What is a "Fixture" as Defined in a Mortgage?

July 14, 2015

As a continued free service, Clair Law Offices, S.C. thought you might be interested in a recent Wisconsin Court of Appeals decision involving financial institutions, foreclosures, and the issues of conversion, waste, fixtures, and removal of items by the property owner from the mortgaged premises.

Key Facts

On June 25, 2015, the Wisconsin Court of Appeals decided the case of Baraboo National Bank v. Bronkalla.  The Bank foreclosed on the mortgage and sold the house at a Sheriff’s sale.  Prior to the Sheriff’s sale of the property, the homeowner removed a number of items from the house, including door knobs, light fixtures, bathroom mirrors, appliances, and a kitchen center island.  The Bank subsequently filed suit alleging that the homeowner breached the mortgage agreement with the Bank and committed conversion by removing from the house “fixtures” in which the Bank had an interest, without the permission of the Bank.

The Mortgage defined “personal property” as all fixtures and other articles of personal property now or hereafter owned by grantor, and now or hereafter attached or affixed to the real property.  The Court considered the following factors in determining whether a given item was a “fixture” under the mortgage agreement:  (1) actual physical annexation to the real estate; (2) application or adaptation to the use or purpose to which the realty is devoted; and (3) an intention on the part of the person making the annexation to make a permanent accession to the freehold.  Under the case law, these factors do not have equal weight; intent of the person affixing the item to “make a permanent accession” “is the primary determinant of whether a certain piece of property has become a fixture.”

Court’s Reasoning

The Court of Appeals stated that the “intent” factor in determining whether removed items are fixtures is “not the actual subjective intent of the landowner making the annexation, but an objective and presumed intention of that hypothetical ordinary reasonable person to be ascertained in the light of the nature of the article, the degree of annexation, and the appropriateness of the article to the use to which the realty is put.

The Bank presented evidence that the replacement cost for the removed items was $34,000.00, and argued that the jury should award the Bank that amount.  The jury returned a verdict in that amount.

The Bank argued on appeal that the trial court committed prejudicial error when it refused to instruct the jury on the question of punitive damages.  Punitive damages are available “if evidence is submitted showing that the defendant acted maliciously towards the plaintiff or in an intentional disregard of the rights of plaintiff.”  Wis. Stat. §895.043(3).

The Court of Appeals declined to address whether the Bank presented sufficient evidence to submit a request for punitive damages to the jury.  The only reason the Court of Appeals did not address the issue was because the Bank failed to cite the statute explaining when punitive damages are available, and also failed to explain how the evidence demonstrated that the property owner’s conduct warranted submission of punitive damages to the jury based upon the language of the statute – in the Bank’s appellate brief.

Why It Matters

When a property owner removes fixtures from mortgaged properties, or commits waste, causes of action for breach of the mortgage contract and conversion are available to the Bank.  As a remedy for breach of contract, the Bank can seek, among other things, “replacement costs” of the removed items.  As a remedy for alleged conversion, the Bank can seek compensatory and punitive damages.  As part of its complaint, the Bank can request double damages pursuant to Wis. Stat. §844.19(2) on the ground that the property owner’s removal of fixtures constitutes “tortuous waste.”  A Bank should allege that it is entitled to double damages for “tortuous waste” under §844.19(2) because the property owner’s “possession” of the “fixtures” is “unreasonable,” and “resulted in physical damage” to the house and “substantially diminished” the value of the house.

We appreciate the opportunity to continue to serve you.