What Notices Do I Have to Send Before I Dispose of Repossessed Collateral?

Take a moment for “Bits & Bytes,” as Deanne Koll explains what notices need to be sent before a lender can dispose of repossessed collateral.

Disclaimer: This video is designed to be educational and informative, but it is not legal advice. Collection law is constantly evolving and subject to change. Each situation is unique, and each case should be addressed to fit the unique situation.

After default on a secured loan, the lender often ends up with the collateral in its possession and wants to dispose of it. There are specific notices a lender must send to the defaulted borrower before it disposes of the collateral.

In Wisconsin, the law requires a lender to provide reasonable notice to the borrower (and any secondary obligors or subordinate lienholders) prior to disposing of collateral.

The timing of the notice—or what constitutes “reasonable notice”—is a question of fact. Meaning, there are no specifics. However, in a non-consumer transaction, a 10-day notice period is presumed to be reasonable notice prior to disposition.

So, what has to go into the actual notice? The notice must provide for a description of the lender, a description of the collateral to be sold, the method of intended disposition, the borrower’s entitlement of an accounting of the proceeds and the time and place of the sale.

There are specific form notices directly in the Wisconsin Statutes available for lenders. You should also note that the specifics of the requirements within the notice depend on whether the goods to be disposed of result from a consumer or non-consumer transaction.

If you are not familiar with the rules of disposition of secured collateral or do not have appropriate procedures in place for this, you should consult with an attorney.

Refusing Entry to Tax Assessor

On July 7, 2017, the Wisconsin Supreme Court issued a ruling in Milewski v. Town of Dover. In this case, the Milewskis refused to allow the tax assessor entry into their home for purposes of assessing the property.  The assessor increased the Milewskis’ assessment by 10.5%.  Under state statute, the Milewskis had waived the ability to challenge the increased assessment at the Board of Review, by refusing to allow the assessor to enter their residence. The Milewskis challenged both their increased assessment and the constitutionality of the state statute.  Ultimately the Wisconsin Supreme Court ruled in favor of the Milewskis on constitutional grounds.

The Wisconsin Supreme Court held that a taxing authority cannot force a homeowner to choose between allowing a tax assessor entry into the residence or giving up the right to appeal the assessment. In arriving at its decision, the Court reasoned that a homeowner has a constitutional right to challenge their property tax assessment, and the exercise of that right cannot be conditioned on the homeowner consenting to a search of their home.  However, the Court also noted that, while the homeowner cannot be denied the opportunity to challenge their tax assessment, they still have a heavy burden to overcome—a burden which they may not be able to meet without providing information about the inside of their residence.

The Court’s decision changes the rules governing property tax assessment. Following Milewski, property owners can no longer be denied the right to appeal their property tax assessment to a Board of Review for refusing to allow the assessor to enter into their homes.  Additionally, the legislature is currently considering Senate Bill 158 which would alter the state statutes to be in line with the Supreme Court’s ruling.  It is likely that the final form of this bill will contain additional or different procedural requirements for tax assessors.

Given the changes and potential for additional changes in the future, it is important that municipal taxing authorities monitor this website for any new developments.  Municipalities should contact their municipal attorney with any questions.

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Social Host Ordinances

The Wisconsin Court of Appeals recently held that municipal ordinances which make it unlawful to provide an environment where underage drinking may occur (social host ordinances) may only apply to areas described in a license or a permit, and not to private residences.

In this case, a property owner held a high-school graduation party at his residence where alcohol was served.  Late in the evening, underage individuals brought beer to the party and the property owner did not attempt to prevent the underage consumption of alcohol on his property.  The property owner was cited for violating the County’s social host ordinance, which prohibited the hosting of an event at a residence, premises, or other public or private property where the host knows underage drinking will or does occur, and fails to take preventative measures.  On appeal, the court reiterated that regulation of alcohol is a matter of statewide concern and any municipal ordinances regulating alcohol must be in strict conformity with the state statute.  The court found that the County’s ordinance was invalid as it did not strictly conform to the state statute.

This decision could have far reaching implications.  Unless the Wisconsin legislature changes the state statute, local governments are likely now prevented from punishing adults who passively allow underage drinking parties on their property.

It is important to distinguish between passive and active conduct by residential property owners.  Municipalities can no longer enact or enforce ordinances punishing property owners for merely allowing minors to consume alcohol on their residential property.  However, this decision likely does not prohibit municipalities from enacting or enforcing ordinances which punish residential property owners for actively encouraging such behavior by minors (for example, by providing alcohol to minors).

This case may still be appealed and thus changed or clarified by the Wisconsin Supreme Court.  Given the outcome, it is also possible that the legislature will change the state statute to regulate such conduct.  Local governments should consult with their municipal attorney if they have an ordinance which is similar to the City of Fond du Lac’s, and can monitor the Bakke Norman Municipal Law Alerts for developments on this issue prior to enacting or enforcing local social host ordinances which do not strictly conform to state statute.

City of Fond du Lac v. Muche  (October 26, 2016).

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When Does the Law Prohibit Me from Collecting My Attorney’s Fees?

Take a moment for “Bits & Bytes,” as Attorney Deanne Koll discusses when a lender can, and cannot, collect their attorney’s fees from a customer, upon a default of a loan.

Disclaimer: This video is designed to be educational and informative, but it is not legal advice. Collection law is constantly evolving and subject to change. Each situation is unique, and each case should be addressed to fit the unique situation.

I’m sure you’ve read some of your loan documents, which are less than clear about your ability to collect attorney’s fees upon default.  Likely, the documents allow collection of attorney’s fees, “if not prohibited by law”.  That begs the question, when does the law prohibit you collecting your attorney’s fees?

That’s a good question.  In Wisconsin, if the loan is a consumer credit transaction—and therefore governed by the Wisconsin Consumer Act—you are not allowed to seek payment for the creditor’s attorney’s fees by the debtor.  As discussed in an earlier video, generally, the Wisconsin Consumer Act applies to loans made to consumers (meaning, non-businesses) for less than $25,000 and to be used for personal or family purposes.  Thus, if you have a loan which fits within those parameters—and therefore regulated by the Wisconsin Consumer Act—you normally cannot seek payment of your attorney’s fees.

However, there are limited exceptions to this rule.  One such exception is if the extension of credit was for the purpose of acquiring or refinancing real property.  In that case, there are limitations on the amount of attorney’s fees that can be collected, but it’s not outright prohibited.  Because of the complexity of these rules, you should consult an attorney about your specific situation before you attempt to collect attorney’s fees from a customer.

What Are the Changes to the 2016 Law on Foreclosure Rules in Wisconsin?

B&BTake a moment for “Bits & Bytes” as Deanne Koll explains the recent changes to foreclosure rules in Wisconsin.

Disclaimer: This video is designed to be educational and informative, but it is not legal advice. Collection law is constantly evolving and subject to change. Each situation is unique, and each case should be addressed to fit the unique situation.

In 2016, the Wisconsin Legislature passed a bill (later signed into law by Governor Walker) which changed the rules for foreclosure of real estate mortgages recorded after April 26, 2016. It’s worth knowing a little about these changes.

First, this new law reduced the redemption period applicable to a foreclosure action involving residential property from 12 months to 6 months if the deficiency is not waived, and from 6 months to 3 months if the deficiency is waived.

This essentially halved the previous redemption periods for residential foreclosures. However, this law also provides that if an owner is attempting, in good faith, to sell the residential property subject to a foreclosure, the court can increase these newly reduced redemption periods by 2 months.

Second, the law clarified who may petition the court in a foreclosure action to declare mortgaged property abandoned for purposes of reducing the redemption period.

The law clarifies that only the lender or the municipality may request this reduced redemption period, effectively stripping the right of a borrower to try and get the redemption period reduced to 5 weeks so that they can be rid of the property more quickly—usually done when a property was causing the borrower to pay fees or be cited for violations, etc.

Lastly, the law attempted to clarify the rules regarding when “zombie properties” had to be sold at sheriff’s sale. Lenders were foreclosing property, getting their judgment, but never having the property sold at sheriff’s sale, creating “zombie properties” that stood in limbo.

This caused major issues for borrowers (who were to be mowing the lawn, paying for city water bills, and so on, during this time) and municipalities (who are responsible for the special assessments and ordinance violations).

Prior to this law change, the court had ruled that lenders had to sell properties at sheriff’s sale after a reasonable time. This law changed the court’s decision and states that commercial property need not be sold, and residential property must be sold within 12 months.

Breakfast with Bakke – Summer Golf Event

On August 15, 2016, Bakke Norman and JA Counter hosted a summer golf event as part of its Breakfast with Bakke seminar series.

The guest speaker, Joel Stern, discussed maximizing the value and integrity of your enterprise and integrating your employees in that process.

Register Now for the 2016 Municipal Seminar

Join us for the 2016 Municipal Seminar on Thursday, October 27, 2016, at WITC – New Richmond Campus at 1019 South Knowles Avenue. Registration and light dinner will be served from 5:30-6:00 p.m. Presentations will commence at 6:00 p.m.

Topics will include:

  • Parliamentary Procedure – Dan Hill, UW Extension
  • Healthcare Reform Update and Recent Trends – JA Counter
  • Ordinance Enforcement – Kate Avoles, Bakke Norman
  • Public Finance Update – Sean Lentz, Ehler & Associates

To register, CLICK HERE or call (715-246-3800) or email Janet King. Please RSVP by October 14, 2016.

If It’s Not on the Agenda…

The Open Meetings law in Wisconsin has a number of requirements, but two of the most basic and most important to remember are:

  • Local government meetings must be open to the public (with important, but very limited, exceptions).
  • All topics that are to be considered must be “noticed” 24 hours in advance (this is typically accomplished by publishing or posting the agenda).

Although it may lead to some inefficiency, it is very clear that the legislative policy and law in Wisconsin favors open government over efficiency if those two policies conflict (at least for municipalities). The requirement that meetings be open to the public has the consequence that board members should generally avoid talking or emailing amongst themselves about government business, outside of a properly noticed board meeting.

Walking Quorums.

Even with 5 or 7 person boards, if only two board members talk to each other directly, there is the risk of creating a “walking quorum” open meeting violation. For example, assume a five-person board or committee is going to consider a controversial conditional use permit. Board member Alice talks to or sends an email to board member Bill saying she intends to vote no on upcoming conditional use permit. Board member Bill replies that he agrees and will also vote no. Then Alice talks to board member Charley, who replies, “Well, if you and Bill are going to vote no, so will I.” Even though only two board members ever talked to each other, and Bill and Charley never talked to each other at all, the fact that the three board members discussed and decided on a vote outside of a board meeting likely constitutes a “walking quorum” violation of the open meetings law.

Public Comment.

What about “public comment” topics? Many local governments have a public comment or public forum item on the agenda where members of the public may present information. At times, members of the public will present topics and say something along the lines of “What are you going to do about it?” The board should not respond to that or any other question, or engage the citizen in a debate or conversation.

Can We Discuss a Topic if We Don’t Take Action?

I have often heard someone say “we can talk about it, we just can’t act on it” with respect to a topic that is not on the agenda. This is almost always incorrect; it is not okay to discuss the merits of a topic which is not on the agenda, with the only exception being in the case of a true emergency.

Although there are grey areas, as a rule, a topic that is not on the agenda should not be discussed at all by board members. Period.

What the board may do is to determine how to handle the topic procedurally. Usually, it is appropriate for the head of the board to determine whether to tell the clerk to put the topic on the agenda for the next meeting, send it to committee, or have the clerk or other staff investigate further.

Personal Liability and Loss of Public Trust.

Board members should also note that violations of the Open Meetings law are one of the very few areas where they do not have legal immunity from lawsuits or prosecutions for performing their local governmental duties. A violation of the Open Meetings law is a personal violation, and board members can be held personally liable for fines.

Perhaps most importantly, violations of the Open Meetings law can have the consequence of creating a lack of trust in the local government by citizens.

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When Can I Stop Sending a Notice of Right to Cure?

B&BTake a moment for “Bits & Bytes” as Deanne Koll explains when a lender can stop sending the customer a notice of right to cure.

Disclaimer: This video is designed to be educational and informative, but it is not legal advice. Collection law is constantly evolving and subject to change. Each situation is unique, and each case should be addressed to fit the unique situation.

Every lender has had this experience: a customer defaults, you send a notice of right to cure, and right before the cure deadline, the customer comes in and pays the amounts due. Then, the next month, the same thing happens all over again. When can you stop giving them the opportunity to cure?

The traditional right to cure notice is sent when a loan is covered by the Wisconsin Consumer Act. Generally, that law controls loans of less than $25,000 made to a consumer for consumer purposes. If the loan with the always-late customer is covered by the Wisconsin Consumer Act, you are required to send the Notice of Right to Cure. However, once you have sent a Notice of Right to Cure two times in a 12-month period, and the customer has cured both times, you are no longer required to allow them this cure period. Meaning, you can accelerate the loan and put it into collection without offering the right to cure.

Understanding that, as a lender, you do not desire loans to go into collection, I usually advise lenders to communicate this law to the customers. If this situation arises, it would be wise to consult your attorney about your rights and possible mitigation communication with the customer.


City Sign Ordinance Unenforceable

An Eagle River inn proprietor and one the neighboring businesses were having a dispute over parking issues. The inn proprietor put up a sign prohibiting his neighboring businesses’ customers from parking on the Inn parking lot, specifically stating the neighbor’s business name and indicating their customers were “rude.”

Somehow the City of Eagle River got involved, because this business sign, according to the City’s interpretation, was prohibited by the City’s sign ordinance. There is also a state statute that expressly permits a private party to erect no parking signs much like the one in question.

Thus we have a preemption issue, and the Court of Appeals made short work of the case, stating that the state statute preempted the city ordinance and the sign was permitted under state law. Thus the city ordinance could not be enforced against this sign, under these circumstances.  (It’s a bit complicated, but the City ordinance did not restrict no parking signs on private property, instead it prohibited certain kinds of off premises signs, and the argument was that since the sign was on the inn’s property, but was directed at the off premises neighboring business, it was in violation of the City’s sign ordinance).

I see two lessons here – the City’s ordinance may well be valid as written, but was invalid as applied in this case. So even though the language of the city ordinance didn’t exactly prohibit no parking signs, in this case it prohibited this no parking sign.  Thus state law preempted this specific application and enforcement of the ordinance, but didn’t invalidate the ordinance itself.

The other lesson that appears is that neighbors in disputes often want to drag local municipalities into what is, at its core a private dispute. Municipalities should be wary of intervening in private disputes, and make sure any intervention is an appropriate use of local government authority.