Lender is Not Required to Credit the Amount of a Promissory Note to a Debtor in Foreclosure

By: Attorney Christine A. Gimber – Weld Riley, S.C.

On December 19, 2019, the Wisconsin Court of Appeals issued its decision in First Western SBLC, Inc. v. New Lisbon Travel Mart, LLC.  First Western foreclosed on New Lisbon’s property because New Lisbon failed to make the payments due under the mortgage secured by the property.  First Western agreed to permit New Lisbon to sell the property on a short sale – for less than the amount due.  As part of the short sale, New Lisbon’s principal gave New Lisbon a promissory note for $190,000.00. New Lisbon then assigned the promissory note to First Western.

The proceeds of the short sale were applied to the balance due by New Lisbon to First Western thus reducing, but not eliminating, the amount remaining due.  New Lisbon argued the $190,000 promissory note had to be credited to the amount due because the note was uncollectible.

The Court of Appeals found New Lisbon was not entitled to have the $190,000 credited to the amount that remained due.  In reaching its decision, the Court of Appeals pointed out that New Lisbon bore the burden of proving the promissory note was uncollectible.  New Lisbon failed to present sufficient evidence to support this argument.

The Court of Appeals also rejected New Lisbon’s argument that equity required the amount of the promissory note to be credited to the balance due. Likewise, the Court of Appeals found no merit to New Lisbon’s argument that the property did not sell for “fair value” as required by Wisconsin’s foreclosure statutes.  Because fair value is required only when a property sells at a sheriff’s sale, this standard did not apply to New Lisbon’s short sale of the property.