In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 15-1970
IN RE: TROY A. BLANCHARD & HEATHER J. BLANCHARD,
                                               Debtors.

LARRY H. LIEBZEIT, Trustee in Bankruptcy,
                                                  Plaintiff-Appellant,

                                 v.

INTERCITY STATE BANK, FSB, BENJAMIN R. HOFFMAN &
DEBRA R. HOFFMAN,
                                 Defendants-Appellees.
                     ____________________

         Appeal from the United States District Court for the
                   Eastern District of Wisconsin.
            No. 14-C-1527 — Rudolph T. Randa, Judge.
                     ____________________

    ARGUED OCTOBER 30, 2015 — DECIDED APRIL 14, 2016
               ____________________

   Before POSNER, RIPPLE, and HAMILTON, Circuit Judges.
   HAMILTON, Circuit Judge. The principal question in this ap-
peal is whether a mortgage can properly attach a lien to a ven-
dor’s interest in a land contract under Wisconsin law. A sec-
ondary issue is whether the lender in this case perfected its
2                                                    No. 15-1970

lien on the vendor’s interest by recording its mortgage in
county land records rather than with the Wisconsin Depart-
ment of Financial Institutions under Article 9 of the Uniform
Commercial Code, Wis. Stat. § 409.501(1)(b). Our answer to
both questions is yes, so we affirm the judgments of the bank-
ruptcy and district courts in favor of the lender.
I. Factual and Procedural Background
    In 2010, Troy and Heather Blanchard agreed to sell a resi-
dential property in Marathon County, Wisconsin, to Benjamin
and Debra Hoffman. The Hoffmans paid the Blanchards
$30,000 up front, and the Blanchards agreed to obtain a mort-
gage loan in their own name with the property as collateral.
The rest of the purchase price for the land contract was to be
due on September 1, 2015, but the Hoffmans had the option
of completing the land contract sale early by paying off the
balance of the Blanchards’ mortgage. Under the land contract,
then, the Blanchards received money immediately from the
down-payment and the mortgage loan. Sooner or later, the
Hoffmans would pay off the mortgage, probably by obtaining
a loan in their own right. The Hoffmans also agreed to “rent”
the property for $500 per month, and the parties signed a sep-
arate “rental agreement.” No one recorded the land contract
in the county land records.
     As agreed, the Blanchards then obtained a mortgage on
the property from Intercity State Bank. In exchange for a loan
of a little more than $142,000, the Blanchards agreed to “mort-
gage, convey, assign, grant a security interest in and warrant”
the property to the bank. This mortgage included a lien on
“all privileges, hereditaments, easements and appurtenances,
all rents, leases, issues and profits, all claims, awards and pay-
ments made as a result of the exercise of the right of eminent
No. 15-1970                                                   3

domain, all existing and future improvements and all goods
that are or are to become fixtures.” The bank also obtained an
Assignment of Leases and Rents as collateral for the mortgage
loan but mistakenly neglected to obtain an Assignment of
Land Contract. The bank recorded its mortgage and the As-
signment of Leases and Rents in the county land records in
2011.
    In 2014, the Blanchards filed for bankruptcy protection.
The bankruptcy court appointed a trustee, plaintiff Liebzeit,
who filed this adversary proceeding against Intercity State
Bank. The trustee seeks to use his strong-arm powers under
11 U.S.C. § 544(a)(3), which grants him the position of a bona
fide purchaser of property as of the date of the bankruptcy, to
step in line ahead of the bank’s mortgage so he can use the
Blanchards’ vendor’s interest in the land contract for the ben-
efit of unsecured creditors.
    The trustee argues that a mortgage can attach a lien only
to real property, that the Blanchards had sold their interest in
the real property under the land contract, and that their inter-
est as vendors in a land contract was personal property that
was not subject to a mortgage or any other lien. The trustee
concludes that the bank never attached a lien to that personal
property, so the unencumbered interest should be available to
unsecured creditors.
    The bank and the trustee both moved for summary judg-
ment. The bankruptcy court granted summary judgment for
the bank. The court found first that the bank had notice of the
land contract and that its interest was subordinate to that of
the Hoffmans under the contract. That conclusion was clearly
correct and is not challenged on appeal. As between the bank
and the trustee, the court found that the Blanchards’ rights as
4                                                    No. 15-1970

vendors under the contract should be treated as an interest in
real property that was properly subject to the bank’s mort-
gage. The bankruptcy court also found that the mortgage was
properly recorded and could not be avoided, and thus took
priority over the trustee’s effort to avoid the bank’s lien.
    On appeal by the trustee, the district court affirmed the
bankruptcy court but based on different reasoning. The dis-
trict court found that the Blanchards’ interest as vendors un-
der a land contract—the right to receive payments and bare
legal title held as security in case of the vendees’ default—was
personal property rather than real property under Wisconsin
law. The district court then found it was both necessary and
appropriate to reform the mortgage to be secured by a per-
sonal-property interest in the land contract payments rather
than a real-property interest in the land. The district court
found that the bank had made a good faith mistake within the
“reasonable standards of fair dealing in the residential loan
industry” when it extended the mortgage loan to the
Blanchards under the belief that the Hoffmans were tenants
rather than land contract buyers. The court reformed the
mortgage accordingly and on that basis affirmed summary
judgment for the bank.
    The trustee has appealed. The bankruptcy court’s decision
was a final judgment in the adversary action, so we have ap-
pellate jurisdiction. 28 U.S.C. § 158(d); In re Katsman, 

, 1049 (7th Cir. 2014); In re Vitreous Steel Products Co., 

, 1230 n.3 (7th Cir. 1990). We review a grant of sum-
mary judgment de novo. In re Duckworth, 

, 456 (7th
Cir. 2014). We apply federal bankruptcy law to property rights
governed by Wisconsin law.
No. 15-1970                                                    5

II. Analysis
    The trustee argues that the bank does not have a valid lien
on the payments to the Blanchards under the land contract.
From the premises that the mortgage could attach a lien only
to real property and that the Blanchards’ interest under the
land contract is only personal property, he concludes that the
mortgage as written attached a lien to nothing. He argues fur-
ther that the district court acted contrary to our decision in In
re Duckworth, 

(7th Cir. 2014), by reforming the
mortgage to apply to personal property. The trustee also ar-
gues that the bank failed to record its mortgage properly so as
to give the trustee constructive notice of its lien on the pay-
ments under the land contract. Under the trustee’s argument,
the payments to the Blanchards under the land contract
should be available to pay their unsecured creditors rather
than the bank.
    We disagree with the trustee’s premises and conclusion.
We first determine that the Blanchards’ interest as vendors un-
der a land contract both could secure the bank’s mortgage
loan as a matter of law and did so as a matter of fact. Then we
determine that the bank properly recorded its mortgage in the
county land records. Because the mortgage was properly rec-
orded, the bankruptcy trustee may not use his strong-arm
powers to avoid the bank’s mortgage lien on the Blanchards’
interest as vendors under a land contract. Finally, because
there was no need to reform the mortgage, our reasoning in
Duckworth does not apply here.
6                                                   No. 15-1970

    A. The Bank’s Mortgage
     We hold first that the bank’s mortgage validly attached a
lien to the Blanchards’ interest as vendors under a land con-
tract. Wisconsin law has long recognized that it is possible to
mortgage a vendor’s interest under a land contract. See First
National Bank of Stevens Point v. Chafee, 

, 320 (Wis.
1897) (holding that a mortgagee of a land contract vendor had
priority over an earlier unrecorded assignment of the land
contract vendor’s interest). The general consensus is in accord
with that point of Wisconsin law. Grant S. Nelson et al., 1 Real
Estate Finance Law § 3:37 (6th ed. 2014) (“The vendor’s inter-
est in an installment land contract is clearly mortgageable.”);
Baxter Dunaway, 2 Law of Distressed Real Estate § 14:35
(2015) (“The vendor’s interest in an installment land contract
is mortgageable and is subject to judgments by creditors of
the vendor.”); see also, e.g., Mich. Comp. Laws § 565.360(3)
(spelling out land contract vendee’s obligations if vendor
mortgages vendor’s interest). Because the vendor retains legal
title to the land, “Traditionally, it has been a common practice
for those who lend money on the security of a vendor’s inter-
est to treat the transaction as a simple mortgage on a fee inter-
est in real estate.” 

, § 3:37. The mortgage is often
accompanied by an assignment of the vendor’s interest in the
contract. 

clear enough, but the wrinkle that gives the
trustee an argument is that Wisconsin courts have also said in
other statutory contexts that a vendor’s interest in a land con-
tract should be treated as personal property rather than real
property. See City of Milwaukee v. Greenberg, 

, 39
(Wis. 1991) (applying doctrine of equitable conversion, ven-
No. 15-1970                                                    7

dor was not liable for cost of razing condemned building; ven-
dor held not to be “owner” under applicable statute on liabil-
ity for government’s cost of razing); Mueller v. Novelty Dye
Works, 

, 884 (Wis. 1956) (creditor of vendor
could not impose judgment lien on real property subject to
land contract). If the vendor’s interest is treated as personal
property, it would be odd to attach a lien to it by a real estate
mortgage.
    Wisconsin courts have historically “found the question of
whether a land contract vendor or vendee ‘owns’ property un-
der a statute to be troublesome.” 

–
39 (surveying cases). Under Wisconsin’s doctrine of equitable
conversion, a land contract buyer obtains equitable title to the
property, which includes “all the incidents of a real owner-
ship.” 

quoting John Norton Pomeroy, A Treatise on
Equity Jurisprudence, § 368, at 687 (4th ed. 1918). This leaves
the vendor with “bare legal title” to the property as security
for the unpaid portion of the purchase price. 

–37. The sometimes metaphysical difference be-
tween personal property and an interest in real property has
fostered the controversy in this case.
   Based on the 1897 decision in First National Bank v. Chafee,
which was not overruled or modified by these later decisions
dealing with different statutes and different purposes, and
based on the general rule under the common law, we con-
clude that the Blanchards’ interest as vendors under the land
contract was a proper subject of a mortgage to secure the
bank’s loan to them.
    Consistent with First National Bank v. Chafee, the language
of the mortgage here is broad enough to encompass a land
contract vendor’s interest as collateral, even without a specific
8                                                         No. 15-1970

mention of a land contract. The best reading of the mortgage
is that it was secured by the Blanchards’ interest as land con-
tract vendors, the entire interest they possessed in the land
when the mortgage was executed. The mortgage included “all
privileges, hereditaments, easements and appurtenances, all
rents, leases, issues and profits, all claims, awards and pay-
ments made as a result of the exercise of the right of eminent
domain, all existing and future improvements and all goods
that are or are to become fixtures.” Black’s Law Dictionary de-
fines “rents, issues, and profits” as “The total income or profit
arising from the ownership or possession of property.” Rents,
Issues, and Profits, Black’s Law Dictionary (10th ed. 2014). This
language was broad enough to grant the bank a lien on the
land contract payments, which are included in the
Blanchards’ “total income” arising from their ownership of
bare legal title in the land.
    We thus agree with the bankruptcy court that the bank’s
mortgage “remains a valid lien on the [Blanchards’] interest
in the property.” The Blanchards validly mortgaged the (lim-
ited) “rights in the real property” that they retained as land
contract vendors: “the rights to enforce the land contract, col-
lect payments from the Hoffmans and foreclose if the Hoff-
mans default.” As the bankruptcy court noted, giving the
bank a lien on the land contract payments also “appears to
coincide with the parties’ intention: in the land contract, the
[Blanchards] and the Hoffmans agreed that the [Blanchards]
would obtain a mortgage at a favorable interest rate, and the
Hoffmans would pay the balance due on the mortgage as the
buyout price of the property.” 1

1Our holding is consistent with a non-precedential decision, Community
National Bank v. O’Neill, 

, 

(Wis. App. 1990)
No. 15-1970                                                               9



    B. Recording
    We also agree with the bankruptcy court that the bank per-
fected 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 transac-
tions.
    Wisconsin’s land recording statute applies to “every trans-
action by which any interest in land is created, aliened, mort-
gaged, assigned or may be otherwise affected in law or in eq-
uity.” Wis. Stat. § 706.001(1) (emphasis added); see also 

(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. 

, at *1. The issue was whether the
bank could jump ahead of the land contract vendor in priority. The mort-
gage 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. 

held that the bank’s mortgage lien was subordinate in priority
to the land contract vendor’s interest. 

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. 

15-1970

county land records on April 21, 2011, long before the
Blanchards filed for bankruptcy.
    In re Hoeppner, 

(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. 

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 con-
tract 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. 

(internal
quotation marks omitted). The court explained: “The goal of
the filing system is to make known to the public whatever out-
standing security interests exist in the property of debtors.”

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. 

declined to interpret Chapter 409 as excluding the land con-
tract itself from its scope but encompassing the land contract’s
assignment. 

see also In re Szatkowski, 

, 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 re-
quire filing under the UCC to perfect the assignment of the contract inter-
est and separate recording of the assignment of the vendor’s legal title in
the county land records. See, e.g., In re Freeborn, 

, 428–29
(Wash. 1980) (“The UCC filing is necessary as to the right to receive con-
tract 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 

, § 3:37; Dale A.
Whitman, Transfers by Vendors of Interests in Installment Land
Contracts: The Impact of Revised Article 9 of the Uniform Commer-
cial Code, 38 Real Property Probate & Trust Journal 421, 427
(2003). Under former Article 9, a land contract vendor’s inter-
est was deemed a “general intangible,” and creation of a lien
on it was to be perfected by UCC filing. 

. Revised Article 9 transferred a mortgage on a land con-
tract 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., 

, 646–47 (Bankr.
E.D. Mich. 1985); In re S.O.A.W. Enterprises, Inc., 

, 283, 285
(Bankr. W.D. Tex. 1983); see generally Dale A. Whitman, Transfers by Ven-
dors 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 obli-
gation 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 fil-
ing is now all that is required.
12                                                    No. 15-1970

be sold … .” Wis. Stat. § 409.102(1)(ag). This language in-
cludes 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 pay-
ment … 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 fil-
ing requirements, or both. But one other provision of Revised
Article 9 lends support to the trustee’s argument for UCC fil-
ing.
     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 

; 

, § 3:37.
Revised Article 9 specifies: “Perfection of a security interest in
a right to payment or performance also perfects a security in-
terest in a security interest, mortgage, or other lien on per-
sonal or real property securing the right.” Wis. Stat.
§ 409.308(5). This provision creates a Revised Article 9 ana-
logue to the familiar concept that the mortgage follows the
note: if the lender perfects a security interest in a right to pay-
ments, then it has also perfected a security interest on the lien
on real property securing that right to payment. 

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 prop-
erty,” as Wisconsin Statutes § 409.308(5) requires. See Green-

(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 rec-
ords 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 af-
fected in law or in equity.” Wis. Stat. § 706.001(1). A vendor’s
interest includes the right to receive the land contract pay-
ments. The vendor also holds legal title to the land, and his
interest therefore is “still an interest in … real estate.”

(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. 

,
14                                                  No. 15-1970

§ 3:37 (“Even though such a recording is unnecessary and ir-
relevant under Article 9, recording in the real estate records is
important and desirable” for several reasons); Whitman, su-
pra, 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 rec-
ords. 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 de-
faults 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 effec-
tive. There are also powerful pragmatic and policy reasons to
continue treating recording in the county land records as ef-
fective. 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. 

, § 3:37. It would be “mani-
festly 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. 

of a recording or filing sys-
tem is to provide “adequate public notice” of liens and secu-
rity interests. 

. It should not “create a
windfall for a bankruptcy estate or a minefield for lenders.”

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 ef-
fective to perfect its security interest.
   C. The Trustee’s Strong-Arm Powers
    The trustee’s interest in the land contract payments cannot
take priority over the bank’s earlier recorded mortgage inter-
est. Under 11 U.S.C. § 544(a)(1), a bankruptcy trustee has “the
rights and powers” of a judicial lien creditor on the property
of the debtor at the commencement of the bankruptcy case.
The bank’s proper recording of its mortgage defeats the trus-
tee’s attempt to take the Blanchards’ interest as land contract
vendors under § 544(a)(1). See Wis. Stat. § 409.322(1); see also
South Milwaukee Savings Bank v. Barrett, 

, 450
(Wis. 2000) (“In determining priority of interests in real estate,
including judgment liens, Wisconsin is a ‘race-notice’ state.”).
    Section 544(a)(3) provides similar powers, giving the trus-
tee the position of a “bona fide purchaser of real property”
from the debtor as of the commencement of the bankruptcy
case. Standing in for a bona fide purchaser, the trustee would
not be able to take priority over the bank’s earlier-recorded
mortgage. See Wis. Stat. § 706.08(1)(a) (unrecorded convey-
ances are void against subsequent good faith purchasers for
value who record their conveyance first); South Milwaukee Sav-
ings 

.
   D. Reformation
   The trustee argues that our precedents allow a bankruptcy
trustee to use his strong-arm powers based on the face of an
erroneous document providing a security interest, and that
courts may not reform the document to give another party
16                                                   No. 15-1970

priority over the trustee. He argues that the district court thus
erred by reforming the mortgage to make the land contract
vendors’ interest the collateral. The trustee relies on In re
Duckworth, in which we held that parol evidence could not be
used against a bankruptcy trustee to reform a security agree-
ment that incorrectly identified the secured debt. 

,
455 (7th Cir. 2014). In Duckworth, the creditor had no security
interest in the collateral that could take priority over the bank-
ruptcy trustee using his strong-arm powers. Stepping into the
shoes of a subsequent judicial lien creditor under § 544(a)(1),
the bankruptcy trustee was “entitled to rely on the text of a
security agreement, despite extrinsic evidence that could be
used between the original parties to correct the mistaken iden-
tification of the debt to be secured.” 

see also In re
Martin Grinding & Machine Works, Inc., 

(7th Cir.
1986) (parol evidence could not be used against trustee to re-
form security agreement that omitted certain collateral).
    Reformation is not necessary to protect the bank’s priority
in this case. In this respect, we agree with the bankruptcy
court. A land contract vendor’s interest can secure a mortgage
loan, as it did here. Since Wisconsin law recognizes mortgages
on a vendor’s interest in a land contract, there was no need to
reform the mortgage to include a lien on “personalty.” Duck-
worth and Martin Grinding do not apply.
    For the foregoing reasons, the trustee cannot avoid the
bank’s valid and prior-recorded mortgage lien on the
Blanchards’ interest as vendors in the land contract. The grant
of summary judgment in favor of Intercity State Bank is
                                                    AFFIRMED.