American Sterling Bank v. Johnny Management LV, Inc.
126 Nev. 423
| Nev. | 2010Background
- ASB refinanced the prior second Steward note, with $519,092 paid to GMAC to satisfy that note at closing.
- ASB recorded a deed of trust securing an $805,000 refinancing loan, with a variable rate and six-month payment terms beginning March 2006.
- JMLV held a third-priority deed of trust recorded September 14, 2005, before ASB’s recording and refinancing.
- Borrowers defaulted on the JMLV loan; ASB sought priority over JMLV via equitable subrogation after foreclosure proceedings began.
- District court held that applying equitable subrogation would inflate the subrogated lien and prejudice JMLV due to terms differences, including an accelerated maturity for ASB.
- Nevada Supreme Court affirmed, holding that a materially accelerated maturity can prejudice an intervening lienholder and preclude equitable subrogation, while other term differences may be neutralized.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether acceleration of the paying loan’s maturity precludes subrogation | JMLV argues acceleration prejudices it and blocks subrogation. | ASB argues term differences are neutral under §7.6(cmt. e). | Acceleration can prejudice and preclude subrogation. |
| Whether differences in value and interest rate prevent subrogation | JMLV contends differences inflating value harm junior lienholders. | ASB asserts rate/value differences are neutralized by §7.6(cmt. e). | Differences in value and rate generally neutralized; acceleration controls prejudice analysis. |
| Whether equitable subrogation is appropriate given the district court’s findings on prejudice | JMLV has been prejudiced by the proposed subrogation. | ASB acted equitably by applying funds to the discharged lien within permissible terms. | Court upheld district court’s refusal to apply equitable subrogation. |
Key Cases Cited
- Houston v. Bank of America, 119 Nev. 485 (Nev. 2003) (adopted Restatement §7.6 on equitable subrogation in lien priority)
- Land Title Ins. Co. v. Ameriquest Mortgage Co., 207 P.3d 141 (Colo. 2009) (neutralizes prejudice by limiting subrogation to the debt balance)
- Lamb Excavation v. Chase Manhattan Mortg., 95 P.3d 542 (Ariz. Ct. App. 2004) (difference in interest rates does not preclude equitable subrogation)
- St. James Village, Inc. v. Cunningham, 210 P.3d 190 (2009) (affirmed district court; relied on different grounds)