Opinion
Case No. 00-0786-FT.
Opinion Released: July 26, 2000. Opinion Filed: July 26, 2000. Order Withdrawn: August 3, 2000.
APPEAL from an order of the circuit court for Kenosha County: BRUCE E. SCHROEDER, Judge . Reversed and cause remanded.
Before Brown, P.J., Nettesheim and Snyder, JJ.
John A. Owen appeals from an order confirming a sheriff's sale in a foreclosure action. Because the confirmation proceeding was not reported as required by SCR 71.01(2) (1998), we reverse the confirmation order and remand for a properly reported hearing.
Facts and Procedural History
¶ 2. The facts are not in dispute. On March 5, 1989, Owen executed a note to Aurora Loan Services, Inc. (Aurora). The note was secured by a mortgage on a nonhomestead, residential dwelling owned by Owen. Over the ensuing nine years, Owen made payments on the note totaling approximately $39,000. On February 4, 1999, Aurora commenced this foreclosure action based upon Owen's failure to make scheduled payments for the last four months of 1998 and the first month of 1999. Owen did not answer Aurora's complaint, and the circuit court entered a default judgment of foreclosure on May 21, 1999. The judgment directed that the property be sold at a sheriff's sale and that no deficiency judgment be entered against Owen.
¶ 3. The sheriff sold the property at public auction. Aurora moved for confirmation of the sale pursuant to Wis. Stat. § 846.165 (1997-98). The motion recited that the property had sold for $44,300 and that after the addition of necessary expenses since the judgment, Owen's indebtedness to Aurora was $44,129.25.
All references to the Wisconsin Statutes are to the 1997-98 version unless otherwise noted.
¶ 4. The circuit court conducted the confirmation hearing on December 22, 1999. For reasons unknown, the hearing was not reported as required by SCR 71.01(2). The only documentation of this hearing is the clerk's minute sheet, which indicates: (1) the names of the attorneys who appeared for the parties, (2) that Owen's attorney moved for an extension of the period for redemption, (3) that Aurora's attorney objected to this motion, and (4) that the circuit court denied the extension request. The minute sheet concludes with a notation that the court confirmed the sheriff's sale. A written order confirming the sheriff's sale followed. Owen appeals.
Based upon our examination of the record, this was the first time Owen appeared in this matter.
Discussion
¶ 5. Supreme Court Rule 71 is entitled "REQUIRED COURT REPORTING." Supreme Court Rule 71.01(1) defines "Reporting" as "making a verbatim record." Subject to three limited exceptions, SCR 71.01(2) requires that "[a]ll proceedings in the circuit court shall be reported."
The three exceptions recognized by SCR 71.01(2) (1998) are "(a) A proceeding before a court commissioner that may be reviewed de novo; (b) Settlement conferences, pretrial conferences, and matters related to scheduling; (c) In a criminal proceeding, a matter preceding the filing of a criminal complaint." Id . None of these exceptions apply in this case.
¶ 6. Owen argues that the circuit court erred in the exercise of its discretion by failing to assure that the confirmation of sale proceeding was reported pursuant to SCR 71.01. While we agree that the failure to report the hearing was error, we disagree with Owen that the question is committed to the circuit court's discretion. On its face, SCR 71.01(2) is mandatory in its terms, leaving no room for circuit court discretion.
¶ 7. We recognize that sometimes a statute cast in mandatory terms will be held to be only directory, not mandatory, and a failure to follow its dictates is not necessarily fatal. Among the factors we consider when determining whether a statute is mandatory or directory is the importance of literally observing the provision in question in order to satisfy the object of the legislation. If the provision is essential to the legislation's goal, it is mandatory. There is a presumption that such a statute is mandatory unless its directory or discretionary character "clearly appears." If the language of the statute is clear and unambiguous, a mandatory construction is more likely. See Midwest Mut. Ins. Co. v. Nicolazzi, 138 Wis.2d 192, 198, 405 N.W.2d 732 (Ct.App. 1987). On the other hand, if the statutory requirement is aimed at a public official instead of a private person and if the requirement does not carry any penalty or consequence for noncompliance, the provision is more likely to be construed as only directory. See id. at 196-200.
Here, we are concerned with a supreme court rule, not a statute. However, when construing a rule enacted by the supreme court, we apply the traditional principles of statutory construction. See Schinner v. Schinner, 143 Wis.2d 81, 89-94, 420 N.W.2d 381 (Ct.App. 1988).
¶ 8. Two of the above factors support interpreting SCR 71.01 (2) as a directory rule: (1) the rule is directed at the circuit court, a public entity, and (2) the rule does not recite any express consequence or penalty for noncompliance. However, we conclude that the other factors outweigh this suggestion. First, the words of the rule itself have a mandatory, not a discretionary or directory, ring. Second, and more importantly, the obvious purpose of the rule is to memorialize the confirmation hearing for purposes of future review, most notably, meaningful appellate review which is an essential part of the judicial process. We therefore hold that SCR 71.01(2) is mandatory.
¶ 9. We do not read Aurora's brief to disagree with our interpretation of SCR 71.01(2). Rather, Aurora contends that the failure to report the confirmation hearing is of no consequence because the circuit court record that does exist affords a sufficient basis to affirm the confirmation order. This is essentially a harmless error argument. However, we cannot apply the doctrine of harmless error to excuse a failure to comply with a mandatory statute. See D.F.R. v. Juneau County, Dep't of Soc. Servs., 147 Wis.2d 486, 499, 433 N.W.2d 609 (Ct.App. 1988).
¶ 10. Alternatively, we hold that the limited circuit court record does not support Aurora's claim of harmless error. A decision to confirm a sale following a foreclosure is vested in the broad discretion of the circuit court. See First Wis. Nat'l Bank v. KSW Invs., Inc., 71 Wis.2d 359, 363, 238 N.W.2d 123 (1976). We may look to the entire record to support a finding that the court did not expressly make. See Sohns v. Jensen, 11 Wis.2d 449, 453, 105 N.W.2d 818 (1960). Relying on these principles of appellate review, Aurora points to the following in support of the confirmation order: (1) that the period of redemption had expired, (2) that Owen had failed to redeem the property, (3) that Aurora had provided proper notice of the sheriff's sale, (4) that the high bid at the sheriff's sale was $44,300, (5) "that [Owen] was content to accept this sum in satisfaction of the debt," and (6) that there is a reasonable relationship between the bid and the property's value ($48,200) as stated on a tax search. From this, Aurora contends that we can logically infer that fair value was obtained at the sheriff's sale. Correlatively, Aurora also relies on this same data to compensate for the failure of the order confirming the sale to recite any findings of fact or conclusions of law.
¶ 11. We first note that the circuit court record does not support Aurora's claim that Owen "was content" to accept the price obtained at the sheriff's sale in satisfaction of the debt. And, save one, the balance of the factors cited by Aurora merely relate to historical data regarding the sale. This data does not answer the crucial inquiry at a confirmation hearing which, variously stated, asks whether the bid price was so inadequate as to shock the conscience of the court as a matter of law, and whether it represented "fair value." See First Wis. Nat'l Bank, 71 Wis.2d at 362-63. The only factor cited by Aurora which is relevant to this inquiry is the value of $48,200 indicated on a tax search. However, the reliability of this information must be questioned in light of an appraisal placing a value of $80,000 on the property.
Again, without a record of the confirmation hearing, we do not know how, or whether, the values recited in the tax search document or the appraisal were addressed at the unreported hearing.
¶ 12. Aurora also contends that the lack of a record or express findings regarding the confirmation sale is of no consequence because Owen was not subject to a deficiency judgment. Aurora relies on Wis. Stat. § 846.165(2), which states:
In case the mortgaged premises sell for less than the amount due and to become due on the mortgage debt and costs of sale, there shall be no presumption that such premises sold for their fair value and no sale shall be confirmed and judgment for deficiency rendered, until the court is satisfied that the fair value of the premises sold has been credited on the mortgage debt, interest and costs.
Aurora reads this statute to say that fair value is of no consequence when a deficiency judgment is not sought.
¶ 13. We disagree. This statute states that a presumption of fair value will not apply when the sale price is less than the amount due on the mortgage debt plus the costs of sale. From this it logically follows that in the converse situation — a sale producing a sale price which meets or exceeds the amount of the mortgage debt and costs — the presumption does apply. This interpretation is shared by a commentator on this subject: "Where the property is sold for the amount due on the judgment and costs at sale, or more, and no deficiency is requested, there is a presumption that the property is sold for fair value." Arthur M. Moglowsky et al., Wisconsin Mortgage Foreclosures 54 (Professional Educ. Sys., Inc. 1989). In summary, all the statute does is set up a presumption of fair value when the sale price meets or exceeds the judgment and costs. But the statute does not, as Aurora contends, eliminate the requirement of fair value in that setting.
We have examined scores of Wisconsin mortgage foreclosure cases that have presented a fair value dispute in an effort to determine whether Aurora's claim has any precedential support. While most of these cases involved deficiency judgments, none of the cases turn on that fact. And, the remaining decisions are silent as to whether a deficiency judgment was sought.
¶ 14. Here, even if we allowed on the face of the limited circuit court record that Aurora was entitled to the statutory presumption, we cannot say without a record of the confirmation hearing whether that presumption was rebutted.
¶ 15. Aurora's contention that fair value applies only in a deficiency judgment case would mean that a sale which meets or exceeds the amount of the judgment plus costs would receive automatic judicial approval. Thus, in a surplus situation, the mortgagor or third parties entitled to such surplus would have no means for challenging or measuring the fairness of the sale. See Wis. Stat. §§ 846.10(3), 846.162. We question why that should be so. Instead, we see fair value as a necessary requirement in either setting. In a deficiency setting, fair value assures that the amount of the deficiency judgment is held to a minimum. In a surplus setting, fair value assures that the surplus obtained is the optimum.
Conclusion
¶ 16. We hold that the hearing on Aurora's motion for confirmation of the sheriff's sale was subject to the mandatory reporting requirement of SCR 71.01(2) and is not subject to a harmless error analysis. Alternatively, we hold that the failure to report the hearing was not harmless error. We reverse the order confirming the sale, and we remand for a reported hearing in accord with the rule.
By the Court. — Order reversed and cause remanded.