The trustee noted that under current Wisconsin Statutes section 409.102, a mortgage of a vendor’s interest in a land contract was an “account,” which is defined as a right to payment for property which has been sold.
This interpretation has been advanced by a number of scholars. Moreover, Wisconsin Statutes section 409.308(5) provides that perfection of a security interest under the UCC in a right to payment also perfects a security interest in a security interest, mortgage or other lien on personal or real property securing the right.
The Hoffman’s paid $30,000 down, and the balance of the purchase price was paid by the Blanchards obtaining a mortgage loan for $142,000 from Intercity State Bank.
Through the combination of the down payment and the proceeds of the mortgage, the Blanchards received the entire $172,000 purchase price at closing.
Neither the land contract nor the rental agreement was recorded with the Marathon County Register of Deeds.
The bank extended the loan to the Blanchards and properly recorded a mortgage granting it a lien in the property, together with all “privileges, hereditaments, easements, and appurtenances, all rents, leases, issues and profits, all claims, awards and payments made as a result of the exercise of the right of eminent domain, all existing and future improvements and all goods that are or are to become fixtures.” The bank also recorded an Assignment of Leases, but mistakenly neglected to obtain an Assignment of Land Contract. The Chapter 7 trustee filed an adversary proceeding arguing that, under section 544(a)(3) of the United States Bankruptcy Code, the trustee has the rights and powers of a bona fide purchaser of the real property as of the date of the bankruptcy, and therefore stepped in line ahead of the mortgagee.Always consult with a lawyer about your particular circumstances before acting on any information presented in these materials because it may not be applicable to you or your situation.Providing these materials to you does not create an attorney/client relationship.The district court held that the land contract vendor, as security, held only bare legal title for the right to receive payments under the land contract, which constituted personal rather than real property under Wisconsin law.However, the court found that it was necessary and appropriate to reform the mortgage to constitute a lien on the personal property interest in the land contract payments rather than a real property interest in the land., the Seventh Circuit Court of Appeals took on the knotty question of how one properly perfects a lien in a vendor’s interest under a land contract.Analyzing Wisconsin statutes and case law, the court observed that in Wisconsin, the question of whether a land contract vendor or vendee owns the property is “troublesome.” The answer fundamentally impacts the rights the vendor has in the underlying real property, and how someone who lends money to the vendor properly perfects its interest to secure repayment.The vendor’s interest under the land contract, argued the trustee, is not real property which can be perfected by recording a mortgage under Wisconsin law, but instead is personal property that must be perfected under Article 9 of the UCC, which the bank failed to do.The bankruptcy court found that the bank had notice of the land contract and therefore its mortgage was subject to the Hoffman’s vendee interest.However, as between the Blanchards’ trustee and the bank, the Blanchards’ interest as a land contract vendor was an interest in real property subject to the bank’s properly recorded mortgage, which could not be avoided.The trustee appealed and the district court affirmed, but on wholly different grounds.However, the court also noted that subsequent Wisconsin cases appeared to conflict with this conclusion.In , a creditor of a land contract vendor was not permitted to impose a judgment lien on the real property.