2019 IL App (2d) 180439
Ill. App. Ct.2019Background
- BankUnited (later plaintiff Wilmington) made a $1,053,000 mortgage to refinance the Zarkhins’ prior loans on 2/8/2007; its mortgage recorded 3/23/2007. Settlement statement shows BankUnited paid off two earlier mortgages (Harris and Homecomings/MERS).
- A junior BN mortgage (Bekkerman) was executed 1/8/2007 and recorded 1/24/2007; it expressly stated it was subordinate to the Homecomings mortgage.
- Countrywide contemporaneously made a $400,000 loan; part of Countrywide’s proceeds ($246,903.82) was used with BankUnited funds to complete payoffs of the senior liens; Harris and Homecomings recorded releases in March 2007.
- BankUnited sued to foreclose and asserted its mortgage should be subrogated to the rights of Harris and Homecomings, making it superior to Bekkerman’s BN mortgage; trial court initially denied but on reconsideration granted conventional subrogation to the extent of BankUnited’s funds.
- Trial court entered judgment of foreclosure in favor of plaintiff; Bekkerman appealed challenging the conventional subrogation ruling.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether conventional subrogation applies so plaintiff’s mortgage succeeds to Harris/Homecomings priority | BankUnited argues its mortgage and settlement statement (and ¶4 of mortgage) show an express agreement to discharge senior liens and be subrogated; senior liens were in fact released | Bekkerman argues all elements fail: BankUnited didn’t pay entire senior balances (Countrywide supplied remainder), intent included paying BN mortgage, and subrogation would prejudice him | Court held conventional subrogation applies to the extent of BankUnited’s funding; express agreement exists and senior liens were fully released (partly via Countrywide) so subrogation is proper |
| Whether partial payment by BankUnited defeats subrogation because it didn’t alone pay full senior debt | BankUnited: partial payment is not fatal where the entire senior debt was nevertheless fully paid by combined sources and original creditors were not prejudiced | Bekkerman: partial payment rule bars subrogation unless BankUnited paid the entire senior indebtedness itself | Court: partial-payment rule not invoked because the senior liens were fully satisfied (by BankUnited plus Countrywide) and original obligees released their liens; subrogation up to BankUnited’s contribution is allowed |
| Whether granting subrogation would unfairly harm Bekkerman | BankUnited: Bekkerman was on notice BN mortgage was junior (express subordination to Homecomings) and will not be worse off than if BankUnited had not lent | Bekkerman: he is an innocent third party harmed because his lien was recorded before BankUnited’s and he relied on priority | Court: no unfair prejudice; BN mortgage explicitly subordinate and would not be advantaged by denying subrogation (denying would be a windfall) |
| Whether plaintiff’s alleged failure to discover/seek subordination of BN mortgage constitutes gross negligence defeating subrogation | BankUnited: no duty to intervening junior mortgagee; no authority requires asking intervening mortgagee to subordinate | Bekkerman: plaintiff was grossly negligent in failing to discover BN mortgage and to seek subordination | Court: plaintiff not grossly negligent; the law does not require lender to obtain intervening mortgagee’s consent; gross-negligence argument unsupported and forfeited |
Key Cases Cited
- Aames Capital Corp. v. Interstate Bank of Oak Forest, 315 Ill. App. 3d 700 (Ill. App. 2000) (construing mortgage language requiring discharge of prior liens as sufficient to support conventional subrogation)
- Home Savings Bank of Chicago v. Bierstadt, 168 Ill. 618 (Ill. 1897) (historic rule that express declaration of first-priority not required to effectuate subrogation)
- Union Planters Bank, N.A. v. FT Mortgage Cos., 341 Ill. App. 3d 921 (Ill. App. 2003) (elements for conventional subrogation and discussion of notice/innocent third-party prejudice)