Opinion ID: 3194429
Heading Depth: 2
Heading Rank: 2

Heading: Recording

Text: We also agree with the bankruptcy court that the bank perfected its lien by recording its mortgage in the county land records rather than by filing with the Department of Financial Institutions under Wisconsin’s enactment of Article 9 of the Uniform Commercial Code, which governs secured transactions. Wisconsin’s land recording statute applies to “every transaction by which any interest in land is created, aliened, mortgaged, assigned or may be otherwise affected in law or in equity.” Wis. Stat. § 706.001(1) (emphasis added); see also id. § 706.001(3) (requiring liberal construction “to effectuate the intentions of parties who have acted in good faith”). The scope of this statute is broad enough to include creation of a lien on a vendor’s interest in a land contract, which includes legal title to land. The bank recorded its mortgage in the (unpublished table opinion), which we mention because it was cited by the parties, the bankruptcy court, and the district court in discussing whether a land contract vendor’s interest is mortgageable. In that case, a land contract buyer obtained a mortgage on the land from a bank, with the vendor co-signing. 1990 WL 198035, at . The issue was whether the bank could jump ahead of the land contract vendor in priority. The mortgage instrument unambiguously secured the buyer’s debt, but it did not contain any reference to the land contract or any language indicating that it pledged the land contract vendor’s interest as security for the debt. Id. The court held that the bank’s mortgage lien was subordinate in priority to the land contract vendor’s interest. Id. at . Most relevant here, the court then noted that one “clearly” can mortgage a land contract vendor’s interest even though a land contract vendor’s interest is in the nature of personal property rather than real property. Id. 10 No. 15-1970 county land records on April 21, 2011, long before the Blanchards filed for bankruptcy. In re Hoeppner, 49 B.R. 124 (Bankr. E.D. Wis. 1985), provides persuasive guidance on this point of Wisconsin law. In Hoeppner, the court held that an assignment of a land contract vendor’s interest was perfected when it was recorded in the county land records. Id. at 127–28. The court rejected the need to record an assignment of a land contract vendor’s interest under Wisconsin Statutes Chapter 409, Wisconsin’s enactment of Article 9 of the Uniform Commercial Code. Despite being deemed “personal property” for many purposes, a land contract vendor’s interest is also “an interest in or a lien on real estate,” the transfer of which was excluded from the scope of UCC Article 9 at the time. Hoeppner, 49 B.R. at 127 (internal quotation marks omitted). The court explained: “The goal of the filing system is to make known to the public whatever outstanding security interests exist in the property of debtors.” Id. The court continued: “Parties tracing the history of a title in land are not expected to examine” the UCC records and should be able to rely on the county land records. Id. The court declined to interpret Chapter 409 as excluding the land contract itself from its scope but encompassing the land contract’s assignment. Id. at 129; see also In re Szatkowski, 51 B.R. 104, 107 (Bankr. E.D. Wis. 1985) (following Hoeppner). 2 2 Different states follow different practices for recording the assignment of a land contract vendor’s interest. In contrast to Wisconsin, some states require filing under the UCC to perfect the assignment of the contract interest and separate recording of the assignment of the vendor’s legal title in the county land records. See, e.g., In re Freeborn, 617 P.2d 424, 428–29 (Wash. 1980) (“The UCC filing is necessary as to the right to receive contract payments. Recording is required because legal title is conveyed by No. 15-1970 11 The trustee argues that Hoeppner is no longer a reliable guide to Wisconsin law on this point because Wisconsin adopted Revised UCC Article 9 in 2001. Scholars assert that Revised Article 9 includes within its scope transfers of a land contract vendor’s interest. See Nelson, supra, § 3:37; Dale A. Whitman, Transfers by Vendors of Interests in Installment Land Contracts: The Impact of Revised Article 9 of the Uniform Commercial Code, 38 Real Property Probate & Trust Journal 421, 427 (2003). Under former Article 9, a land contract vendor’s interest was deemed a “general intangible,” and creation of a lien on it was to be perfected by UCC filing. Whitman, supra, at 429. Revised Article 9 transferred a mortgage on a land contract vendor’s interest to the category of “accounts.” Under Revised Article 9, an “account” includes “a right to payment of a monetary obligation … for property that has been or is to the same instrument.”). And in some cases involving transfers of a land contract vendor’s interest, courts have held that only the contract interest has been transferred, so that UCC filing is the only applicable method of perfection. See, e.g., In re Northern Acres, Inc., 52 B.R. 641, 646–47 (Bankr. E.D. Mich. 1985); In re S.O.A.W. Enterprises, Inc., 32 B.R. 279, 283, 285 (Bankr. W.D. Tex. 1983); see generally Dale A. Whitman, Transfers by Vendors of Interests in Installment Land Contracts: The Impact of Revised Article 9 of the Uniform Commercial Code, 38 Real Property Probate & Trust Journal 421, 427 (2003) (“Some cases held that perfection as to both the debt obligation and the real estate security could be accomplished by recording in the real estate records; others held that perfection as to both rights could be accomplished by filing a UCC-1 financing statement; and still others held that the real estate rights and the debt obligation must be perfected separately by filing under Article 9 for the former and by recording in the real estate records for the latter.”). Some scholars such as Whitman assert that Revised UCC Article 9 “clears up the controversy” and that UCC filing is now all that is required. 12 No. 15-1970 be sold … .” Wis. Stat. § 409.102(1)(ag). This language includes a land contract vendor’s interest. See Edwin E. Smith, An Introduction to Revised UCC Article 9, in The New Article 9 Uniform Commercial Code 24 (Corinne Cooper, ed. 2000) (term “account” in Revised Article 9 includes “a right to payment … for real property sold”). It is difficult, however, to see how switching a land contract vendor’s interest from the “general intangible” category of collateral to an “account” could clear up controversy about whether to record such a mortgage in the county land records, or according to UCC filing requirements, or both. But one other provision of Revised Article 9 lends support to the trustee’s argument for UCC filing. Scholars argue that Revised Article 9 also alleviates a need to record separately a transfer of a land contract vendor’s legal title in the county land records when the right to payment is transferred. See Whitman, supra, at 427; Nelson, supra, § 3:37. Revised Article 9 specifies: “Perfection of a security interest in a right to payment or performance also perfects a security interest in a security interest, mortgage, or other lien on personal or real property securing the right.” Wis. Stat. § 409.308(5). This provision creates a Revised Article 9 analogue to the familiar concept that the mortgage follows the note: if the lender perfects a security interest in a right to payments, then it has also perfected a security interest on the lien on real property securing that right to payment. Id., cmt. 6. This could apply to a mortgage on a land contract vendor’s interest: if the lender perfected the mortgage, that action would also perfect a lien on the mortgage collateral, the land contract vendor’s interest. No. 15-1970 13 There may be a problem with this argument since a land contract vendor’s interest is legal title to the property and not a “security interest, mortgage, or other lien on … real property,” as Wisconsin Statutes § 409.308(5) requires. See Greenberg, 471 N.W.2d at 36 (contrasting mortgagee, who has a lien on real property collateral, to land contract vendor, who holds legal title to real property). But we do not need to decide in this case whether, under Wisconsin law, UCC filing is now one effective way to perfect a mortgage on a land contract vendor’s interest. What we must decide is only whether recording in the county land records remains one effective way to perfect a mortgage on a land contract vendor’s interest. Our answer is yes. Revised Article 9 might make it unnecessary to record a mortgage on a land contract vendor’s interest in the county land records, as it is possible that UCC filing would be sufficient. But that does not mean that recording in the county land records is not also effective. We see nothing in Revised Article 9 that restricts the scope of Wisconsin’s land recording statute, which applies broadly to “every transaction by which any interest in land is created, aliened, mortgaged, assigned or may be otherwise affected in law or in equity.” Wis. Stat. § 706.001(1). A vendor’s interest includes the right to receive the land contract payments. The vendor also holds legal title to the land, and his interest therefore is “still an interest in … real estate.” Hoeppner, 49 B.R. at 127 (internal quotation marks omitted). There are additional indications that recording in the county land records remains effective. Scholars acknowledge that a prudent mortgagee may want to record in the county land records as well as filing under the UCC. Nelson, supra, 14 No. 15-1970 § 3:37 (“Even though such a recording is unnecessary and irrelevant under Article 9, recording in the real estate records is important and desirable” for several reasons); Whitman, supra, at 428 (noting that “recording in the real estate records may be desirable for other reasons, but it is not essential to perfection”). Other provisions of Revised Article 9 also hint at the continuing validity of recording in the county land records. For example, Wisconsin Statutes §§ 409.607(2) and 409.619(2) both authorize recording certain documents in county land records to help creditors foreclose if a debtor defaults on a debt secured by real property. There has been no signal from the Wisconsin legislature or courts that recording in the county land records is not effective. There are also powerful pragmatic and policy reasons to continue treating recording in the county land records as effective. As one scholar noted, in practice it “makes no sense” to require UCC filing when a mortgage lender might have no notice of a land contract’s existence since land contracts are often not recorded. Nelson, supra, § 3:37. It would be “manifestly unfair” to hold a mortgage lender to the requirement that it record under the UCC if it does not know that a land contract is involved. Id. The goal of a recording or filing system is to provide “adequate public notice” of liens and security interests. Hoeppner, 49 B.R. at 127. It should not “create a windfall for a bankruptcy estate or a minefield for lenders.” Id. In short, by adopting Revised UCC Article 9 while leaving intact the broad land recording statute, Wis. Stat. 706.001, the Wisconsin legislature did not overturn Hoeppner on this issue. The bank properly recorded its mortgage, which could attach a lien to the Blanchards’ interest as land contract vendors. No. 15-1970 15 Although the bank did not perfect its security interest under UCC procedures, it did the real estate equivalent by recording its mortgage in the county land records. That action was effective to perfect its security interest.