Mortgage Electronic Registration Systems, Inc. v. Roberts
2012 Ky. LEXIS 74
| Ky. | 2012Background
- Michaels refinanced their Henderson, Kentucky property multiple times, culminating in a September 18, 2003 mortgage to New Century Mortgage Corp. for $125,800.
- New Century's loan paid off the prior 1998 Money Store Home Equity mortgage, which was released of record.
- Roberts recorded a June 28, 2000 judgment lien against the property superior to the Money Store mortgage at the time.
- New Century assigned the mortgage to MERS in 2003, with the assignment recorded March 22, 2004.
- MERS filed foreclosure in 2004; Roberts argued his lien had priority as it was filed first.
- The circuit court applied equitable subrogation to give MERS priority up to the Money Store amount; the Court of Appeals reversed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether equitable subrogation can reorder liens | Roberts argues priority should stay with his lien. | MERS asserts equitable subrogation should give it priority over Roberts. | Equitable subrogation does not apply when knowledge of the prior lien exists. |
| Applicability of Wells Fargo rule beyond tax liens | Wells Fargo should control; subrogation barred if any knowledge of prior lien. | Wells Fargo should be reconsidered; policy and precedent may warrant broader subrogation. | Wells Fargo approach applies; subrogation barred if actual or constructive knowledge exists. |
| Is Louisville Joint Stock Land Bank still controlling | Louisville Joint Stock supports subrogation when equity demands it. | Louisville Joint Stock is distinguishable and not controlling in modern Kentucky law. | Louisville Joint Stock is overruled to the extent inconsistent with Wells Fargo. |
| Policy implications of broader subrogation | Broader subrogation would ease refinancing and potentially reduce costs. | Economic considerations are for legislature; recording statutes must be preserved. | Economic-policy concerns do not justify departing from Wells Fargo rule. |
| Does lender identity affect subrogation | Professional lenders may be treated specially; subrogation might differ by lender type. | Identity of lender is irrelevant to the recording statute purpose. | Lender identity is not relevant; Wells Fargo rule applies to all lienholders. |
Key Cases Cited
- Louisville Joint Stock Land Bank v. Bank of Pembroke, 9 S.W.2d 113 (Ky. 1928) (equitable subrogation available where lack of diligence and equity require it)
- Wells Fargo Bank, Minnesota, N.A. v. Commonwealth, Finance and Administration, Department of Revenue, 345 S.W.3d 800 (Ky. 2011) (equitable subrogation barred if subsequent lienholder has actual or constructive knowledge)
- Houston v. Bank of America Federal Savings Bank, 78 P.3d 71 (Nev. 2003) (Restatement approach example where discretionary disregard of knowledge may occur)
- State Savings Trust Company v. Spencer, 201 S.W.967 (Mo.Ct.App.1918) (fraud exception allowing subrogation when prior lien cannot be located)
- Wells Fargo Bank, Minnesota, N.A. v. Commonwealth, Finance and Administration, Department of Revenue (cited for rule), 345 S.W.3d 800 (Ky. 2011) (central authority establishing the Wells Fargo approach to equitable subrogation)