813 N.W.2d 332
Mich. Ct. App.2011Background
- Cattons purchased property in Wayne County with a mortgage to ABN AMRO Mortgage Group, Inc.
- In 2001 refinanced, discharging the old mortgage and taking a new ABN AMRO mortgage.
- In 2002, Cattons obtained a home‑equity loan from GMAC with MERS as nominee, creating a second lien.
- In 2002/2005 refinancings discharged the 2001 ABN AMRO mortgage in favor of another ABN AMRO mortgage; ABN AMRO was unaware of MERS’s mortgage when recording the new lien.
- Property later foreclosed in 2005; FHLMC sued CitiMortgage (successor to ABN AMRO) and ABN AMRO’s successor to quiet title.
- Issue: which lien is superior—CitiMortgage’s refinanced mortgage or defendant’s second mortgage—and whether equitable subrogation applies.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether equitable subrogation can place CitiMortgage first. | CitiMortgage seeks priority by subrogation as successor to the discharged mortgage. | Equitable subrogation does not apply to this refinancing scenario absent prejudice to juniors. | Limited adoption of Restatement §7.3; subrogation possible when same lender held original mortgage and no prejudice. |
| Whether Restatement §7.3 governs priority in refinancing with same lender. | Restatement §7.3 supports preserving priority in refinancings. | Michigan caselaw limits application of Subchapter to specific refinancing circumstances. | Adopted in limited form; applies where the new mortgagee held the original mortgage and junior lien prejudice is absent. |
| Whether the mere-volunteer rule bars subrogation here. | Not applicable if the new mortgagee is the original mortgagee. | Merely paying off the old mortgage by a new loan could bar subrogation if a mere volunteer. | Mere volunteer rule does not apply when the new mortgagee was the original mortgagee. |
| Whether the refinanced mortgage retains priority against juniors absent prejudice. | Refinanced loan maintains priority of the original mortgage. | Subordination could occur if prejudicial to junior lienholders. | Refinanced mortgage retains priority if prejudice to juniors is not shown. |
Key Cases Cited
- Ameriquest Mortgage Co v Alton, 273 Mich App 84 (2006) (reiterates limitations on equitable subrogation under former statute)
- Washington Mutual Bank v ShoreBank Corp, 267 Mich App 111 (2005) (refinancing priority rules; mere volunteer distinction)
- Schanhite v Plymouth United Savings Bank, 277 Mich 33 (1936) (well-settled rule on substitution without subordinating security absent paramount equities)
- Devillers v Auto Club Ins Ass’n, 473 Mich 562 (2005) (context for exceptions to plain-language recording statute and equitable relief)
- Lentz v Stoflet, 280 Mich 446 (1937) (subrogation rationale: equity permits subrogation to protect intervening interests when appropriate)