Supreme Court rules for former Door County man in mansion foreclosure dispute

Is a Door County luxury home worth one price in a mortgage foreclosure but far more in terms of credit for a guarantor of the loan?

The Wisconsin Supreme Court on Tuesday ruled in favor of a former Door County man who says it is, and that he should get far more credit than a foreclosed mansion brought at sheriff's auction.

The 6-1 decision reversed the Court of Appeals and went contrary to the strong urging of the Wisconsin Bankers Association.

Horizon Bank of Indiana loaned $5 million to Marshall's Point Retreat LLC, secured by a mortgage on 9135 Marshall's Point Bay Road, an 8,700-square-foot home on 21 acres, with nearly 800 feet of Lake Michigan frontage.

Allen Musikantow, who owned Marshall's Point Retreat, signed a guaranty on the loan.

Musikantow had built another expensive home in Door County.  After moving to Florida, he first tried to sell the 14,000-square-foot  "La Maison des Deux Fleurs" for $17 million before cutting the price to $6.85 million and later resorting to an auction that didn't result in a sale.  Musikantow is a former Chicago-area developer.

After Horizon determined Marshall's Point had defaulted, it brought actions in foreclosure and against Musikantow in 2015. Parties stipulated to the foreclosure and money judgment of $4,045,555 against Musikantow.

The stipulation also said that whatever the home fetched at sheriff's auction — minus fees, interest and expenses — would count as a credit toward Musikantow's obligation on the judgment.

Horizon bought the home at auction for $2,250,000, an amount two of its experts said constituted the "fair value."

But before a judge confirmed the sale, Musikantow wanted language saying he wasn't bound to that figure; he wanted to prove in a different proceeding that the home had a fair market value in excess of $10 million, which, as a credit, would cover his entire guarantor's judgment.

The judge left open the value for credit on the guaranty, but the Court of Appeals reversed and held that the $2.25 million in the stipulation was the only value, meaning Horizon could seek the balance of $1.8 million from Musikantow.

The Supreme Court disagreed. Writing for the majority, Justice Ann Walsh Bradley said statutory language clearly states that a judge need only be satisfied that the foreclosure sale proceeds are fairly applied against the mortgage debt, and doesn't address the debt of a third-party guaranty.

Dissenting, Justice Rebecca Bradley said the majority "rewrites the parties' stipulated agreement, disregards its plain terms, and deprives one part of the benefit of the terms for which it bargained."

She called the circuit court decisions to decouple the mortgage foreclosure from the collection of the guaranty — when they had been combined as usual practice by the parties —  "clearly erroneous."

In a friend of the court brief, the Wisconsin Bankers Association warned against adopting Musikantow's position.

"Changing the well-established rules in a case that is, in essence, a case of contract interpretation because a guarantor is unhappy with the contract he signed will create uncertainty for lenders," the brief read.

On Tuesday, WBA president and CEO Rose Oswald Poels said the group was disappointed in the ruling. 

"It's strange to think that a fair value for the borrower would be unfair for the guarantor," she said. "It was a public sale, with notice. Normally if there was that much difference, (in value) there’d be other bidders."

She said the resulting uncertainty and potential for litigating multiple values for the same property will be inefficient and could increase the costs of lending.