644 B.R. 410
Bankr. D.C.2022Background
- In 2017 Matthew Shkor bought 1738 R St., NW and took a $4.05M mortgage from Capital Bank (first deed of trust). In May 2017 two of his LLCs borrowed $1,262,500 from Cornerstone, secured in part by a second deed of trust on the R St. property.
- In April 2018 Capital Bank refinanced the R St. loan with a $2M HELOC intended to pay off the 2017 loan; Old Republic title documents and internal bank notes indicated Capital Bank expected to preserve first-priority status.
- At closing Standard Title paid off Capital Bank’s 2017 loan; $394,948.58 of the new loan proceeds were wired to Cornerstone as a "pay down" on Shkor’s account, but Cornerstone did not record a release of its deed of trust.
- Dispute arose when Cornerstone later announced intent to foreclose; Capital Bank sued to determine lien priority after the case was removed to bankruptcy court.
- Cross-motions for summary judgment followed. The court denied Cornerstone’s motion (genuine factual disputes about whether Cornerstone agreed to release/subordinate) and granted in part Capital Bank’s motion only to hold that the District of Columbia would recognize the replacement-of-mortgages doctrine; Capital Bank’s entitlement to that remedy must be resolved at trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Capital Bank is entitled to replacement-of-mortgages priority as a matter of law on summary judgment | Capital Bank says the 2018 loan replaced the 2017 loan and should keep first-priority via replacement doctrine | Cornerstone says title controls; no written subordination or payoff showing intent to subordinate, so Capital Bank cannot obtain equitable relief | Denied — factual disputes (credibility, intent, communications) preclude summary judgment; entitlement to remedy reserved for trial |
| Whether replacement-of-mortgages doctrine is available in D.C. | Capital Bank argues D.C. courts would adopt the Restatement (Third) §7.3 replacement rule | Cornerstone argues equitable relief is inappropriate and title should control | Granted in part — court finds D.C. would adopt replacement-of-mortgages per Restatement (Third) but application requires trial-level fact findings |
| Whether equitable subrogation applies here | Capital Bank notes equitable subrogation is recognized in D.C. and is analogous | Cornerstone notes Capital Bank refinanced its own debt and did not meet subrogation elements | Held not applicable as a substitute remedy here (Capital Bank conceded it fails an element of equitable subrogation) |
| Whether Cornerstone is entitled to summary judgment based on the recorded title chain | Cornerstone says no equitable relief should override the recording sequence | Capital Bank points to title-commitment conditions, emails, and paydown wiring suggesting an agreement to preserve priority | Denied — genuine disputes of material fact about agreement and conduct prevent summary judgment for Cornerstone |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary-judgment standard)
- Anderson v. Liberty Lobby, 477 U.S. 242 (genuine-dispute and materiality standard)
- Ricci v. DeStefano, 557 U.S. 557 (credit nonmovant inferences on summary judgment)
- Scott v. Harris, 550 U.S. 372 (resolving facts on summary judgment in certain records-based contexts)
- In re Stevenson, 789 F.3d 197 (D.C. Cir.) (elements for equitable subrogation)
- E. Sav. Bank v. Pappas, 829 A.2d 953 (D.C.) (equitable subrogation doctrine in D.C.)
- HSBC Bank USA, N.A. v. Mendoza, 11 A.3d 229 (D.C.) (refinancing lender may retain lien priority under equitable principles)
- US Bank, N.A. v. JPMorgan Chase Bank, N.A., 398 P.3d 118 (Ariz. Ct. App.) (adopting Restatement (Third) replacement-of-mortgages)
- Wells Fargo Fin. Ky., Inc. v. Thomer, 315 S.W.3d 335 (Ky. Ct. App.) (quoting Restatement (Third) §7.3)
- Sovereign Bank v. Gillis, 74 A.3d 1 (N.J. Super. Ct. App. Div.) (applying Restatement and analyzing material prejudice)
- Sheppard v. Interbay Funding, LLC, 305 S.W.3d 102 (Tex. App.) (replacement doctrine contemplated by Restatement)
- In re Allen, 520 B.R. 281 (Bankr. E.D. Mo.) (applying Restatement (Third) replacement rule)