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Letter 33: Purchase of Vendor's Interest in Land Contract by State Chartered Banks

This office has received inquiries as to whether state-chartered banks may purchase the vendor's interest in a land contract. Specifically, the question has been asked as to whether such a purchase would conflict with the limitations in Sec. 221.14, Wis. Stats., regarding circumstances under which a bank may purchase, hold and convey real estate. According to decisions of the Wisconsin Supreme Court, particularly Mueller v. Novelty Dye Works, 273 Wis. 501 (1956), a vendor's interest in a land contract is similar to that of a mortgagee and is secured by a lien on real property. The purchase of the vendor's interest is equivalent to the purchase of a loan secured by real estate rather than the purchase, holding or conveyance of real estate itself. The purchase of the vendor's interest, therefore, constitutes the purchase or discount of an evidence of debt or the lending of money on real security, powers granted to state-chartered banks by Sec. 221.04(1)(f), Wis. Stats.

These transactions are subject to the limitations in Sec. 221.32, Wis. Stats. Moreover, banks proposing to engage in these transactions must be aware that the vendor's sale of the land on land contract may conflict with restrictions in any prior mortgage which may claim to restrict the vendor's ability to transfer title to the property. Therefore, a bank purchasing such an interest would have to be certain that the land contract is recorded and that the first lien holder is aware of and has consented to the land contract sale. The transactions must comply with the requirements of Bkg. Ch. 7 and, in addition, are to be supported by the following documentation:

1. Assignment of the land contract by the vendor to the acquiring bank, and

2. Notification of assignment by the vendor to the vendee instructing the vendee to remit all remaining payments to the bank.

The board of directors should establish by resolution the total aggregate dollar limit on the value of all land contract vendor interests to be purchased by the bank.

Bkg. Ltr. #33 September 11, 1981 Commissioner Mildenberg