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.
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.
This position, said the court, was consistent with general common law.
Moreover, the land contract vendor retains legal title to the real property until the land contract is paid.Is the lien an encumbrance to be perfected as an interest in real property under Wisconsin’s real estate statutes; an interest in personal property governed by Article 9 of the Uniform Commercial Code; or perhaps both?In 2010, Troy and Heather Blanchard agreed to sell a residential property under a land contract to Benjamin and Debra Hoffman for 2,000.Scholars argue that this provision alleviates the need to record a transfer of a land contract vendor’s interest in the county real estate records.The court acknowledged that the question of whether a vendor’s interest in a land contract must be perfected as real or personal property varies from state to state. However, Judge Hamilton concluded that the Seventh Circuit did not have to decide whether, in Wisconsin, a financing statement filed under the UCC may properly perfect a lien on a vendor’s interest in a land contract.The only question was whether, under Wisconsin law, the recording of a mortgage may do so. Citing the same scholars as the trustee, the court said that recording in the real estate records may be desirable even though it is irrelevant under Article 9 of the UCC., 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.More importantly, Revised Article 9 of the UCC did not restrict the application of Wisconsin Statutes section 706.001(1), which applies broadly to a mortgage of The bank’s proper recording of its mortgage interest defeated the trustee’s attempt to take the Blanchards’ vendor’s interest under Code section 544(a)(3) as a hypothetical bona fide purchaser, or as a hypothetical judicial lien creditor under Code section 544(a)(1).In which held that both a land contract and any assignment of an interest in the land contract are excluded under Article 9 of the UCC.While the court acknowledges that certain provisions of Revised Article 9 of the UCC enacted after conflict with this holding, it seems to brush past this discrepancy without attempting to harmonize the dissonance arising from Wisconsin’s real estate recording statute and the UCC.It concluded that the Blanchards’ interest as a land contract vendor was properly subject to the bank’s validly recorded mortgage.Judge Hamilton agreed with the bankruptcy court that the proper way to perfect the lien on the vendor’s interest was by recording the mortgage with the county register of deeds rather than by filing a financing statement with the Department of Financial Institutions under Article 9 of Wisconsin’s UCC.Wisconsin’s land recording statute applies to There, the bankruptcy court for the Eastern District of Wisconsin ruled that a land contract vendor’s interest is perfected when it is recorded in the county land records, and that there was no need to perfect the interest under the UCC.