The only way for a mortgage lender to foreclose in Wisconsin is to file a judicial foreclosure lawsuit. Nonjudicial, or trustee power of sale, foreclosures do not happen under Wisconsin law. Because foreclosure requires a formal lawsuit, it can quickly become very expensive for the mortgage lender. Accordingly, lenders may agree to avoid foreclosure by accepting a deed in lieu of foreclosure. Wisconsin residents, however, should be aware of some important rights available under state law before agreeing to a deed in lieu of foreclosure.
A deed in lieu of foreclosure is a voluntary conveyance of title from the borrower to the mortgage lender. The mortgage lender becomes the new owner of the property. Just as the borrower loses its property title after foreclosure, the borrower also loses title after a deed in lieu. But, the deed in lieu can offer both the borrower and mortgage lender advantages over foreclosure.
Foreclosure begins when the mortgage lender files a lawsuit in the local county courthouse. The borrower then has the option of answering and defending against that lawsuit, or simply allowing the mortgage lender to obtain a default judgment. If the borrower contests the lawsuit, the mortgage lender will have to prevail at trial by affirmatively proving that the borrower has defaulted. After the lender obtains a judgment, the court will order a sheriff's sale of the property. The local sheriff's department will hold a public auction to sell the property to the high bidder.
Wisconsin state law does not put any time limits on when during the foreclosure process the mortgage lender can accept a deed in lieu. This means that the mortgage lender can accept a deed in lieu all the way up until seconds before the sheriff's sale would otherwise occur.
Wisconsin state law does provide a few basic rights to borrowers that are important when considering a deed in lieu. The borrower facing foreclosure has a general right of redemption, which means the borrower can avoid foreclosure by fully paying off the outstanding balance on the mortgage loan. The time period for exercising the right of redemption varies depending on the size of the mortgaged property, but generally ranges from two to 12 months after the lender obtains a foreclosure judgment. The big benefit for a borrower to offer a deed in lieu of foreclosure is that, in most instances, the lender can attempt to collect a foreclosure deficiency from the borrower. A deficiency occurs when the foreclosure sales price is insufficient to fully pay off the mortgage loan. By agreement on a deed in lieu, the borrower can ask the lender to waive any potential deficiency.