Interstate Advisor LLC v. McCalla
A court can find that a subsequently recorded mortgage is entitled to be first in priority, pursuant to the doctrine of equitable subrogation. In December 2006, the defendants, who own property in East Hartford, decided to refinance and to pay off a $31,861 mortgage owed to Household Realty Corp. In January 2007, the defendant owners asked to keep the Household Realty line of credit open. Allegedly, Household Realty Corp. received and negotiated the $31,861 check and did not release the mortgage. In 2010, the Household Realty mortgage was assigned to the plaintiff, which filed a foreclosure suit. The defendant owners filed for bankruptcy relief, and the Bankruptcy Court granted the plaintiff's motion for relief from the bankruptcy stay. Defendant Mortgage Electronic Registration Systems Inc. argued its mortgages should have priority, although they were recorded in 2007, because the parties' intent at the time of refinancing in 2006 was to pay off and to release the plaintiff's loan, so that the Mortgage Electronic loans would be first in priority. The plaintiff's mortgage was recorded in 2006, and the plaintiff claimed its mortgage was entitled to be first in priority, because it was recorded first. Generally, a mortgage that is recorded first is entitled to priority over any subsequently recorded mortgages, pursuant to Hudson Bank v. Kissel, a 2012 decision of the Connecticut Supreme Court. Foreclosure courts are allowed to apply equitable principles, and equity considers the substance of the transaction. Equitable subrogation is available to place a refinancer in the position for which it bargained. The court granted Mortgage Electronic's motion to be first in priority. "[T]he plaintiff's predecessor in interest," wrote the court, "unfairly failed to release a lien required by agreement and law to be released."