Opinion Date: 12/15/2011
Issues: Mortgage lien priority; Applicability of the doctrine of "equitable subrogation"; Michigan's race-recording statute (former MCL 565.25(1) & (4) - repealed by 2008 PA 357); Ameriquest Mtg. v. Alton; Devillers v. Auto Club Ins. Ass'n; Restatement of Property (Mortgages), 3d, § 7.3 ("the Restatement") and Comment b; The "doctrine of equitable mistake"; Schanhite v. Plymouth United Sav. Bank; Washington Mut. Bank v. ShoreBank Corp.; Lentz v. Stoflet; Applicability of the "mere volunteer" rule where the new mortgagee was also the original mortgagee; "Original mortgagee"; Federal Home Loan Mortgage Corporation (FHLMC); Mortgage Electronic Registration Systems, Inc. (MERS)
Court: Michigan Court of Appeals (Published)
Case Name: CitiMortgage, Inc. v. Mortgage Elec. Registration Sys., Inc.
e-Journal Number: 50415
Judge(s): Per Curiam – Murphy, Beckering, and Ronayne Krause
The court held that "equitable subrogation is available to place a new mortgage in the same priority as a discharged mortgage if the new mortgagee was the original mortgagee and the holders of any junior liens are not prejudiced" as a result. The court also concluded that the Restatement, limited to cases in which the senior mortgagee discharges its mortgage of record and contemporaneously takes a replacement mortgage (as often occurs in refinancing), was consistent with Michigan case law. Thus limited, the court adopted it. In this limited form, the Restatement provided "a reasonable and proper framework" for determining whether junior lienholders were prejudiced and whether the equities favor equitable subrogation. Since the trial court was the best forum for evaluating any prejudice and the competing equities (including making any relevant factual determinations), the court reversed the trial court's order denying the plaintiffs' summary disposition motion and granting defendants-MERS and GMAC Mortgage's summary disposition motion, and remanded the case for further proceedings. Plaintiffs were CitiMortgage and FHLMC. The defendants-homeowners (who were not part of the appeal) purchased property with a mortgage granted to ABN AMRO in 2000. They refinanced their loan in 2001, discharging the original mortgage in favor of a new mortgage also granted to ABN AMRO. They obtained a home equity loan from GMAC on 7/11/02, granting GMAC a second mortgage on the property. They refinanced their 2001 loan on 11/25/02, discharging the ABN AMRO 2001 mortgage in favor of another mortgage granted to ABN AMRO. There was no dispute that ABN AMRO was unaware of the GMAC mortgage when it took the new mortgage although GMAC's mortgage was recorded. The homeowners later filed for bankruptcy and the property was sold at a foreclosure sale to FHLMC. FHLMC and CitiMortgage, ABN AMRO's successor-in-interest, sued to quiet title. The issue was whether CitiMortgage could place its lien in first priority over defendants' lien via application of the doctrine of equitable subrogation. The trial court concluded that CitiMortgage could not do so. The court noted that since MCL 565.25(1) and (4) were repealed, "the bulk of Ameriquest Mortgage is no longer valid." The court concluded that the Michigan case law on point was consistent with the Restatement, particularly Comment b. Consistent with the Restatement in the limited form the court adopted it, "a refinanced mortgage maintains the priority position of the original mortgage" as long as any junior lienholder is not prejudiced as a result. However, the court cautioned "that the lending mortgagee seeking subrogation and priority over an intervening interest relative to its newly recorded mortgage must be the same lender that held the original mortgage before the intervening interest arose" and "any application of equitable subrogation is subject to a careful examination of the equities of all parties and potential prejudice to the intervening lienholder." The court clarified that "original mortgagee" means not only the originating mortgagee, but also any bona fide successor in interest. The court also held that the "mere volunteer" rule does not apply where the new mortgagee was also the original mortgagee.
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