Daily Development for Friday, July 9, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri firstname.lastname@example.org
MORTGAGES; RELEASE: A mortgagee has no power to rescind a release once it has provided it, even if the borrower supports the rescission.
Martin v. Cadle Co., 133 S.W. 2d 897 (Tex. App. 5/19/04)
Pratt was a judgment debtor on certain recorded judgment liens, including several owned by Cadle. Pratt acquired a cotenancy interest in certain property, giving a purchase money deed of trust to the predecessor of Compass Bank. The effect of this event was to create a purchase money lien in Compass Bank with priority over the Cadle judgment liens, the but judgment liens attached to the property in junior position.
Three years later, Compass Bank executed and recorded a release of lien of its note and deed of trust, stating in the release that it had received “full payment.” Two weeks later, however, Johnstone, a party apparently having some relationship to Pratt or Pratt’s cotenant, filed a notice of foreclosure by substitute trustee of the Compass Bank deed of trust (yes, the one that had been released of record.) This notice stated that Johnstone was the owner of the note and deed of trust. The foreclosure sale occurred, and Pratt’s cotenant bought at the sale.
One week after the foreclosure sale, Compass Bank executed and recorded a transfer of its note and deed of trust to Johnstone. Thereafter, the successful foreclosure purchaser sold the property to Martins, parties apparently unrelated to the rest of the group.
Some years later, Cadle argued that his judgment lien remained valid against Martins’ title, and brought declaratory relief. The trial court awarded summary judgment to Cadle.
On appeal: Held: Affirmed. As there was nothing in the record to suggest that Compass Bank had erroneously executed and recorded the original release, Cadle’s judgment lien rose to a first priority position against the property as of that release. Therefore, subsequent actions by the bank in attempting to undo its release and transfer its interest to Johnstone were of no avail.
As to Martins, they had record notice of the fact that Johnstone did not own the deed of trust when she foreclosed. Further, Johnstone’s trustees deed to the foreclosure sale purchaser references the prior release by Compass Bank. So the Martins had inquiry notice of the whole problem.
Comment 1: Note that the affidavits provided to the court in the summary motion proceeding did not allege that Johnstone had herself paid off the debt secured by the Compass note. If she had, she might have been able to mount a subrogation claim. If, indeed, she did cause payment to be made, it was a critical error of Martins not to allege this. Unfortunately, Martins were in a very weak position because the challenge to their title came five years after the Johnstone foreclosure and acquisition of the note, and Martins may have had very little information about the circumstances surrounding those events.
Comment 2: What the editor finds interesting about this case is the court’s emphasis on regularity. There is no claim that Cadle or anyone else relied to their detriment on the filing of the release. The court simply concludes that once the bank entered the release, it could not withdraw from it.
Note that in many cases lender have arranged for release of claims that they have refinanced (either claims held by themselves or others) with the clear intention of relying upon a recorded refinancing mortgage as security. But the majority rule, supported by the Restatement, appears to be that the bank nevertheless will be entitled to equitable subrogation to the released lien where necessary to preserve its priority. It may be that in this case there simply were inadequate allegations concerning the relationship between Johnstone and the debtor to reach the conclusion that the transfer to Johnstone was related to a payment of the debt. But why else would the bank have transferred to Johnstone? Thus, the regularity requirements imposed here seem inconsistent with the typical equitable subrogation decisions.
Note that the author is a thin voice crying in the wilderness as to the propriety of requiring greater regularity on the part of banks in these subrogation cases. Most authorities seem to be of the view that the refinancing bank gets subrogation even where the prior lien had been fully released with the bank’s knowledge and even where the refinancing bank recorded its new mortgage with knowledge of existing unpaid liens junior to the old mortgage but senior to the refinancing lien. .
Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.
Parties posting messages to DIRT are posting to a source that is readily accessible by members of the general public, and should take that fact into account in evaluating confidentiality issues.
DIRT is an internet discussion group for serious real estate professionals. Message volume varies, but commonly runs 5 15 messages per work day.
Daily Developments are posted every work day. To subscribe, send the message
subscribe Dirt [your name]
To cancel your subscription, send the message signoff DIRT to the address:
for information on other commands, send the message Help to the listserv address.
DIRT has an alternate, more extensive coverage that includes not only commercial and general real estate matters but also focuses specifically upon residential real estate matters. Because real estate brokers generally find this service more valuable, it is named “BrokerDIRT.” But residential specialist attorneys, title insurers, lenders and others interested in the residential market will want to subscribe to this alternative list. If you subscribe to BrokerDIRT, it is not necessary also to subscribe to DIRT, as BrokerDIRT carries all DIRT traffic in addition to the residential discussions.
To subscribe to BrokerDIRT, send the message
subscribe BrokerDIRT [your name]
To cancel your subscription to BrokerDIRT, send the message signoff BrokerDIRT to the address:
DIRT is a service of the American Bar Association Section on Real Property, Probate & Trust Law and the University of Missouri, Kansas City, School of Law. Daily Developments are copyrighted by Patrick A. Randolph, Jr., Professor of Law, UMKC School of Law, but Professor Randolph grants permission for copying or distribution of Daily Developments for educational purposes, including professional continuing education, provided that no charge is imposed for such distribution and that appropriate credit is given to Professor Randolph, DIRT, and its sponsors.
DIRT has a WebPage at:
To be removed from this mailing list, send an email message to email@example.com with the text SIGNOFF FINANCE.
Please email firstname.lastname@example.org if you run into any problems.
See <http://www.umkc.edu/is/cs/listserv/unsubscribing.htm> for more information.