On January 29, 2009, the Cuyahoga County Court of Appeals released its decision on Abn Amro Mortg. Group, Inc. v. Kangah, 2009 Ohio 359, 2009 Ohio App. LEXIS 300 (Ohio Ct. App., Cuyahoga County Jan. 29, 2009), adopting a broad application of the Doctrine of Equitable Subrogation.
Ohio statute sets forth the general rule that the first mortgage presented and recorded has preference over a subsequently presented and recorded mortgage. In limited circumstances, Equitable Subrogation has been applied to overcome this general statutory rule, “to prevent fraud and provide relief from mistakes.” Traditionally, Ohio courts have held that Equitable Subrogation cannot be used to benefit parties who are less than reasonable in their business transactions, and who are in the best position to protect their own interests.
The Kangah decision is the most recent case in a growing trend of appellate opinions, applying Equitable Subrogation to overcome the statutory priority of mortgages, even where the party seeking equitable relief (or the title company it retained) was arguably negligent. Kangah presents a common fact pattern, where a title company failed to identify and pay off a previously recorded mortgage during refinancing. The Kangah decision, as well as recent decisions from three other courts of appeal, focus on the expectations of parties during refinancing and place less emphasis on any issues of negligence to support a broader application of Equitable Subrogation. In the Kangah opinion, the court noted that the mortgagee in a refinanced loan paid off the first mortgage and expected to have first priority. The subordinated lienholder never expected to have first priority. Thus, the court held that a title company's negligence was not material in cases where the competing lienholder “was not misled or injured, because it did not bargain for or expect a first lien position.”
The majority of Ohio Appellate Districts have issued decisions that conflict with Kangah. As such, the law in Ohio regarding Equitable Subrogation remains unsettled. Weltman, Weinberg & Reis Co., L.P.A. currently pleads and defends against claims of Equitable Subrogation and will continue to follow developments as Ohio courts continue to define the requirements.
If you have any questions, please contact Michael F. Schmitz, Esq.
Mr. Schmitz is an associate in the Litigation department of the Weltman, Weinberg & Reis Co., L.P.A. (WWR) Cleveland office. Mr. Schmitz can be reached at (216) 685-1106 or via e-mail at mschmitz@weltman.com.
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