The Wisconsin Legislature passed 2009 Senate Bill 62, which was signed into law as 2009 Wisconsin Act 2 on February 19, 2009. For full text of the Act, click here: http://www.legis.state.wi.us/2009/data/acts/09Act2.pdf.
This Act changed many laws in the State, however one is of particular importance and interest to me. The Act created Wisconsin Statute § 846.35 Protections for tenants in foreclosure actions. The title gives you a good idea of what this is about.
In looking at the newly enacted § 846.35 (1), it requires that the foreclosing plaintiff must give notices to tenants in the subject property at different points in the litigation. This makes sense. These required notices must be given within 5 days of the start of the foreclosure action, within 5 days of the grant of a foreclosure judgment, and notice of the date and time for the judicial confirmation of the sheriff’s sale. I find these to be appropriate times for the tenant to be informed of the progress.
The Statute goes on to discuss how a plaintiff must give these notices. The first option is to personally serve each tenant pursuant to Wis. Stat. § 801.11 (1), in an manner similar to the serving of a complaint. The second is to send the notice via certified mail, with notice completed upon mailing.
Finally, the Statute delineates that each tenant that did not receive a notice may receive $250, plus reasonable attorney fees, from the plaintiff, with a maximum of one award (two missed notices does not entitle a tenant to $500).
So why does this new statute make my skin crawl? Three reasons. First, the Legislature has not defined to whom this applies. Second, it appears that a tenant may force a plaintiff to pay them, even when the plaintiff does nothing wrong. And third, how does a mortgage holder know the names of the tenants?
The wording of the first portion of the statute states "If residential rental property is the subject of a foreclosure action, the plaintiff shall provide the following notices at the following times to the tenants who are in possession of each rental unit when a notice is given." However, in looking at the penalty provision, it states "the court shall award the tenant to whom the notice should have been given $250 in damages, plus reasonable attorneys fees." There is an inherent contradiction: tenants vs. tenant.
Wisconsin courts recognize that when the Legislature puts specific language in a statute, the courts must construe the statute to not make any portion of it meaningless. As such, the difference between tenant and tenants may be significant.
Presume that three students are renting an apartment in a building that is being foreclosed upon. Does the foreclosing plaintiff need to give notice to each of the three students? The requirement for notices requires that notices be given to the tenants (plural) in possession of each rental unit (singular). It appears that the Legislature is requiring that notice be given to each tenant. Especially when you consider the punitive sentence allowing the tenant (singular) to whom the notice should have been given to recover damages. This gives further credence to the each tenant must receive notice theory.
However, in all of Chapter 846, there is not a definition of tenant. Consider the possibility that a husband and wife enter into a lease and later produce a child. The leased premises begins to be foreclosed upon, to whom must the plaintiff give notices? Under the above analysis, it appears that both the husband and wife must be given notices. But what about baby? Does the baby need to be placed on the lease in order to have tenant rights?
Moving to the manner of serving the notices, there is nothing wrong with personal service pursuant to § 801.11 (1), however it can be expensive for a plaintiff. Personal service of papers can cost between $30 and $75. To perform this three times during the litigation brings the total to between $90 and $225. And as discussed above, it is unclear whether this is per unit or per tenant. Bringing back the three students renting an apartment, the service fees for their one unit could cost upwards of $500 during the litigation.
So, it seems pretty clear that personal service is very costly, so consider the certified mailing method. Certified mail costs approximately $5 per notice. This is a significant cost savings. However, the statute states, "Notice given under this subdivision is considered completed when it is mailed, unless the envelope enclosing the notice is returned unopened to the plaintiff."
Anyone who has received mail returned unopened knows that this process can take some time. So, if the three students are on winter break, the notices are mailed, not accepted (because no one is home to do so), they are returned to the plaintiff (or their attorney). The time period to give the notice has now passed and the plaintiff is deemed to have not given notice, clearly through no fault of their own, and is subject to an award of damages.
Further, certified mail can be refused by the recipient. The Legislature does not put forth a provision regarding refused mail, only unopened mail. So, could a tenant see the Gerbers Law, S.C. envelope for the second notice (knowing that Gerbers Law had sent the first notice), refuse this mail, and then seek damages for failure to give notice? Equity states no, but a strict reading could lead to such a conclusion.
It is hard to imagine a lawsuit for $250 dollars, but with "reasonable attorneys fees" in the balance, there is a possibility that it could be tried.
Finally, as an attorney that has represented financial institutions in foreclosure actions, the foreclosing plaintiff usually does not know the names of all tenants within 5 days of instituting the action. A defendant has 30 days to respond to discovery (and that is when the responses are done timely, which is not always the case). So, a plaintiff may not rely upon the standard discovery to ascertain the names. Then must a plaintiff request this information prior to instituting the action? I do not think that a defendant landlord will be very forthcoming with the information when they receive the "we are going to foreclose on you, but first we need the names of all of your tenants" telephone call.
So then, does this place the onus on the foreclosing plaintiff to keep records of every lease entered into by the defendant? This would create a bureaucratic nightmare for even the smallest of mortgage lenders, let alone the large financial institutions.
While the intent of the Legislature and the statute is good, I feel that there are several glaring issues with the statute that must be addressed.