Judges find mortgage company not culpably negligent

In a dispute over which mortgage has priority in a foreclosure action, the Indiana Court of Appeals affirmed summary judgment for the senior mortgage holder. The judges found the doctrine of equitable subrogation applies.

Ronnie and Debora Brand obtained a mortgage for more than $107,000 with Meridian Group Mortgage Corp. and a second mortgage for a $25,000 home equity line of credit with Finance Center Federal Credit Union in 2002. The Brands later refinanced with First Republic Mortgage Corp., which paid off both Meridian Group and Finance Center. The First Republic mortgage was later assigned to GMAC Mortgage.

Finance Center never released the mortgage because the Brands did not send notice requesting release of the lien. The line of credit was left open and the company later advanced more money to the Brands. When GMAC attempted to foreclose on the real estate, Finance Center argued that its mortgage should be first in priority.

Both companies filed for summary judgment, and the trial court granted partial summary judgment to GMAC, finding it should have priority and Finance Center would be the junior lienholder.

Finance Center argued that GMAC isn’t entitled to first lien pursuant to the doctrine of equitable subrogation because GMAC was culpably negligent by not obtaining a release of the Finance Center mortgage. The appellate court cited JPMorgan Chase Bank v. Howell, 883 N.E.2d 106 (Ind. Ct. App. 2007), a case involving a similar dispute in which the judges found no culpable negligence in the refinancing lender’s failure to ensure that it had properly paid off the junior line of credit.

Any negligence in GMAC’s failure didn’t prejudice Finance Center because the Finance Center mortgage was always junior to the senior Meridian Group mortgage, which was fully satisfied with the loan proceeds from the GMAC refinancing, wrote Judge Nancy Vaidik in Finance Center Federal Credit Union v. Ronnie D. Brand, Debora J. Brand and GMAC Mortgage, LLC, No. 49A02-1111-MF-1089. Allowing GMAC to step into the shoes of the Meridian Group mortgage will leave Finance Center in the same junior position.