## Facts

- Delco Development Co. owned a Kenosha, Wisconsin commercial property containing a building constructed in 1970 and mortgaged the property to Prudential Insurance Company of America (Prudential).
- In 1975, Spencer’s Kenosha Bowl, Inc. (Spencer’s) purchased the property from Delco, taking title subject to Prudential’s mortgage but **not assuming** Delco’s mortgage indebtedness.
- Delco later defaulted on the mortgage obligation, and Prudential commenced a foreclosure action.
- The circuit court entered a foreclosure judgment and fixed the mortgage indebtedness at **$994,497.80** as of the sheriff’s sale.
- At the sheriff’s sale, the property sold for **$635,000**, leaving a deficiency.
- In the foreclosure proceeding, Prudential also sought a money judgment against Spencer’s for **waste**, alleging Spencer’s actions and failures to maintain the premises caused substantial physical deterioration and reduced the property’s value, thereby harming Prudential’s security.
- After a trial on the waste claim, the circuit court found Spencer’s committed waste and entered judgment for Prudential in the amount of **$369,188.21** (as adjusted by the court).
- Spencer’s appealed from the portion of the judgment awarding waste damages.

## Issues

1. Whether a successor owner in possession who did not assume the mortgage indebtedness may be held liable to the mortgagee for waste, including passive or permissive waste.
2. Whether Prudential’s waste claim could be properly litigated as part of the foreclosure action.
3. Whether the circuit court applied a proper method, supported by the record, to calculate the amount of waste damages.
4. Whether the evidence was sufficient to support the circuit court’s finding that Spencer’s committed waste.

## Decision

- The Court of Appeals of Wisconsin **affirmed** the waste judgment.
- A mortgagee may maintain an action for waste against a **nonassuming grantee** in possession when the waste materially impairs the mortgagee’s security, and liability is not limited to “active” waste; passive or permissive waste may also support recovery.
- Prudential’s waste claim was properly tried within the foreclosure action; even if Spencer’s challenged the pleadings, Spencer’s did not show prejudice in its ability to defend given the notice and proceedings leading to the waste trial.
- The circuit court’s damages calculation—aimed at the reduction in the value of Prudential’s security caused by the waste and reflected in the $369,188.21 award—was not erroneous.
- The finding of waste was supported by credible evidence and was not clearly erroneous.

## Legal Principles

- Waste is a wrong against the mortgagee’s security interest in the mortgaged real estate; a mortgagee’s right to seek waste damages does not depend on the current owner having assumed personal liability on the mortgage debt.
- A successor owner in possession may be liable for waste that materially impairs the mortgagee’s security, including deterioration caused by failure to maintain the property (permissive waste) as well as affirmative damaging acts.
- A waste claim may be litigated within a foreclosure action when the parties have fair notice and an opportunity to defend; the key procedural question is prejudice, not technical pleading labels.
- Waste damages in the mortgage setting are measured by the injury to the mortgagee’s security (commonly shown through diminution in value attributable to the waste), not simply by the foreclosure deficiency or the difference between the debt and the sheriff’s sale price.
- Appellate review defers to the circuit court’s factual findings on waste and valuation when supported by credible evidence; such findings will be upheld unless clearly erroneous.

## Conclusion

The court affirmed a $369,188.21 waste judgment against Spencer’s, holding that a mortgagee may recover for material impairment of its security from a successor owner who did not assume the mortgage, that liability may rest on passive deterioration as well as affirmative acts, and that the waste claim could be resolved within the foreclosure action using a damages measure tied to the harm to the mortgagee’s security.


Prudential Insurance Company of America v. Spencer's Kenosha Bowl, Inc., 137 Wis.2d 313, 404 N.W.2d 109 (1987)