The Horizon Case: The Facts and Considerations for Banks

Kirsten Spira | 04.26.18

On March 6, 2018, the Wisconsin Supreme Court issued its decision in the case of Horizon Bank, NA v. Marshalls Point Retreat, LLC. The case involved a loan default that resulted in a credit bid by the bank for real estate collateral. The bank sought recovery in one legal action that included both foreclosure on the property and judgment against the third party guarantor. Before the sheriff’s sale, the parties (including the guarantor) entered into a negotiated stipulation in which they agreed in writing to resolve all issues in one proceeding, and agreed to the terms of an ​“order of judgment.” The order for judgment stated that the borrower owed the bank approximately $4 million, and granted the bank a money judgment in the same amount against the guarantor. The parties agreed to the following language as part of the order of judgment and related stipulation:

[t]he amount paid to [the bank] from the proceeds of [the] sale of the Premises, remaining after deduction by [the bank] of the amount of interest, fees, costs, expenses, disbursement and other charges paid or incurred by [the bank] not included in the monetary judgment against [the guarantor] … shall be credited by [the bank] on said monetary judgment. 

Under traditional contract interpretation principles, we would interpret the stipulation to mean that the amount of the bank’s credit bid, which was the ​“fair value” established in the foreclosure hearing, to be the amount credited against the guarantor’s obligation (so that the amount the guarantor has to pay equals the $4 million minus the amount of the credit bid). The Court decided instead that this language means the amount of the credit bid was merely the minimum amount to be credited to the guarantor, even though the stipulation said nothing about ​“minimum amount.” The Court sent the case back to the trial court to determine the value of the house for purpose of determining the amount to be credited to the guarantor’s obligation. Consequently, the bank will have to litigate the value of the property twice, and potentially have one value for purposes of the mortgage debt and a different value for the guaranty. Given this case, banks need to think about the language of their stipulations and guarantees. They need to make sure they include language that is crystal clear about what amount will be credited to the guarantor’s obligation as a result of the sale of the borrower’s collateral (including a sale by credit bid).

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