Vol. 71, No. 11, November 1998
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.
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