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HSBC Bank USA, N.A. v. Jasnic

A-6054-09T3 (N.J. Super. App. Div. 2011) (Unpublished)

MORTGAGES; EQUITABLE SUBROGATION — The doctrine of equitable subrogation may be applied if the cause is just and enforcement is consonant with right and justice such that a refinancing loan may have priority over a loan that was subordinate to the loan being refinanced.

A buyer purchased a house for $300,000. It used a loan secured by a $240,000 first mortgage. The buyer later refinanced the loan, and stated on her application that the first mortgage loan was her only loan. However, the title insurance policy obtained by the lender in connection with the refinance reflected three other mortgages. An express condition of the refinanced loan was that the lender was to have a first mortgage lien against the property, but the only mortgage satisfied at closing was the first mortgage. The new mortgage was assigned to a bank and the buyer subsequently defaulted on it. The bank then became aware of the, other purportedly outstanding, mortgages.

The bank sued to maintain its position, and at trial argued that the other mortgages lacked consideration and were therefore invalid. The holder of the other mortgages acknowledged that prior to the refinance he held a second and third mortgage behind the pre-existing $240,000 mortgage paid off by the bank’s predecessor. The lower court chose to apply the remedy of equitable subrogation, protecting the interests of the new lender and leaving open to the other mortgagees the potential of satisfying their interests upon any sale so long as the new lender’s interest was satisfied first.

The holder of the other two mortgages appealed, but the Appellate Division affirmed. The Court said that the doctrine of equitable subrogation may be applied if the cause is just and enforcement is consonant with right and justice. Based on the testimony of the mortgage holders, the Court concluded that the lower court had properly determined that invoking the remedy of equitable subrogation and according priority to the new mortgage effectuated the parties’ expectations.


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