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 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:

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.

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