Ameriquest Mortgage Co. v. Alton, Docket No. 264213.

• Decision Date: 25 July 2006
• Docket Number: Docket No. 264214.,Docket No. 264213.
• Parties: AMERIQUEST MORTGAGE COMPANY, Plaintiff-Appellee, v. Arkan D. ALTON, Defendant-Appellant. Arkan D. Alton, Plaintiff-Appellant, v. Ameriquest Mortgage Company, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

726 N.W.2d 424

271 Mich. App. 660

AMERIQUEST MORTGAGE COMPANY, Plaintiff-Appellee, v. Arkan D. ALTON, Defendant-Appellant.

Arkan D. Alton, Plaintiff-Appellant, v. Ameriquest Mortgage Company, Defendant-Appellee.

Docket No. 264213.

Docket No. 264214.

Court of Appeals of Michigan.

Submitted February 14, 2006, at Detroit.

Decided July 25, 2006, at 9:15 a.m.

Vacated August 18, 2006.

Released for Publication October 26, 2006.

Douglas A. Tull, P.C. (by Douglas A. Tull), Utica, for Arkan Alton.

Dykema Gossett P.L.L.C. (by Laura C. Baucus, Jill M. Wheaton, and Douglas J. Fryer), Bloomfield Hills, for Ameriquest Mortgage Company.

Before: HOEKSTRA, P.J., and NEFF and OWENS, JJ.

ORDER

Ameriquest Mortgage Company v. Alton, Docket No. 264213, and Alton v. Ameriquest Mortgage Company, Docket No. 264214. The Court orders that a special panel shall be convened in accordance with MCR 7.215(J) to resolve the conflict between these consolidated cases and Washington Mut. Bank, F.A. v. ShoreBank Corp., 267 Mich.App. 111, 703 N.W.2d 486 (2005).

The Court further orders that part III of the opinion in these consolidated cases released on July 25, 2006, is vacated. MCR 7.215(J)(5).

Appellant may file a supplemental brief within 21 days of the Clerk's certification of this order. Appellee may file a supplemental brief within 21 days of the service of appellant's brief. Nine copies must be filed with Clerk of the Court.

NEFF, J.

In these consolidated appeals involving competing declaratory judgment actions to quiet title to a parcel of real property, Arkan D. Alton¹ appeals by right the July 19, 2005, trial court order granting summary disposition to Ameriquest Mortgage Company on the basis that the mortgage held by Ameriquest had priority over the mortgage held by Alton under the doctrine of equitable subrogation. We reverse, but only because we conclude that Washington Mut. Bank, FA v. ShoreBank Corp., 267 Mich.App. 111, 703 N.W.2d 486 (2005), compels reversal on the ground that Ameriquest was a "volunteer" payor and, therefore, was not entitled to equitable subrogation. Were we not bound by the decision in Washington Mut. Bank, we would affirm the trial court's decision pursuant to the Restatement of Property view that the doctrine of equitable subrogation may be applied in circumstances of a refinanced mortgage. We therefore declare a conflict with Washington Mut Bank pursuant to MCR 7.215(J)(2) to urge further consideration of the doctrine of equitable subrogation in the circumstances presented.

I

These cases arise from competing claims to quiet title to real property at 22230 Ivanhoe Lane in Southfield. The property's title history is fairly complicated; however, the essential facts and claims were aptly summarized by the trial court:

On February 21, 2002, the former owner, Samir Yousif, hereinafter Yousif, obtained a loan in exchange for a mortgage from Franklin Funding, hereinafter Franklin, in the amount of $225,000 plus interest. The mortgage was recorded March 11, 2002, and subsequently assigned to Equity One.

On February 13, 2003, Yousif and his wife obtained a loan and mortgage from Defendant, Arkan D. Alton, hereinafter Alton, in the amount of $86,000 which was recorded March 21, 2003.

Subsequently, Yousif obtained a loan and mortgage from Ameriquest Mortgage [C]ompany, hereinafter Ameriquest, in the amount of $294,300, plus interest, which was recorded May 1 2003.² The funds from the Ameriquest loan were allegedly used to pay off the Franklin loan and a discharge [of mortgage] was recorded in the Register of Deeds [on] September 18, 2003.

During this time, Yousif defaulted on the Alton and Ameriquest loans, and Alton foreclosed the Alton mortgage by way of advertisement on September 2, 2003, with a Sheriff's Deed recorded September 9, 2003, prior to the discharge of the Franklin loan being recorded.

. . . Ameriquest argues it's entitled to step into the first lien position of Franklin under the doctrine of Equitable Subrogation, even though Ameriquest's mortgage was dated and recorded after the Alton mortgage.

Ameriquest argues that Yousif used $241,337.51 to pay off the first lien, and Ameriquest should be entitled to a first lien position to that amount of the mortgage. Ameriquest argues that the result, as it stands, creates an improper windfall to Alton. Ameriquest relies on Alton's deposition testimony in which he admits that his loan to Yousif was a junior mortgage and subordinate to the Franklin loan.

Alton responds and argues in [his] motion for summary disposition that the Ameriquest mortgage was allegedly not signed by Yousif and that the mortgage falsely states that Yousif is a single man.³ Alton argues that Ameriquest's payoff to Franklin was voluntary and that foreclosure wiped out Ameriquest's mortgage as a matter of law.

In resolving the parties' competing claims, the trial court concluded that Ameriquest was entitled to a first priority lien on the property in the amount of $241,337.51 under the doctrine of equitable subrogation. Ameriquest therefore "stepped into the shoes" of Franklin on the basis of Ameriquest's payoff of the Franklin loan, which had priority over the mortgage held by Alton.⁴

The court noted that Alton's mortgage, with interest, was $92,863.42, while the property was appraised at $300,000. Therefore, if Ameriquest's claim were extinguished, Ameriquest would be substantially prejudiced and Alton would receive a proportionate windfall. Conversely, granting Ameriquest's claim would not invalidate Alton's title acquired through the sheriff's sale, but would only preserve an encumbrance on the property in the amount paid by Ameriquest to discharge the Franklin loan. The court noted that Alton knew of the Franklin encumbrance when he gave his loan to the Yousifs; he was aware that it was later paid off and discharged; and he apparently believed the windfall he received was a "gift from God." The trial court granted summary disposition in favor of Ameriquest.

II

A trial court's decision concerning equitable issues, including an action to quiet title, is reviewed de novo. Deutsche Bank Trust Co. Americas v. Spot Realty, Inc., 269 Mich.App. 607, 612, 714 N.W.2d 409 (2005); Webb v. Smith (After Remand), 204 Mich.App. 564, 568, 516 N.W.2d 124 (1994). Findings of fact supporting the decision are reviewed for clear error. Id.

A trial court's decision to grant or deny summary disposition is also reviewed de novo. Maiden v. Rozwood, 461 Mich. 109, 118, 597 N.W.2d 817 (1999). In deciding a motion for summary disposition brought under MCR 2.116(C)(10), the court must examine the documentary evidence presented and, drawing all reasonable inferences in favor of the nonmoving party, determine whether a genuine issue of material fact exists. Quinto v. Cross & Peters Co., 451 Mich. 358, 362, 547 N.W.2d 314 (1996). If the nonmoving party fails to establish an issue of material fact, the motion is properly granted. Id.

[Editor's note: The following portion of the opinion has been vacated by the order entered August 18, 2006.]

III

The circumstances before us are not atypical in the context of financing real property. The question in general terms is whether a mortgagee that loans money to refinance real property may be entitled to the prior lender's priority lien position, thereby acquiring a superior position to an intervening junior mortgagee.

In Washington Mut. Bank, the Court answered this question in the negative. The Court held that the doctrine of equitable subrogation does not apply to permit a new mortgage, granted as part of a generic refinancing transaction, to take the priority of the original mortgage, which is being paid off, thereby giving the new mortgage priority over intervening liens. Washington Mut. Bank, supra at 128, 703 N.W.2d 486.

A

In Washington Mut. Bank, the Shinas refinanced their home by obtaining a $392,000 mortgage from the plaintiff, secured by the Shinas' home. Id. at 112, 703 N.W.2d 486. Most of the loan proceeds were used to satisfy and discharge the first mortgage on the property, held by Option One Mortgage Corporation. Id. However, the plaintiff reportedly "was unaware of the fact that, at the time it made the loan to the Shinas, there were two other mortgages recorded against the property," a $200,000 mortgage in favor of the defendant, and a $249,000 mortgage in favor of Standard Federal Bank. Id. (emphasis added). Both mortgages were recorded before the plaintiff's mortgage but after the Option One mortgage, although the plaintiff somehow failed to discover their existence. Id.

When the Shinas defaulted on their loans and the property went into foreclosure, the plaintiff sought to be equitably subrogated to the priority position of the Option One mortgage because the proceeds of its loan were used to pay off the Option One mortgage. Id. at 112-113, 703 N.W.2d 486. This Court held that equitable subrogation was inapplicable in light of existing Supreme Court precedent. Id. at 119-120, 128, 703 N.W.2d 486.

Conducting an extensive review of Michigan case law, the Court concluded that, with the exception of Walker v. Bates, 244 Mich. 582, 587, 222 N.W. 209 (1928), no Michigan court has held that subrogation was available to a payor who merely provides refinancing to pay off a prior loan. Washington Mut. Bank, supra at 128, 703 N.W.2d 486. Although the Court acknowledged that the doctrine of equitable subrogation was applied to a claim involving a refinanced mortgage in Walker, the Court nevertheless found an irreconcilable conflict between Walker and Lentz v. Stoflet, 280 Mich. 446, 273 N.W. 763 (1937), decided nine years later. The Court noted that both opinions were authored by Justice Edward Sharpe, and appeared to be the last two Supreme Court decisions addressing the question of equitable subrogation in a mortgage priority context. Washington Mut. Bank, supra at 114-119, 703 N.W.2d 486. Given this perceived conflict, the Court found...