Further Defining the Duties of a Land Contract Vendor
By Martin J. Greenberg
Wisconsin land contracts serve several functions: They can act as a
conveyancing vehicle, a seller-created financing vehicle, or an
investment vehicle, or they can be used for tax planning purposes.
Typically, when performing the conveyancing function, such a contract
reserves certain rights and responsibilities to both the vendor and the
vendee.
The Greenberg court
concluded that to the extent real property was conveyed to the vendee
under a standard land contract, the vendor did not retain any ownership
other than the bare legal title. The governing statute in this case did
not define "ownership"; thus, the court had to determine what
combination of sticks or rights, less the whole bundle, constituted
ownership. |
The Wisconsin land contract is an excellent example of the concept of
equitable conversion, wherein the vendee becomes the beneficial owner of
the real estate from the execution of the land contract and as such
enjoys the rights and sustains the burdens of ownership.
In equity, when the land contract is entered into, the vendee becomes
the owner of the real estate; the equitable interest is in the nature of
real estate. The vendor becomes the trustee of the legal title for the
vendee. The vendor's interest is in the purchase money (personal
property) and, therefore, has a lien on the real estate as collateral
security for the unpaid balance of such money due under the land
contract. When the vendee fully performs the terms of the land contract,
the vendor is required to convey legal title in the form of a warranty
deed satisfying the land contract. The transfer of the deed then
essentially merges both the equitable and legal title into fee
title.
This article analyzes the impact of City of Milwaukee v.
Greenberg on the Wisconsin land contract as a conveyancing
vehicle.
City of Milwaukee v. Greenberg: Facts and lower court
holdings
The facts in this case are simple. In 1985 Greenberg transferred a
property in the city of Milwaukee to Eaton under a land contract using
the standard Wisconsin land contract form. In 1987 the Department of
Building Inspection issued a raze and remove order to "Owners and
Lienholders of Record," including Greenberg, pursuant to Wisconsin
Statutes sections 74.58
and 66.05.
The order required the owners to raze and remove the dwellings of the
property within 30 days. It further informed Greenberg that if he failed
or refused to comply with the order, the cost of razing the dwellings
would be assessed against the property and collected as a special tax,
or by a personal collection action against him. When no owner complied
with the order, the city razed the dwelling at a cost of $3,905. The
city thereafter billed Greenberg for these costs and filed suit against
him and Eaton for collecting them.
The circuit court granted the city's motion for summary judgment and
found that there was no issue of fact and ruled as a matter of law that
Greenberg, as a land contract vendor, held legal title to the real
estate and was jointly and severally liable with the vendee for the cost
of razing. The Wisconsin Court of Appeals affirmed and concluded that a
vendor's interest conveyed by a land contract, while minor in comparison
to the vendee's interest, is sufficient to constitute ownership under
the relevant statutes.1
Supreme court analysis
As a result of the lower court's holdings, the Wisconsin Supreme
Court viewed its purpose as twofold: first, to determine from general
legal principles pertaining to Wisconsin land contracts which "sticks or
rights" a vendor retains; and, second, whether the state Legislature
intended that a land contract vendor is a property owner for purposes of
imposing personal liability for razing costs under the applicable
statute.2
Common law duties of vendors
The court's first task was to determine the
vendor's rights. The court performed an extensive analysis of the
doctrine of equitable conversion in analyzing the Wisconsin land
contract. The court concluded that by virtue of equitable conversion,
the vendor and vendee in a land contract hold separate rights and
duties.
In applying the concept of equitable conversion, the court indicated
that the vendee must be regarded as the real owner. Since the vendor
merely has an interest equivalent to a mortgagee's interest, a judgment
creditor of the vendor cannot levy against the property, and any lien
creditor of the vendee arising subsequent to the land contract is
considered subordinate to the lien of the vendor.3 In further application, the court also indicated
that even though the vendor holds legal title to the property, the
vendee must be regarded as the real owner, and the vendee is liable for
taxes assessed on the property after taking possession under a land
contract.4
In light of the foregoing, the court concluded that to the extent the
property was conveyed to Eaton under a standard land contract, Greenberg
did not retain any ownership, sticks or rights, other than the bare
legal title. The bundle basically was transferred to Eaton.
Legislative intent regarding the razing statutes
The second task of the Greenberg court was to analyze
legislative intent as to whether Greenberg was a property owner for
purposes of the razing statutes.
The court, in making such analysis, indicated that the interpretation
of a statute is a question of law that the supreme court decides without
deference to either the circuit court or the court of appeals.5 The court further indicated that whether Greenberg
is a person who owns real property that is razed by a city under section
66.05(2)
of the Wisconsin Statutes is not readily determinable from the face of
the statute.
The court recognized that the term "own" is a general expression that
has been used by the state Legislature to describe a great variety of
interests that may vary in significance according to context and subject
matter. The court admitted that "own" often is used in statutes to
characterize an interest less than absolute. The court also indicated
that it is well established that ownership should not necessarily be
equated with possession of legal title.6 The
court, in analyzing ownership, indicated that ownership often is
referred to in legal philosophy as a "bundle of sticks or rights" and
one or more of the sticks may be separated from the bundle, and the
bundle still will be considered ownership. Exactly what combination of
rights less the whole bundle constitutes ownership is a question that
must be determined in each case in the context of the purpose of the
determination.
Notwithstanding the clarity of the principles of equitable
conversion, the court historically has found troublesome the question of
whether a land contract vendor owns the property under a statute. Under
the doctrine of equitable conversion, the vendor can be characterized as
having the legal title, and the vendee the equitable title, but the
court has stated on several occasions over the years that there may be a
measure of ownership in each.7
In Greenberg the court gave examples of when a land contract
vendor historically may have been considered to be an owner:
1) In Edwards and McCulloch v. Mosher8 the court, in determining that a lien arising
after a land contract sale attached to the vendor's interest in the
property, found the vendor to be an owner of real property under the
mechanics lien statute. While the provisions of that statute were
unusual, Mosher strongly suggested that a vendor could be considered a
coowner of property conveyed under a land contract, whose interest was
measurable by the portion of unpaid purchase money.
2) In In re Catfish River Drainage District9 the court also suggested that a land contract
vendor would be an owner under the relevant drainage district statutes.
The court in this case, following the principles of Mosher,
ruled that the land contract vendee, like the vendor, had a voice in the
district's creation, because the vendee was an owner to the extent of
the purchase money paid.
The supreme court noted, however, that subsequent to these decisions
the court has, on other occasions, expressly or implicitly determined
that a land contract vendor is not an owner under a relevant statutory
provision. In Freimann v. Cumming10 the court determined that a vendor does not have
the right to present possession or present control or dominion over the
premises in order to be an owner under the Wisconsin Safe Place Statute.
Consistent with the rationale of equitable conversion as expressed in
Mueller v. Novelty Dye Works, the supreme court also determined
a land contract vendee to be an owner of tax-exempt property in
Ritchie v. Green Bay11 because, as
between vendee and vendor,12 the vendee
assumes all burdens of ownership. Under a long line of statutory tax
cases, Wisconsin courts consistently have considered the owner to be one
who has the beneficial interest in the property, and not the party that
merely bears legal title thereto.13
Having stated those principles once again, the Greenberg
court then looked at the relevant scope, history, and context of
sections 74.58
and 66.05 of
the Wisconsin Statutes in order to determine whether Greenberg, as
vendor, was personally liable for razing costs under these statutes.
In closely reviewing these statutes, the court determined that a land
contract vendor does not own property for purposes of imposing personal
liability under section 74.58.
The court concluded that Greenberg held legal title as security for the
unpaid balance: He merely had a legal interest in personal property in
the purchase money owed, and not in the real estate. When the land
contract was executed, Greenberg became a lien creditor and had priority
over any liens subsequently obtained by the city of Milwaukee under
section 66.05.
The court further concluded that the land contract vendee, under the
principles of equitable conversion, was the beneficial owner of the
property from the execution of the land contract, and enjoys the rights
and sustains the burdens of ownership under the statute because the
vendee was the only owner. When the property was razed, the vendee alone
was liable for the razing costs that the city could collect, either
through a special tax assessment or through a personal judgment. The
court determined that Greenberg's retention of the "title stick" from
the "ownership bundle" that was passed to Eaton did not create a
liability under the statute. In conclusion then, the court emphasized
that Greenberg was not an owner of property to the extent of any unpaid
purchase, and for purposes of section 74.58,
Greenberg had no ownership interest in the real estate.
Cases subsequent to Greenberg
In reviewing cases subsequent to the supreme court decision where
Greenberg has been cited, essentially the case stands for the
following proposition: In Wisconsin, under the doctrine of equitable
conversion, a land contract vendee is the beneficial owner of the
property from the time the land contract is executed, and as such,
enjoys the rights and sustains the burdens of ownership. To the extent
that property is conveyed under a standard land contract, the vendor
does not retain any ownership "sticks" or rights other than the bare
legal title, because the bundle is basically transferred to the vendee.
The land contract vendee thus possesses the sole beneficial ownership
interest in the property to which the contract refers.
Greenberg and Milwaukee building code
violations
Recently, the context of the Greenberg case has arisen in
building code prosecutions in the city of Milwaukee. In City of
Milwaukee v. Leslie & Co. 14 the
issue was whether a land contract vendor was an owner of real estate
under applicable municipal codes so as to subject the vendor, as owner,
to prosecution when the property subject to the land contract fell into
disrepair and became violative of the municipal codes. In Leslie
& Co. the standard form Wisconsin land contract was used and
further provided that the sale was in an "as is" condition, and that the
vendee was responsible for any building code violations that may be on
the property. Although Leslie & Co. had conveyed the
property to another party, the city claimed that Leslie &
Co. was the owner, and thus responsible for the building code
violations. The court agreed, asserting that the difference between
Greenberg and the case at hand was based in statutory
definitions. In Greenberg "owner" was never statutorily
defined, and common law constructions had to be relied upon. In
Leslie & Co., however, "ownership" was defined to include
anyone who had equitable or legal title. Thus, the court found that
Leslie & Co. , as vendor, was an owner for purposes of
enforcing the building and zoning code.
Public policy considerations
In Greenberg the city of Milwaukee advanced public policy
reasons for encouraging the court to make a broad interpretation of the
razing statute. The city maintained that a land contract vendor
maintains de facto control of property under and pursuant to a land
contract. In addition, the city maintained that failing to hold a land
contract vendor personally liable under the razing statute would have a
devastating impact upon the city's ability to enforce building
codes.
Similarly, the court in Leslie & Co. also discussed
public policy considerations. The court noted that in certain instances,
land contracts may be used where buyers have limited credit-worthiness,
and thus a reduced ability to maintain a property. Holding a vendor
liable would also make the vendor consider more carefully the
capabilities of the vendee relative to entering into a land contract.
The supreme court in Greenberg, however, was not persuaded by
the city's public policy arguments. The court maintained that to the
extent the parties entered into a standard land contract that normally
consists of a covenant not to commit waste, such contract merely serves
as further evidence that the vendee, and not the vendor, exercises
control over the property. However, to the extent the vendor and vendee,
by contractual agreement, attempt to alter the common law rights and
duties imposed upon them, such alterations must be brought to the
court's attention for further determination.
In Greenberg the court, absent a statement of legislative
intent, saw no reason to defeat the intentions of the parties to a
standard land contract by creating an exception to the equitable
conversion doctrine. The court concluded that the razing statute imposes
personal liability on the person who owns the property razed, and not
the person who, at an earlier time, might have allowed the property to
deteriorate.
Conclusion
Greenberg serves as a restatement by the court of the
characteristics of ownership that pass between the vendor and vendee in
a standard form land contract. In essence, it is a reaffirmation of the
age-old common law concept of equitable conversion. Greenberg
did nothing to upset the concept of equitable conversion as it related
to the use of the Wisconsin standard form land contract relative to the
obligations and responsibilities of vendors as imposed by the razing
statute. Rather, it maintained historically the respective
responsibilities and duties of vendor and vendee relative to the
equitable transfer of title. In the razing statutes, the term "owner"
was not statutorily defined, and as such, the court chose to follow the
common law rules of equitable conversion to determine and resolve the
issues of ownership.
However, in Leslie & Co. the term "owner" is clearly
defined in the building code to include one who has either legal or
equitable title. Thus in that instance, both parties to a land contract
statutorily have potential liability.
|
Martin J. Greenberg, Marquette 1971, has
been practicing real estate law for 27 years. He was an associate and
now is an adjunct professor of law at Marquette University Law School,
having taught courses in property, real estate taxation, and real estate
investment. He has had the opportunity to use land contracts in both an
academic and real world setting, but his greatest challenge in this area
came when he was sued by the city of Milwaukee. He continues his
practice with Deutch & Greenberg in Milwaukee. |
As Greenberg first stated and Leslie & Co.
further illustrated, the rights and responsibilities that a vendor and
vendee each possess as parties to a land contract are determined by
statutory construction when the term "owner" is defined. The razing
statutes inGreenberg failed to do so and thus the common law
principles of equitable conversion were used instead, relieving the
vendor of liability. Conversely, the building code ordinances
inLeslie & Co. defined "owner" sufficiently to include both
the vendor and vendee in liability arising out of land contracts. Thus,
the principles established by Greenberg serve as a cautionary
reminder that when using the standard form land contract in Wisconsin,
should problems arise, the rights and duties of the vendor and the
vendee are somewhat flexible in that the understanding of "ownership"
may change depending upon the governing statutes.
Endnotes
1 City of Milwaukee v.
Greenberg , 157 Wis. 2d 326, 459 N.W.2d 588 (Ct. App. 1990).
2 City of Milwaukee v.
Greenberg , 163 Wis. 2d 28, 471 N.W.2d 33 (1991).
3 Rees v. Ludington, 13
Wis. 308 (1860).
4Williamson v. Neeves , 94
Wis. 656, 69 N.W. 806 (1897).
5Tobler v. Door County,
158 Wis. 2d 19, 461 N.W.2d 775 (1990).
6 Mitchell Aero Inc. v. City of
Milwaukee, 42 Wis. 2d 656, 662, 168 N.W.2d 183 (1969).
7 Evans-Lee Co. v. Hoton,
190 Wis. 207, 211, 208 N.W. 872 (1926).
8Edwards and McCulloch v.
Mosher, 88 Wis. 670, 60 N.W. 264 (1894).
9 In re Catfish River Drainage
District, 176 Wis. 607, 187 N.W. 673 (1922).
10 Freimann v. Cumming,
185 Wis. 88, 200 N.W. 662 (1924).
11 Ritchie v. Green Bay,
215 Wis. 433, 254 N.W. 113 (1934).
12 Mueller v. Novelty Dye
Works, 273 Wis. 501, 78 N.W.2d 881 (1956).
13 American Motors Corp. v.
Kenosha, 274 Wis. 315, 319-20, 80 N.W.2d 36 (1957); aff'd 356 U.S.
21 (1958); Wall v. Dep't of Revenue, 157 Wis. 2d 1, 8, 458
N.W.2d 814 (Ct. App. 1990).
14 City of Milwaukee v.
Leslie & Co., Municipal Case No. 93076552.
Wisconsin Lawyer