Tag Archives: junior lien

Equitable Subrogation in Mortgage Refinancing

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Professor Freyermuth

I am speaking on Equitable Subrogation in Mortgage Refinancing and Land Purchase Transactions in an ABA Professor’s Corner webinar on Wednesday with Professor Wilson Freyermuth of the University of Missouri School of Law. If this sounds like an esoteric topic, it is!

Subrogation refers to the substitution of one party for another and equitable subrogation refers to the doctrine where a court may use its equitable powers to find an implied assignment of a mortgage in order to avoid the unjust enrichment of a party. Since the commencement of the foreclosure crisis, this doctrine has been put to the test. Wilson and I will take a look at some of the recent cases that do the testing. More info about the webinar is below:

Professors’ Corner

A FREE monthly webinar featuring a panel of law professors, addressing topics of interest to practitioners of real estate and trusts/estates. All are welcome and encouraged to register and participate.

Wednesday, December 9, 2015

12:30 p.m. Eastern/11:30 a.m. Central/9:30 a.m. Pacific

Equitable Subrogation in Mortgage Refinancing and Land Purchase Transactions

Speakers:  

David Reiss, Brooklyn Law School

Wilson Freyermuth, University of Missouri School of Law

When a lender makes a mortgage loan to refinance an existing first mortgage, the lender typically expects its refinancing loan to have first priority.  If there is an intervening lien on the mortgaged property, however, a priority dispute may result in which the intervening lienholder argues that the recording statutes give it priority over the refinancing lender’s mortgage lien.

In this situation, the principle of equitable subrogation may apply to allow the refinancing lender to be subrogated to the priority of the paid-off mortgage so as to obtain priority over the intervening lien.  The Restatement (Third) of Property: Mortgages (1997) embraced the liberal application of equitable subrogation in this context.  While many courts have embraced the Restatement approach, not all courts have embraced the Restatement approach (including a recent Delaware Supreme Court decision rejecting the application of equitable subrogation in the refinancing context).

Our speakers will discuss a series of recent decisions (all decided in the 2015 calendar year) addressing the extent to which equitable subrogation is (or should be) available in the mortgage refinancing and land purchase context.

Register for this FREE webinar at https://ambar.org/ProfessorsCorner.

Sponsored by the ABA Real Property, Trust and Estate Law Section, Legal Education and Uniform Laws Group.

Reiss on SCOTUS Junior Lien Decision

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Bloomberg BNA quoted me in Nagging Economic and Credit Questions Dampen Bankruptcy Victory for Bankers (behind paywall). It reads, in part:

The U.S. Supreme Court delivered an important bankruptcy ruling for bankers that doesn’t, however, do anything about still-struggling homeowners (Bank of Am. N.A. v. Caulkett, 2015 BL 171240, U.S., No. 13-cv-01421, 6/1/15); (Bank of Am. N.A. v. Toledo-Cardona, 2015 BL 171240, U.S., No. 14-cv-00163, 6/1/15).

In a June 1 decision, the court said Chapter 7 debtors cannot void junior liens on their homes when first-lien debt exceeds the value of the property, as long as the senior debt is secured and allowed under the Bankruptcy Code.

The decision is a victory for Bank of America, which held both junior liens in the two related cases, and for banking groups that said a different result could have destabilized more than $40 billion in commercial loans secured by similar liens.

But Brooklyn Law School Professor David Reiss June 2 said the case highlights the need for a broad remedy for homeowners who have continued to struggle to make payments since the financial crisis.

“The bank’s position as a legal matter is a very reasonable one, but from a policy perspective we needed and still need a bigger and more systemic solution to the problems that households face,” Reiss told Bloomberg BNA.

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[S]ome said the ruling highlights economic questions on several levels.

Reiss, who coedits a financial blog, June 2 said the case shows the federal government’s inability to deal head-on with the impact of financial turmoil in 2008 and 2009.

“Not enough is being done to move households beyond the crisis, and it’s bad for households and it’s bad for the financial sector,” Reiss said. “Here we are seven or eight years later and we’re sitting here with these valueless second mortgages. We’re just slogging through the muck and we’re not coming up with any good solutions to get past it.”