Wells Fargo Bank NA v. Premier Capital, LLC

Berry

NOTICE: Decisions issued by the Appeals Court pursuant to its rule 1:28 are primarily addressed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, rule 1:28 decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28, issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent.

This case involves a dispute between two banks, in which the plaintiff bank, Wells Fargo Bank, NA (Wells Fargo), filed a complaint seeking a declaration that its mortgage interest in the subject property had a priority position over a judgment execution by Premier Capital, LLC (Premier). On cross motions for summary judgment, applying the doctrine of equitable subrogation, a Superior Court judge entered a judgment declaring the Wells Fargo mortgage predominant. We affirm.

Financial background. The background, as distilled from the summary judgment record, is as follows: On February 23, 1998, one Jeffrey Boroczky gave a mortgage interest in 37 Captain Lumbert Lane, Centerville, Massachusetts (the property) to Bank of America, in the principal sum of $126,000, which was then recorded that day. On January 15, 2004, the remaining balance of the Bank of America mortgage ($93,519.11) was paid off by the loan proceeds from a new mortgage given to New Century Mortgage Corporation (New Century). The New Century mortgage was recorded on that date. On July 25, 2006, New Century's mortgage interest was transferred by assignment to Wells Fargo and the assignment of mortgage was recorded. On December 22, 2006, a discharge of the Bank of America mortgage was recorded.

Premier's financial background from the summary judgment record may be summarized as follows: On February 20, 2002, Sovereign Bank (Sovereign) obtained and recorded a prejudgment writ of attachment on the property, as part of an action against Boroczky to recover on a loan. On June 18, 2002, Sovereign sold the underlying Boroczky loan to Premier, which then intervened in the action and was substituted for Sovereign. On March 12, 2004, Premier recorded an execution on its judgment in the action in the amount of $78,340.88.

The history of these financial transactions involving Wells Fargo and Premier, with the financial amounts at issue and the pertinent dates, may be depicted in chart form as follows:

Bank of America Mortgage

($126,000) Feb. 23, 1998

New Century

mort. pays off Bank of

Am. mort. ($93,519.11)

Jan. 15, 2004

New Century mortgage

assigned to Wells Fargo

July 25, 2006

Discharge of Bank of Am.

mortgage recorded

December 22, 2006

Sovereign Bank

Prejudgment attachment

Feb. 20, 2002

Sovereign Bank sells underlying loan to

Premier Capital

June 18, 2002

Premier Capital Records Execution on judgment

($78,340.88)

March 12, 2004

Premier sheriff's sale

($75,000 sale prices)

May 1, 2007

Equitable subrogation.

'Equitable subrogation is an exception to the basic principle that determines

priority among mortgages, 'first in time is first in right.' Where equitable subrogation applies: 'One who fully performs an obligation of another, secured by a mortgage, becomes by subrogation the owner of the obligation and the mortgage to the extent necessary to prevent unjust enrichment. Even though the performance would otherwise discharge the obligation and the mortgage, they are preserved and the mortgage retains its priority in the hands of the subrogee." East Boston Sav. Bank v. Ogan, 428 Mass. 327, 329-330 (1998), quoting from Restatement (Third) of Property (Mortgages) § 7.6(a) (1997). Thus, where the loan proceeds of a new mortgage are used to satisfy a previous mortgage, the new mortgagee may receive the same priority of the earlier mortgagee by equitable subrogation. Id. at 330.

For such equitable subrogation to occur, a court must consider whether (1) the new mortgagee made the payment to protect its own interest; (2) the new mortgagee did not act as a volunteer; (3) the new mortgagee was not primarily liable for the debt paid; (4) the new mortgagee paid off the entire encumbrance; and (5) subrogation would not result in any injustice to the rights of the junior lienholder. See ibid. Neither party disputes the trial court judge's determination that, based on the summary judgment record, Wells Fargo satisfied the first four factors. Premier disputes the fifth factor, whether subrogation would result in an injustice to Premier.

We agree with the Superior Court judge that there is no injustice to Premier. As the judge observed, Premier is in no worse a position than it was before New Century effectively stepped into Bank of America's shoes. Indeed, the opposite outcome would unjustly enrich Premier, as its ascension to the first priority position would not have occurred, but for New Century's lending. 'A court applying equitable subrogation must ensure that the intervening [interest holder] is not unjustly enriched by succeeding to first priority . . . .' Ibid.

Seeking to avoid this determination, Premier alludes to the possibility that Wells Fargo had actual or constructive knowledge of Premier's liens on the property when it accepted the assignment of the New Century mortgage. The Ogan decision does not support this contention.

'We are persuaded by the reasoning of courts that not only allow subrogation where the subrogee has actual or constructive knowledge of the intervening mortgage, but also look to equity to decide if subrogation is inappropriate. ' Knowledge is not necessarily fatal to the grantee's claim of subrogation, if equity would nonetheless dictate the recognition of subrogation.' The court must determine, under the circumstances, if the subrogee acted with sufficient knowledge to merit denying subrogation where it would otherwise be the correct result.'

Premier also argues that Wells Fargo is not entitled to summary judgment because the discharge of the Bank of America mortgage vacated the priority position, and suggests that it was incumbent upon Wells Fargo to seek the restoration of the discharged mortgage. This argument lacks merit. As Ogan noted, 'subrogation resurrects a debt from a transaction which would otherwise extinguish it. The Restatement [(Third) of Property (Mortgages) § 7.6 (1997)], in its definition of subrogation, states, 'Even though the performance would otherwise discharge the obligation and the mortgage, they are preserved and the mortgage retains its priority in the hands of the subrogee.' Our precedent also recognizes that subrogation reestablishes a once-extinguished debt.' Id. at 332.

For the foregoing reasons, we affirm the judgment of the Superior Court judge that Wells Fargo's mortgage is in the position of record formerly held by Bank of America, and Wells Fargo holds a valid lien on the property to the extent of the amount it paid to discharge the Bank of America mortgage, $93,519.11.

Judgment affirmed.

By the Court (Berry, Brown & Grainger, JJ.),