A Split Between Federal and State Law – Appealing Foreclosure Judgments
In Bank of America v. Martinson, No. 13-3892 (7th Cir. July 5, 2016), the Seventh Circuit recently dismissed an appeal from a foreclosure judgment – issued by a federal court after removal from Wisconsin state court – based on Circuit precedent that a judgment of foreclosure is not a final, appealable order. The Circuit precedent to which the Martinson case adhered is contrary to Wisconsin law, which governed this dispute.
Bank of America filed a mortgage foreclosure action against Dawn Martinson Green and Carl Green in Wisconsin state court. The Greens, citizens of Minnesota, removed the case to federal court based on diversity jurisdiction. The federal district court entered a judgment of foreclosure in favor of Bank of America. The court ordered sale of the property at a sheriff’s auction upon expiration of the three-month redemption period. During the redemption period the Greens appealed the judgment to the Seventh Circuit.
The Seventh Circuit questioned whether it had appellate jurisdiction to hear the case. In a previous case originating out of Illinois, HSBC Bank USA, N.A. v. Townsend, 793 F.3d 771 (7th Cir. 2015), the court had held that a judgment of foreclosure was not a final, appealable judgment under 28 U.S.C. § 1291. The Townsend court reasoned that the foreclosure judgment was not final because (1) the property owners retained statutory rights to redeem or reinstate the mortgage before a judicial sale; (2) if the judicial sale occurred, a further judicial proceeding would need to confirm it; and (3) the parties could contest the amount of any deficiency judgment after the sale was held. In addition, under Illinois law, which governed in that case arising from a loan on a property in Illinois, a foreclosure judgment ordering a sale is not final and appealable.
The Martinson court held that Townsend was controlling on the question of appellate jurisdiction. It reached this conclusion despite the facts that (1) under Wisconsin law, a foreclosure judgment is a final and appealable judgment (Anchor Savings & Loan Ass’n v. Coyle, 149 Wis. 2d 94, 101-02, 435 N.W.2d 727 (1989)), and (2) no deficiency was sought in Martinson. The court explained that it would be too confusing to condition appeal on whether the foreclosure judgment permits a deficiency judgment. As for Wisconsin and Illinois’ conflicting state laws, the court stated that Townsend represents the federal standard. The court defended its decision stating that it avoided conflict within the Circuit on a question of federal procedural law. Ultimately, the court favored consistency in federal law over upholding state law.
Given this, the question arises – had the Seventh Circuit decided Martinson prior to Townsend would Wisconsin law (where foreclosure judgments are appealable) have been the federal precedent in this circuit? Further, this decision will affect parties’ choice in forum. Wisconsin homeowners will want to have their claims heard in state court. Had the Greens not removed their case to federal court, they could have taken an appeal to the Wisconsin Court of Appeals from the foreclosure judgment. Banks located in Wisconsin, if able, will want to litigate in federal court, which limits a defendant-homeowner’s right to appeal from a foreclosure judgment.
Law clerk Olivia Pietrantoni assisted in researching and writing this post.
