Summary
In Wuorinen the court's powers would have been invoked by the mortgagee's filing of a motion for appointment of a receiver; herein the court's powers were so invoked.
Summary of this case from In re Century Investment Fund VIII Ltd. PartnershipOpinion
No. 248.
Argued October 8, 1971. —
Decided November 2, 1971.
APPEAL from a judgment of the circuit court for Racine county: THOMAS P. CORBETT, Circuit Judge. Affirmed.
For the appellant there was a brief and oral argument by Bernard F. Mathiowetz of Milwaukee.
For the respondents there was a brief by Flynn, Flynn Flynn of Racine, attorneys, and Thomas G. Hetzel of Kenosha of counsel, and oral argument by Gerald T. Flynn.
This is an appeal from a judgment of the circuit court for Racine county. The action was commenced by the plaintiffs, Norman A. Wuorinen, and his wife, Patricia, against the City Federal Savings Loan Association, a savings and loan association located in Milwaukee, Wisconsin, to recover gross rents collected by the defendant during the pendency of a foreclosure action initiated by the defendant.
The plaintiffs purchased residential property in Racine county on October 15, 1964. The purchase was financed by a note and mortgage given to the defendant savings and loan association. Substantially contemporaneous with the execution of the note and mortgage, the plaintiffs also executed a pledge of rents and a waiver of their homestead rights. The mortgage was in the sum of $16,400, and monthly payments were set at $124.90. The loan was guaranteed by the Veterans Administration and was subject to its regulations.
After being in possession a little more than a year, the plaintiffs moved to Michigan and conveyed the property by deed to Warren F. and Mary Ann T. Karls on October 27, 1965. The Karls took possession and assumed the note and mortgage. The testimony indicated that, despite this arrangement, the plaintiffs Wuorinen remained liable under the mortgage and note. The Karls went into default, and on April 7, 1966, when they were delinquent on three or four payments, the savings and loan association instituted a foreclosure action against the Karls and the Wuorinens. The Wuorinens, prior to judgment, were dismissed as defendants because the savings and loan association did not know their whereabouts and was unable to serve process.
The savings and loan foreclosure complaint asked for the appointment of a receiver. However, no application for a receiver was made during the course of the proceedings and none was appointed. A notice of lis pendens was filed on April 26, 1966.
The Karls, through their attorney, at about this time advised the Wuorinens that they were unable to continue with the purchase of the property, and on April 30, 1966, they executed a quitclaim deed reconveying the property to the Wuorinens. The Wuorinens were not aware of the foreclosure action. The record also indicates that the savings and loan association, the plaintiff in the foreclosure action, was not aware of the conveyance of the property back to the Wuorinens.
Following the execution of the deed, the Wuorinens made arrangements with the Charles Realty Company, the realtor with whom they had done business at the time of the original purchase, asking them to rent the property and to continue the mortgage payments out of the rental proceeds. The rental figure was set at $125 a month and a tenant was secured. The Charles Realty Company, according to the testimony of Robert Crowley, Jr., secretary of the savings and loan association, contacted them, advising that the property had been abandoned by the Karls. Crowley testified that he suggested to Charles Realty Company that it find a tenant for the property and pay over the money to the savings and loan association. The realty company secured a tenant. Rental proceeds in the sum of $1,000 was transmitted to the savings and loan association, and it disbursed the proceeds as follows: $125 to the Charles Realty Company for a finder's fee, $467.42 for 1966 real estate taxes, $329.59 for property maintenance, and $77.99 to the Veterans Administration. A judgment of foreclosure was entered on June 13, 1966.
The record reveals that the first knowledge that the Wuorinens had of the foreclosure action was when the Veterans Administration notified them that, pursuant to their guaranty contract on the mortgage, a judgment had been taken against them for $1,810 plus interest. By virtue of the Veterans Administration guaranty, the savings and loan association was made whole in the foreclosure action despite the fact that the property was sold for less than the amount of the foreclosure judgment. Upon discovery of the foreclosure action and the fact that the rents on the property were applied for purposes other than mortgage payments during the period that they considered themselves to be in possession by virtue of their agency with Charles Realty Company, the Wuorinens commenced an action against the savings and loan association for the rents during the period of foreclosure subsequent to the time that the property was conveyed back to them.
Trial was before the circuit court for Racine county, and judgment was entered for the plaintiffs for the rents collected less the $125 finder's fee. The savings and loan association has appealed.
The defendant savings and loan association takes the position that the Charles Realty Company was its agent and that, having taken peaceable possession through its agent of the abandoned property, it was entitled to rents and profits during the foreclosure period. Additionally, it urges that the filing of the lis pendens terminated all rights of the Wuorinens in the subject of the foreclosure action, including the right to the rents during the foreclosure period. We do not agree.
The trial court took the position that, by a conveyance to the Wuorinens after the filing of the lis pendens, they became subsequent purchasers. The defendant, therefore, contends that, as a matter of law, the Wuorinens as subsequent purchasers were foreclosed of all rights to the rents that accrued during the period of foreclosure. Sec. 281.03(1), Stats., provides in part:
"From the time of such filing [of the lis pendens] every purchaser or encumbrancer whose conveyance or encumbrance is not recorded or filed shall be deemed a subsequent purchaser or encumbrancer and shall be bound by the proceedings in the action to the same extent and in the same manner as if he were a party thereto."
By the deed from the Karls, executed after the filing of the lis pendens, the Wuorinens could only acquire such right, title, and interest as was held by the Karls at the time of the conveyance. The interest of the Karls was subject to the pending foreclosure action. By the deed, the Wuorinens, therefore, assumed the position of mortgagor, and by virtue of the lis pendens were subject to the consequences of the action then pending. The rights they acquired were those of a mortgagor whose equity of redemption and title in the property was subject to termination by the foreclosure judgment. They consequently were the grantees of the rights as well as the liabilities of a mortgagor. During the pendency of a foreclosure action in this state, where the mortgagor retains title, the mortgagee does not ipso facto by virtue of a default acquire the right to possession of the property or the rents and profits that may accrue. We have stated in Zimmermann v. Walgreen Co. (1934), 215 Wis. 491, 496, 255 N.W. 534:
"It is the settled law of this state that the legal title and right of possession does not vest in the mortgagee, but continues in the mortgagor until terminated by a sale on foreclosure, or by contract between the parties, and that even when a receiver is appointed in a foreclosure action to prevent waste, the collected rents and income of the mortgaged land do not belong to the mortgagee or to the receiver, but they are conserved and applied on the mortgage debt for the mortgagor's benefit."
Although the defendant in its complaint requested the appointment of a receiver, it neglected to apply for such appointment, and no showing was made to the court during the pendency of the proceedings that the appointment of a receiver would have been appropriate. Nor does the pledge of rents and profits that was executed by the Wuorinens contemporaneously with the execution of the mortgage entitle the savings and loan association to the rents in the absence of further action and order of the court. In Grether v. Nick (1927), 193 Wis. 503, 512, 213 N.W. 304, 215 N.W. 571, we stated:
"In jurisdictions where the mortgagor retains the legal title and right of possession, as here, it follows that the right to collect rents and profits remains in the mortgagor until he is deprived of possession in the manner provided by law, and this notwithstanding the fact that the mortgage may pledge the rents and profits."
The question then resolves itself into the determination of whether the Wuorinens were mortgagors in possession or whether there had been an abandonment of the property which gave the defendant savings and loan association peaceable possession by virtue of the actions of its alleged agent, Charles Realty Company. This question is determined by the facts that undisputably show that the Charles Realty Company was in fact the agent of the Wuorinens and not of the savings and loan association.
While the trial court failed to make an explicit finding that the Wuorinens were in possession, such finding is implicit in the entire proceedings. It is clear that the entire decision was predicated on that determination of fact. The defendant acknowledges this in its brief, wherein appears the statement, "The trial court held that the Karls had right of possession which included the rents and which inured to the Wuorinens [plaintiffs] by their deed." Although the defendant elsewhere in its brief argues that it was in possession, such position cannot be successfully asserted unless the trial judge's finding was contrary to the great weight and clear preponderance of the evidence.
It is apparent that the trial court's finding was supported by the evidence. The Wuorinens succeeded to the Karls' right of possession and took possession by the action of their agent, Charles Realty Company, in renting the property. Facem per alium facem per se. The record makes it clear that the subsequent purported agency relationship between the realty company and the savings and loan association was completely ineffectual to grant peaceable possession to the mortgagee, for the possession of the Wuorinens, manifested by their commission to the Charles Realty Company, was continuing and could only be ousted by an order of the court authorizing the appointment of a receiver. For a mortgagee to have any possessory rights in property in the absence of a peaceable yielding up of possession, he must petition for and be granted the appointment of a receiver. Dick Reuteman Co. v. Jem Realty Co. (1937), 225 Wis. 428, 433, 274 N.W. 416; see also: Brinkman v. Jones (1878), 44 Wis. 498; Citizens Savings Trust Co. v. Rogers (1916), 162 Wis. 216, 155 N.W. 155; Schwartzburg v. Rahtjen (1938), 227 Wis. 525, 279 N.W. 19, for a discussion of the rule that, where a mortgagee peacefully obtains possession while the mortgagor is in default, he may collect the rents and profits.
We cannot conclude, however, that the defendant's position is taken other than innocently. There is nothing in the record to show that the City Federal Savings Loan Association or its officers were aware of the prior agency agreement entered into between the Wuorinens and Charles Realty Company. Although it is thus apparent that the City Federal Savings Loan Association took the rental proceeds in good faith, the right of the mortgagors, the Wuorinens, was not thereby affected. The right to the rents accrued from their status as mortgagors in possession, and the conduct of Charles Realty Company as a double agent cannot be allowed to detrimentally affect their rights in this litigation.
Defendant argues that nevertheless it should in equity be allowed to keep the rent money or should not be required to repay the rent money, because the proceeds were used to pay for the real estate taxes and for property maintenance, as well as the finder's fee to the realty company and for other miscellaneous and legitimate purposes. The defendant, however, failed to use the equitable remedy of the appointment of a receiver, which was clearly open to it. Moreover, it would be inequitable to penalize plaintiffs for the unauthorized attornment of their agent, Charles Realty Company, to the mortgagee. At the time of the Wuorinens' appointment of the realty company, they assumed that the payments on the mortgage would be kept current. They were unaware of the foreclosure action. By virtue of the foreclosure and their guaranty contract entered into with the Veterans Administration, the plaintiffs have been obligated to reimburse the Veterans Administration the amount of the loss on the transaction. Aside from the judgment in the instant action, the savings and loan association was made whole by the guaranty of the Veterans Administration. By equitable principles the mortgagors were entitled to the rents during the period of foreclosure unless the mortgagee invoked the equitable powers of the court. It would be inequitable for this court under the circumstances to permit the mortgagee to retain the rental proceeds.
In view of the Charles Realty Company's breach of its fiduciary obligation to the plaintiffs, it is difficult to see why the defendant savings and loan association should have been credited with the $125 finder's fee paid to Charles Realty Company. However, the plaintiffs have not raised the question by motion to review, and this court is powerless to direct that the judgment should be modified to permit recovery of the additional $125.
By the Court. — Judgment affirmed.