Plaintiffs appeal as of right from the trial court’s order denying plaintiffs’ motion for summary disposition and granting defendant’s
The facts of this case are not in dispute. On September 6, 2000, Sheryll D. Catton and Gregоry J. Catton (the Cattons) purchased property in Wayne County with a mortgage granted to ABN AMRO Mortgage Group, Inc. On May 4, 2001, the Cattons refinanced their loan, discharging the original mortgage in favor of a new mortgage also granted to ABN AMRO. On July 11, 2002, the Cattons obtained a home-equity lоan from GMAC Mortgage, L.L.C., granting Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for GMAC, a second mortgage on the property. On November 25, 2002, the Cattons refinanced their 2001 loan, discharging the 2001 ABN AMRO mortgage in favor of another mortgage granted to ABN AMRO. There is no disputе that ABN AMRO was unaware of the MERS mortgage at the time it took the new mortgage even though MERS’s mortgage had been recorded. On August 22, 2005, the Cattons filed for bankruptcy, and their property was subsequently sold at a foreclosure sale to Federal Home Loan Mortgage Cоrporation (FHLMC). FHLMC sued, along with ABN AMRO’s successor in interest, CitiMortgage, Inc., to quiet title.
The issue in this matter is, as between the two lienholders, which of the two mortgage liens is superior. CitiMortgage holds the refinanced mortgage lien, and defendant holds the second mortgage, which would hаve been the junior lien but for the subsequent refinancing. More specifically, the issue is whether CitiMortgage can place its lien in first priority over defendant’s lien through application of the doctrine of equitable subrogation. The trial court concluded that CitiMortgаge could not, and this appeal followed. We review motions for summary disposition and questions of law de novo. Maiden v Rozwood,
Under Michigan’s former race-notice recording statute, MCL 565.25(1) and (4), as amended by
That being the case, we conclude that the caselaw on point in Michigan is consistent with Restatement Property, 3d, Mortgages, § 7.3, pp 472-473, which provides as follows:
(a) If a senior mortgage is released of record and, as part of the same trаnsaction, is replaced with a new mortgage, the latter mortgage retains the same priority as its predecessor, except
(1) to the extent that any change in the terms of the mortgage or the obligation it secures is materially prejudicial to the holder of a junior interest in the real estate, or
(2) to the extent that one who is protected by the recording act acquires an interest in the real estate at a time that the senior mortgage is not of record.
(b) If a senior mortgage or the obligation it securеs is modified by the parties, the mortgage as modified retains priority as against junior interests in the real estate, except to the extent that the modification is materially prejudicial to the holders of such interests and is not within the scope of a reservation оf right to modify as provided in Subsection (c).
(c) If the mortgagor and mortgagee reserve the right in a mortgage to modify the mortgage or the obligation it secures, the mortgage as modified retains priority even if the modification is materially prejudicial to the holders оf junior interests in the real estate, except as provided in Subsection (d).
(d) If a mortgage contains a reservation of the right to modify the mortgage or the obligation as described in Subsection (c), the mortgagor may issue a notice to the mortgagee terminating that right. Upon receipt of the notice by the mortgagee, the right to modify with retention of priority under Subsection (c) becomes ineffective against persons taking any subsequent interests in the mortgaged real estate, and any subsequent modifications are governed by Subsection (b). Upon receipt of the notice, the mortgagee must provide the mortgagor with a certificate in recordable form stating that the notice has been received.
Of particular note, comment b to this section of the Restatement provides that “[u]nder § 7.3(a) a senior mortgagee that discharges its mortgage of record and records a replacement mortgage does not lose its priority as against the holder of an intervening interest unless that holder suffers material prejudice.” Id. at p 474. The assoсiated Reporters’ Note, voluminously citing many cases from other jurisdictions, explains that “[c]ourts routinely adhere to the principle that a senior mortgagee who discharges its mortgage of record and takes and records a replacement mortgаge, retains the predecessor’s seniority as against intervening lienors unless the mortgagee intended a subordination of its mortgage or ‘paramount equities’ exist.” Id. at p 483.
For the reasons we discuss later in this opinion, we conclude that § 7.3 of the Restatement, limited to the situations described by the quoted commentary— specifically, cases in which the senior mortgagee discharges its mortgage of record and contemporaneously takes a replacement mortgage, as often occurs in the context of refinancing — is сonsistent with Michigan precedent. Thus limited, because
Our Supreme Court discussed what it called the doctrine of equitable mistake in Schanhite v Plymouth United Savings Bank,
It is a general rule that the cancellation of a mortgage on the record is not conclusive as to its discharge, or as to the payment of thе indebtedness secured thereby. And where the holder of a senior mortgage discharges it of record, and contemporaneously therewith takes a new mortgage, he will not, in the absence of paramount equities, be held to have subordinated his security to an intеrvening lien unless the circumstances of the transaction indicate this to have been his intention, or such intention upon his part is shown by extrinsic evidence. [Quotation marks and citation omitted.]
This reflects “the well-settled rule that the acceptance by a mortgagee of a new mortgage and his cancellation of the old mortgage do not deprive the mortgagee of priority over intervening liens.” Washington Mut Bank v ShoreBank Corp,
In Washington Mut Bank, this Court rejected an equitable-subrogation argument made by the plaintiff bank. The plaintiff had provided refinancing on real рroperty that had earlier been encumbered by a first mortgage, which was paid off with the proceeds from the refinancing. However, the property had also been encumbered by two intervening mortgages in favor of other banks before the refinancing. Impоrtantly, and distinguishable from the facts here, the plaintiff was not the original lender-mortgagee.
[I]n this case, we are not presented with a new mortgage being accepted by the holdеr of the old mortgage. That is, had the new mortgage been given to Option One Mortgage [the original lender], and Option One was before us rather than plaintiff, Schanhite might provide the authority to revive the original mortgage and give the new mortgage the same priority as the one it replaced....
. .. [W]e are unaware of any authority regarding the application of the doctrine of equitable subrogation to support the general proposition that a new mortgage, granted as part of a generic refinancing transaction, can take the priority of the original mortgage, which is being paid off, giving it priority overintervening liens.. .. Such bolstering of priority may be applicable where the new mortgagee is the holder of the mortgage being paid off.... [Id. at 127-128 (emphasis added); see also Van Dyk Mtg Corp v United States, 503 F Supp 2d 876 (WD Mich, 2007) (applying Washington Mut Bank and Schanhite in granting equitable subrogation under circumstances cоmparable to those presented by this case).]
Washington Mut Bank does not permit us to extend application of the Restatement to cases in which the new mortgagee was not the holder of the original mortgage being discharged through refinancing; consequently, we cаnnot adopt the Restatement in its entirety. But it does fully support, along with Schanhite, applying the Restatement to cases, like this one, in which the new mortgagee seeking priority and subrogation held the original mortgage, and we do so here.
We note also that the refinancing in Schanhite actually worked to the benefit of thе second mortgagee, because “the property would have been lost to the tax man” otherwise, so restoring the original lien priority was the equitable outcome for all parties. Washington Mut Bank,
Finally, we find it necessary to address the “mere volunteer” rule, which provides that equitable subrogation may not be extended to a party that is a mere volunteer, i.e., one who pays the mortgage but has no interest in the land. Ameriquest,
the doctrine of equitable subrogation does not allow a new mortgagee to take the priority of the older mortgagee merely because the proceeds of the new mortgage were used to pay off the indebtedness secured by the old mortgage. [Aid] [i]t is clear to us that... plaintiff is a mere volunteer and, therefore, is not entitled to equitable subrogation. [Id.]
Importantly, Washington Mut Bank reflected that the “mere volunteer” rule does not apply when the new mortgagee and the old mortgagee are the same, even in a standard refinancing transaction, otherwise the panel would not have suggеsted a different outcome had the plaintiff bank held the original mortgage. See id. at 126-127. Indeed, the Schanhite Court did not indicate that the rule allowing qualifying mortgagees to retain priority could only be employed on a finding that a mortgagee was not a mere volunteer. And the Restatement сontains no such restriction or limitation. We hold that the “mere volunteer” rule has no applicability when the new mortgagee was also the original mortgagee.
We conclude that equitable subrogation is available to place a new mortgage in the sаme priority as a discharged mortgage if the new mortgagee was the original mortgagee and the holders of any junior liens are not prejudiced as a consequence.
Reversed and remanded to the trial court for further proceedings consistent with this opinion. We direct that no taxable costs shall be awarded tо any party under MCR 7.219. We do not retain jurisdiction.
Notes
Defendants Sheryll D. Catton and Gregory J. Catton defaulted in this case and are not part of this appeal. References herein to “defendant” are to defendant-appellee, Mortgage Electronic Registration Systems, Inc., as nominee for GMAC Mortgage, L.L.C.
The descriptor “original mortgagee” might cause confusion and therefore requires clarification. By “original mortgagee,” we mean not only the originating mortgagee, but also any bona fide successor in interest. In this case, CitiMortgage was not the original mortgagee, nor was it the new mortgagee at the time of the refinancing transaction. However, ABN AMRO was the original and new mortgagee, and CitiMortgage is ABN AMRO’s successor in interest, so CitiMortgage stands in the shoes of ABN AMRO for purposes of our analysis.