520 B.R. 281
Bankr. E.D. Mo.2014Background
- Debtor Iva M. Allen borrowed in 1996 ($150,000 note) secured by two deeds of trust: the Westminster Property ("Property") and a separate Goodfellow commercial parcel. Bank of America later held the 1996 note.
- Bank of America executed multiple deeds of release (one unrecorded, one recorded with a defective legal description, and a later recorded release) that purported to release the Boatmen’s Deed of Trust encumbering the Property; those releases were executed without WAMCO/First City’s knowledge after WAMCO had acquired the loan but before WAMCO recorded its assignment.
- In 2005 Debtor refinanced with Option One (2005 note and deed of trust) using title work that included the defective recorded release; Option One’s closing agent had actual knowledge of the 2004 bankruptcy case and unrecorded/defective releases but closed nonetheless.
- WAMCO sued to void the releases, settled with Debtor (2005 Adversary Stipulation): WAMCO’s lien reinstated, WAMCO received $50,000, and the releases were declared null; WAMCO later recorded its assignment to LOM; Option One later issued a 2006 loan (with knowledge of the recorded stipulation) that Deutsche Bank now holds.
- LOM moved for summary judgment quieting title in its favor as first-priority lienholder; Deutsche sought to quiet title for itself under the replacement mortgage doctrine and raised fraud/inequity defenses.
Issues
| Issue | Plaintiff's Argument (Deutsche) | Defendant's Argument (LOM) | Held |
|---|---|---|---|
| Whether replacement-mortgage doctrine gives Deutsche first priority | 2006 Option One mortgage replaced the 2005 mortgage; replacement preserves predecessor priority | WAMCO/LOM’s prior (though unrecorded) assignment and later recorded reinstatement nullify Option One/Deutsche’s priority; Option One had notice | Held for LOM: replacement doctrine does not apply because Option One had actual/constructive notice and failed to inquire |
| Whether Option One acquired free of WAMCO/LOM under Mo. Rev. Stat. § 443.035.2 (reliance on recorded release) | Option One relied on Bank of America’s recorded release and therefore took free of the older lien | Option One had actual and constructive notice (bankruptcy filings, unrecorded releases, defective recorded release) so cannot claim protection | Held for LOM: § 443.035.2 does not protect Option One/Deutsche due to Option One’s knowledge and failure to inquire |
| Whether equity should bar LOM from enforcing its reinstated lien because Debtor procured defective releases | Deutsche contends Debtor (and Option One) may have relied on releases and equity forbids rewarding LOM after Debtor’s misconduct | LOM argues it is successor to WAMCO’s rightful lien and should not be penalized for Bank of America’s erroneous releases or Option One’s lack of diligence | Held for LOM: equity does not protect a lender who failed to investigate; LOM entitled to enforce its lien |
| Whether summary judgment is appropriate | Deutsche argued factual issues (possible fraud, need for discovery) preclude summary judgment | LOM argued no genuine dispute of material fact as to notice and priority | Held for LOM: no genuine issue of material fact; summary judgment granted in favor of LOM |
Key Cases Cited
- Torgerson v. City of Rochester, 643 F.3d 1031 (8th Cir.) (summary-judgment standard)
- Celotex Corp. v. Catrett, 477 U.S. 317 (Sup. Ct.) (movant’s burden on summary judgment)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (Sup. Ct.) (nonmovant must show specific facts creating genuine dispute)
- Burney v. McLaughlin, 63 S.W.3d 223 (Mo. Ct. App.) (adoption of Restatement 3d on replacement-mortgage analysis)
- Golden Delta Enters., LLC v. U.S. Bank, 213 S.W.3d 171 (Mo. Ct. App.) (replacement-mortgage doctrine interpretation)
- Bremen Bank & Trust Co. v. Muskopf, 817 S.W.2d 602 (Mo. Ct. App.) (recording controls priority in Missouri)
- Knutson v. Christeson, 684 S.W.2d 549 (Mo. Ct. App.) (constructive notice and chain of title principles)