Ocwen Loan Servicing LLC v. Summit Bank (In re Francis)
- Citation:
- No. 13-1615 (8th Cir. April 25, 2014)
- Tag(s):
-
- Ruling:
- The Tenth Circuit affirmed the district court’s ruling that the doctrine of equitable subrogation would not operate to grant Ocwen a first-priority lien on certain real property owned by the debtor.
- Procedural context:
- Ocwen, as successor to GMAC Mortgage Corporation, filed an adversary proceeding claiming entitlement to a first-priority lien on certain real property owned by the debtor. The district court (adopting in part the bankruptcy court’s proposed findings of fact and conclusions of law), concluded that Ocwen/GMAC’s own culpability rendered it ineligible for equitable subrogation to the valid liens of the prior lienholder. In affirming the decision, the court observed that the doctrine of equitable estoppel, which applies generally “when a lender advanceds money to pay off an incumbrance on realty…with the understanding that the advance will be secured by a first lien on the property,” would not intercede unless “it can be done without working hardship or injustice to innocent parties.” Although the two subsequent banks had actual knowledge of GMAC’s error, the court nevertheless concluded that equitable subrogation would not intercede to subordinate their liens where GMAC was to blame for its situation, having failed to correct it despite numerous warnings. “The party seeking subrogation must be without fault.”
- Facts:
- In 2006, the Francises refinanced a loan on a 22-acre parcel, with GMAC agreeing to pay off the existing first mortgage loan. In recording the mortgage and repaying the existing loan, however, GMAC mistakenly included the description of an adjacent parcel. Francis subsequently brough the error to the attention of GMAC, who failed to modify the loan and mortgage documents. Thereafter, the Francises obtained loans from two additional lenders: one secured by a mortgage on the entire 22-acre parcel, the other secured by a mortgage on only a portion. Each lender noted the existence of the GMAC lien “on another parcel of property” and recorded its mortgage.
- Judge(s):
- Wollman, Loken, and Kelly.
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