Wisconsin

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Commonwealth Land Title Insurance Company
v. David Ames, et al.,
481 N.W.2d 709 (Wis.App. 01/14/1992)

COURT OF APPEALS OF WISCONSIN, DISTRICT THREE

No. 91-1943-FT

1992.WI.14 , 481 N.W.2d 709, 166 Wis. 2d 1053

January 14, 1992

COMMONWEALTH LAND TITLE INSURANCE COMPANY, PLAINTIFF-APPELLANT,

v.

DAVID AMES, CAROLINE AMES, CAROL THEESFELD, DEFENDANTS, BANK OF OSCEOLA, AND MONYCOR SAVINGS BANK, DEFENDANTS-RESPONDENTS.

APPEAL from a judgment of the circuit court for Polk county: JAMES R. ERICKSON, Judge.

Before Cane, P.j., LaRocque and Myse, JJ.

The opinion of the court was delivered by: Cane

CANE, P.J. Commonwealth Land Title Insurance Company appeals a summary judgment dismissing the Bank of Osceola and Monycor Savings Bank (collectively, the banks) as defendants in Commonwealth's action to enforce a judgment against David Ames. *fn1 The trial court dismissed the banks on the basis that because they were good-faith transferees their mortgages had priority over Commonwealth's judgment. Commonwealth argues that, as a matter of law, the banks were not good-faith transferees or, in the alternative, that there is a material issue of fact whether the banks were good-faith transferees. We conclude that, as a matter of law, the undisputed facts establish that the banks were good-faith transferees. The summary judgment dismissing the banks is affirmed.

David Ames and Catherine Bartlett were married and residing in Minnesota when Bartlett purchased, in her own name and by land contract in 1985, real property in Polk County, Wisconsin (the property). Ames, developer of a housing project in Minnesota, became indebted for labor and materials provided for the Minnesota project. Commonwealth, insurer of the mortgage on the Minnesota project, obtained a judgment lien against Ames in Minnesota and docketed that judgment in Polk County on July 13, 1989. Commonwealth's judgment lien, which is the basis for this action, should not be confused with mechanics liens held by Shaw Lumber Company and Hyland Hills Limited Partnership against Ames and Bartlett. The Shaw and Hyland mechanics liens, appearing in the abstract of title, are part of Commonwealth's argument to show notice to the banks. However, these liens were satisfied.

In 1987, as consideration for the dissolution of the marriage between Ames and Bartlett and at the request of Ames, Bartlett assigned her right, interest and title in and to the property to Carol Theesfeld, Ames' sister. Later, Theesfeld conveyed the property by quit-claim deed to Caroline Ames, Ames' second wife.

In 1990, Caroline conveyed mortgages on the property to the banks. When applying for the mortgages, Caroline presented to each bank a prenuptial agreement, signed by Ames and herself, indicating that she retained sole ownership of the property. The real estate mortgages also indicated that Caroline was "a single person" and the property was "her individual property."

Commonwealth sued Ames and the banks for payment of the Minnesota judgment docketed in Wisconsin. The complaint alleged that the property conveyances were Ames' attempt to defraud his creditors, contrary to the Uniform Fraudulent Transfer Act, ch. 242, Stats. The trial court granted summary judgment dismissing the banks because they were good-faith transferees and, therefore, their mortgage had priority over Commonwealth's judgment.

The only issue on appeal is whether the banks were good-faith transferees. The standard of review of a summary judgment is de novo. Grosskopf Oil v. Winter , 156 Wis. 2d 575, 581, 457 N.W.2d 514, 517 (Ct. App. 1990). This court has set forth the methodology for reviewing a summary judgment many times, and it need not be repeated here. See Grams v. Boss , 97 Wis. 2d 332, 338, 294 N.W.2d 473, 476 (1980).

The banks assert that pursuant to sec. 242.08(4), Stats., they were good-faith transferees and thereby entitled to their interests in the property to the extent of their mortgages. Section 242.08(4) states in part:

Notwithstanding voidability of a transfer or an obligation under [the Uniform Fraudulent Transfer Act], a good-faith transferee or obligee is entitled, to the extent of the value given the debtor for the transfer or obligation, to. . . .

(a) A lien on or a right to retain any interest in the asset transferred.

Commonwealth argues that the banks were not good-faith transferees because they had or should have had notice of Ames' alleged interest in the property and, therefore, notice of Commonwealth's judgment lien against the property. Thus, Commonwealth contends that its interest in the property takes priority over the banks' interests.

The banks, as mortgagees, are transferees under ch. 242, Stats. Section 242.01(12), Stats., defines a "transfer" as including the creation of liens or other encumbrances. A mortgage is an encumbrance.

A transferee or mortgagee in good faith is one without constructive or actual notice of existing rights in the land. Grosskopf , 156 Wis. 2d at 584, 457 N.W.2d at 518. The three sources of notice are recording and public records and the land itself. Id. (citing Kordecki v. Rizzo , 106 Wis. 2d 713, 719 n.5, 317 N.W.2d 479, 483 n.5 (1982)). Thus, if the banks were without actual notice of Ames' alleged interest in the property and his alleged interest was not discoverable by them after examining the records of the Polk County register of deeds, other public records and observation of the property, they are entitled to "good-faith" status.

Commonwealth contends that Ames had an interest in the property resulting from his marriage with Bartlett, see Minn. Stat. sec. 518.54, sub. 5 (1991) (defining marital property), and that the recordings and public records provide notice to the banks of Ames' interest. We must examine the recordings and other public records to determine whether the banks should have had notice of Ames' alleged interest in the property through his marriage to Bartlett and of Commonwealth's judgment lien against the property. The partial abstract of title to the property *fn2 indicated that at the time the banks obtained the mortgages, Bartlett had purchased the property by land contract, in her own name, that there were two satisfied mechanics liens against Ames and Bartlett in favor of Shaw and Hyland, and that the property was conveyed by Bartlett's warranty deed to Theesfeld. The title abstract also indicated that Ames never held title to the property. "The Assignment and Consent to Assignment of Land Contract," filed with the register of deeds and referred to in the abstract, indicated that Ames directed Bartlett to assign her right, title and interest in and to the land contract to Theesfeld in consideration of the dissolution of the marriage between Ames and Bartlett. Also, the quit-claim deeds conveying the property from Theesfeld to Caroline deeded the property to Caroline as her individual property.

Commonwealth also argues that the two liens and the assignment, referred to in the abstract and containing Ames' name, put the banks on notice of Ames' alleged interest in the property arising from his marriage with Bartlett. Commonwealth contends that when Bartlett assigned her interest in the land contract to Theesfeld, she conveyed only her interest in the property, not Ames' alleged marital interest. We are not persuaded.

Assuming for purposes of this opinion that Ames had an interest in the property through his marriage with Bartlett, the liens and the assignment do not provide notice to the banks. The public records and recordings indicate that the Ames-Bartlett marriage was dissolved, Ames directed Bartlett to convey title to the property to Theesfeld in 1987 in consideration of the divorce, and Ames was never a record titleholder. The banks could reasonably assume that any marital interest Ames had in the property was divested as a result of divorce. Furthermore, the two liens against Ames and Bartlett were satisfied in 1987 and 1988. Consequently, even if the liens and assignment indicate that previously Ames may have had a marital interest in the property, the banks could reasonably assume that any potential interest had been divested.

Because the recordings and public records indicated that Ames never had title to the property, and the records were insufficient to put the bank on notice of any potential marital interest, reasonable diligence did not require the banks to investigate and search for liens and judgments against him. However, even if we assume for purposes of this Discussion that the banks' judgment and lien search disclosed liens against Ames, this is insufficient to put the banks on notice of Ames' interest in the property. Again, the banks would have had reason to believe that any interest Ames may have had was divested prior to the time when Commonwealth's judgment lien was docketed and Caroline applied for the mortgages. Consequently, the public records and recordings do not provide notice to lead the banks to suspect that Ames had a present interest in the property or Commonwealth's judgment lien against the property.

Next, we look to the property itself to determine whether the banks should have had notice of Ames' alleged interest. The fact that Ames used and possessed the property is consistent with the chain of title because Caroline, his wife, held title to the property as individual property. This was documented by the abstract and prenuptial agreement. Thus, investigation of the property itself did not provide the banks with notice of Ames' alleged interest in the property. Nor did it present a situation where the banks would have had a duty to investigate personal judgments or liens against Ames, discovering Commonwealth's judgment against him.

Commonwealth also argues that a letter from Monycor to Caroline's insurer, indicating that Monycor had a security interest in the property "titled in the names of Caroline N. Ames and David Ames," shows that Monycor had notice of Ames' interest in the property. We disagree. Monycor's letter was in error. The property was not titled in Ames' name, and the prenuptial agreement indicated that the property was Caroline's individual property.

A reasonable investigation of the records in the register of deeds office, other public records not recorded in the register of deeds office (i.e., judgments and liens) and the land did not provide and could not have provided the banks with actual or constructive notice of Ames' alleged interest in the property or Commonwealth's judgment against Ames. Therefore, we conclude that the banks are entitled to "good-faith transferee" status pursuant to sec. 242.08, Stats. Because we conclude that the banks are good-faith transferees under sec. 242.08, we need not address Commonwealth's argument under sec. 706.09, Stats., referring to notice of conveyance from the record.

By the Court. -- Judgment affirmed.

Not recommended for publication in the official reports.

Opinion Footnotes

*fn1 This is an expedited appeal under Rule 809.17, Stats.

*fn2 The record contains the portion of the abstract describing the conveyance to Bartlett and from Bartlett to Theesfeld. It also references the Assignment and Consent to Assignment of Land Contract.

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