bank's agent in the process of executing the replacement mortgage which purported to satisfy the 1973 mortgage, it would be inequitable to relieve Emily Christophersen, the party who actively engaged in deception, of liability on the mortgage which was fraudulently discharged.

        The record shows that John Christophersen acknowledges the obligation incurred by the 1973 transaction and the existence of the lien of the original mortgage. Although John Christophersen was innocent of wrongdoing, he nevertheless benefitted from the original mortgage transaction by the receipt of the loan proceeds. The subsequent void transaction has no effect upon the liability he originally incurred pursuant to the 1973 mortgage or upon the bank's original mortgage lien. That mortgage remains in full force and effect in respect to both John and Emily Christophersen until satisfied [93 Wis.2d 162] by payment or foreclosure. We emphasize that no foreclosure of the original mortgage was commenced by the proceedings we review.

        It is adjudged that any satisfaction or discharge of the 1973 mortgage appearing of record may be set aside and the State Bank of Drummond's mortgage, executed on January 30, 1973, may be reinstated of record. The mortgage dated June 13, 1975, shall be shown upon the record to be void pursuant to the order of this court.

 
Which left John potentially subject to foreclosure,  for not paying the mortgage that he hadn't known existed, and he didn't know the mortgage existed because his children's guardian ad litem hadn't told him. 

Justice? Not totally.  Let's hope that John's lawyer on remand managed to get some good fraud counterclaims in against the Bank.