Over three years, Navjot LLC obtained three loans secured by the same piece of property. The first was in 2005 from Washington Mutual. The second was in 2006 from a group of investors led by MMB First Mortgage Fund, LP. The third was in 2007 from Elbert Branscomb. The loans were for $5.1 million, $1.1 million, and for $500,000. In late 2007, after Navjot received the Branscomb loan, Navjot refinanced the first two loans from WaMu and MMB and secured the new loans with new deeds of trust. However, during the refinance, Branscomb’s agent, Kirtikumar Menon, forged Branscomb’s signature the reconveyance and submitted a document with the escrow company stating that no amount was owed on the Branscomb loan. Given Menon’s actions, the escrow company completed the refinance with WaMu and MMB thinking they were first and second lienholders. After the refinance was completed, Navjot failed to make payment as required and WaMu began foreclosing. Branscomb sued all of the parties over the fraudulent reconveyance. The trial court voided Branscomb’s reconveyance and held that his deed of trust was now in first position because the other lenders knew of Branscomb’s loan and therefore could not prevail on a theory of equitable subrogation.
The Appellate Court overturned the trial court’s judgment in favor Branscomb. In Branscomb v. JPMorgan Chase Bank, N.A., the appellate court held that Branscomb’s loan should have been junior to both WaMu’s and MMB’s because the equities lay in their favor. Here, WaMu and MMB both bargained to be in first and second position respectively and Branscomb bargained to be in third position. The court focused on the parties intent and determined that it should restore the parties to the positions that they negotiated for unless WaMu and MMB were found to be culpable or if the equities lay in favor of Branscomb. Although both WaMu and MMB were aware of Branscomb’s lien, that alone was not sufficient for culpability since there was no knowledge that the lien would remain on title after the refinance. Further, even though both parties had title insurance and potentially a case against the escrow holder, those grounds would not impact the equities of the case.
WHY THIS DECISION IS IMPORTANT:
This case loosens the standard for equitable subrogation. Here, the Court explicitly noted that courts favor equitable liens. By relaxing the standards, lenders will be better able to fix mistakes made by escrow companies and better realize the intent of the parties.
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