MURPHY, J.
This case primarily concerns a purported discharge of mortgage and the doctrine of equitable subrogation, which "is available to place a new mortgage in the same priority as a discharged mortgage if the new mortgagee was the original mortgagee and the holders of any junior liens are not prejudiced as a consequence." CitiMortgage, Inc. v. Mtg. Electronic Registration Sys., Inc., 295 Mich.App. 72, 81, 813 N.W.2d 332 (2011). The loan obtained by the mortgagors and secured by the "new" mortgage at issue in this lawsuit was used, in part, to fully satisfy and discharge the original mortgage, with both mortgages being held by the same mortgagee. A second and different mortgagee had recorded its mortgage relative to the same real property during the interim, making it a junior lienholder at the time of recordation. The loan secured by the new mortgage exceeded the amount due under the original note, and the mortgagors, for the most part, pocketed the remaining loan proceeds. Therefore, the new loan and mortgage involved more than a mere refinancing transaction; there was an increase in the principal amount. The closing on the new mortgage entailed a faxed discharge of mortgage from the junior lienholder that was ultimately never recorded, given that, according to the junior lienholder, the discharge was conditioned on no new money being lent and on the preparation and recordation of a mortgage to replace the discharged mortgage, neither of which conditions was met. Subordination of mortgages under the process outlined in MCL 565.391 was not attempted. Several years later, the mortgagors defaulted on the mortgage that had originally been recorded second in time, and foreclosure proceedings were commenced by an assignee traced back to the one-time junior lienholder, resulting in the assignee's purchase of the real property at a sheriff's sale. An assignee of the mortgagee that had held the original and new mortgages then instituted the current action, alleging various causes of action and claiming priority of its assigned mortgage interest on the basis of the discharge of mortgage and equitable subrogation. The main questions posed in this appeal regard the validity of the discharge and the applicability of the doctrine of equitable subrogation under the described circumstances. Arguments in favor
In December 2003, two individuals, as tenants in common, granted a mortgage to Option One Mortgage Corporation (Option One) on certain real property located in Mackinac County, securing a $449,000 loan made by Option One to the mortgagors under a promissory note. The mortgage was recorded that same month. In August 2004, the same mortgagors, joined by a spouse in order to bar any right of dower, granted a $400,000 mortgage to Capitol with respect to the same real property encompassed by the first mortgage, partially securing a loan in excess of $1 million. This mortgage was recorded in September 2004, and for purposes of this opinion and ease of reference, we shall refer to it as the Capitol mortgage.
In April 2005, the two mortgagors granted a "new" mortgage to Option One in regard to the real property, securing a $520,000 loan. According to the settlement statement pertaining to the closing, $458,109 of the loan proceeds were used to pay off the entire balance on Option One's original mortgage, and after disbursements to cover settlement charges and delinquent taxes, the mortgagors received the remaining $34,566. This mortgage was recorded in May 2005, and we shall refer to it as the Option One mortgage.
We must take a moment to explore the circumstances surrounding the closing relative to the Option One mortgage. A couple of months before the closing,
An assistant vice president for Capitol faxed a discharge of mortgage to the title company's closing department. In an affidavit obtained for purposes of the litigation, the assistant vice president averred that she had faxed the discharge of mortgage under the belief that the Option One mortgage only entailed the refinancing of the original mortgage "
The assistant vice president also indicated that the Capitol mortgage was not paid off, that the Option One mortgage "was for an increased principal amount," and that no replacement mortgage was recorded on behalf or in favor of Capitol. And, therefore, the conditions precedent to Capitol's agreement to discharge the mortgage were never satisfied. In turn, according to the assistant vice president, Capitol did not record the discharge of mortgage, nor was a discharge ever effectively delivered.
In August 2005, a few months after the closing on the Option One mortgage, one of the mortgagors conveyed his tenants-in-common interest in the property to the other mortgagor pursuant to a quitclaim deed. In May 2009, American Home Mortgage Servicing, Inc. (American Home), as successor-in-interest to Option One, assigned the Option One mortgage to Wells Fargo. However, in August 2011, Wells Fargo recorded an affidavit to expunge or rescind the assignment, claiming that it was not executed by an authorized signer for American Home. But then in March 2012, Sand Canyon Corporation, formerly known as Option One, executed and recorded an assignment that assigned the Option One mortgage to Wells Fargo. At the time of the instant litigation, Wells Fargo held the Option One mortgage. The lower court record contains various documents, including title worksheets contemplating foreclosure on the Option One mortgage, property reports, demands on the title insurance policy relative to the Option One mortgage, a fax seeking to obtain the discharge of mortgage, and law firm communications to its client, Option One and later Wells Fargo, that were dated from before the failed May 2009 assignment to Wells Fargo to after the successful March 2012 assignment to Wells Fargo. These documents made clear that, for purposes of the public record at the register of deeds office, the Capitol mortgage remained in existence, it had not been discharged, and it was superior to the Option One mortgage. The documents further reflected that Wells Fargo was well aware of these facts and the lack of a recorded discharge of mortgage before accepting the 2009 and 2012 assignments, although Wells Fargo did not appear to know the reasons why the discharge had not been recorded. Evidently, the Option One mortgage had been in default, but foreclosure proceedings were not pursued, ostensibly because of the Capitol mortgage conundrum.
On March 11, 2013, in an earlier, separate lawsuit, Wells Fargo filed a quiet-title action against Capitol, acknowledging the Option One and Capitol mortgages as well as Wells Fargo's status as an assignee of the Option One mortgage and alleging that the Option One mortgage was superior. Wells Fargo asserted that Capitol's mortgage had "been paid off or otherwise satisfied, however no discharge of mortgage ha[d] been recorded and [Capitol's] mortgage remain[ed] in senior lien position[,]" even though the Option One mortgage "was intended to be a senior mortgage on the Property." Wells Fargo further alleged that Capitol's "failure to record a discharge of mortgage [was] creating a cloud on [Wells Fargo's] claim to the Subject Property[.]" Wells Fargo asked the circuit court to discharge the Capitol mortgage, to terminate any interest in the property claimed by Capitol, and to recognize the Option One mortgage now held by Wells Fargo as the senior lien on the property.
On May 31, 2013, while Wells Fargo's quiet-title action remained pending, Capitol assigned its mortgage to SummitBridge Credit Investments IV, LLC (SummitBridge) upon SummitBridge's purchase of the underlying loan. The assignment was recorded on August 8, 2013. Also on August 8, 2013, Wells Fargo and Capitol stipulated
An asset manager connected to SummitBridge and SBC executed an affidavit in which he averred that, in entering into the loan purchase agreement and related assignment with Capitol, SummitBridge had relied on the Capitol mortgage being a first or senior mortgage on the real property. The asset manager further asserted that "[n]either SummitBridge nor SBC received any notice from Option One, Wells Fargo or any other entity or person of the existence of a copy or original of the document entitled `Discharge of Mortgage' referenced in, and attached as Exhibit F, to Wells Fargo's Complaint [in the instant action], until on or about May 14, 2014." The asset manager additionally averred that had SummitBridge been informed of the allegations made by Wells Fargo concerning equitable subrogation and the purported discharge of the Capitol mortgage before SummitBridge's purchase of the Capitol loan, "it would have either not have entered into the Loan Purchase or would have otherwise paid a purchase price substantially less than that which was agreed thereunder."
In a notice of foreclosure sale dated October 31, 2013, SBC indicated that there had been a default relative to the Capitol mortgage, with nearly $700,000 due and owing on the promissory note.
Contemporaneous to the filing of its complaint, Wells Fargo filed a motion for a temporary restraining order (TRO), a show-cause order, and a preliminary injunction, seeking to toll the running of the redemption period arising out of the foreclosure sale. On the day of the filing of the complaint and motion, the trial court entered an ex parte TRO, tolling the redemption period until further order of the court and setting the matter for a hearing on June 20, 2014. The hearing was conducted as scheduled, and by order dated June 23, 2014, the trial court converted the TRO to a preliminary injunction and extended the redemption period for 14 days. By amended order dated June 30, 2014, the trial court reversed its position and dissolved and terminated the TRO and preliminary injunction, concluding that
The parties filed multiple competing motions for summary disposition, and after entertaining oral argument on the issues at two hearings, the trial court entered a couple of orders denying Wells Fargo's motion for summary disposition and granting summary disposition in favor of SBC and Capitol for the reasons stated on the record at a hearing on May 22, 2015. At that hearing, the trial court initially observed that "there wasn't a discharge." The court stated that the discharge of the Capitol mortgage was subject to a "condition precedent" of being paid off and that "within two weeks' time, everybody knew that [the] mortgage was still there." With respect to equitable subrogation, the trial court found that CitiMortgage was distinguishable and did not support application of the doctrine, considering that, relative to the Option One mortgage, "the new money made it a new mortgage and not a refinance." The trial court also concluded that the equitable-subrogation claim was time-barred under a six-year statute of limitations and that prejudice would be incurred if the doctrine was invoked. For these reasons, the trial court granted summary disposition in favor of SBC on Counts IV (equitable subrogation), V (superior interest in land), and VI (invalid foreclosure), which were the only counts applicable to SBC, under MCR 2.116(C)(7), (8), and (10). The trial court indicated that Counts IV through VI were inapplicable to Capitol; nonetheless, the court granted summary disposition in favor of Capitol on those counts.
With respect to Counts I (failure to honor and record discharge of mortgage) and II (common-law indemnity), which were solely applicable to Capitol, the trial court granted summary disposition under MCR 2.116(C)(7) on the basis that the claims were time-barred pursuant to a six-year statute of limitations and under MCR 2.116(C)(8) for failure to state a claim. In regard to Count III (fraud and misrepresentation), which also pertained solely to Capitol, the trial court ruled:
Wells Fargo appeals as of right.
We review de novo a trial court's ruling on a motion for summary disposition, Loweke v. Ann Arbor Ceiling & Partition Co., LLC, 489 Mich. 157, 162, 809 N.W.2d 553 (2011), matters of statutory construction, Snead v. John Carlo, Inc., 294 Mich.App. 343, 354, 813 N.W.2d 294 (2011), whether a cause of action is time-barred, Caron v. Cranbrook Ed. Community, 298 Mich.App. 629, 635, 828 N.W.2d 99 (2012), the applicability of equitable subrogation, CitiMortgage, 295 Mich.App. at 75, 813 N.W.2d 332, and questions of law generally, id.
The trial court relied on MCR 2.116(C)(7), (8), and (10) in ruling on the motions for summary disposition. With respect to MCR 2.116(C)(7), which provides, in part, for summary dismissal when an action is barred by a statute of limitations, this Court in RDM Holdings, Ltd. v.
MCR 2.116(C)(8), which provides for summary disposition when a "party has failed to state a claim on which relief can be granted," tests the legal sufficiency of a complaint. Beaudrie v. Henderson, 465 Mich. 124, 129, 631 N.W.2d 308 (2001). The trial court may only consider the pleadings in rendering its decision. Id. All factual allegations in the complaint must be accepted as true. Dolan v. Continental Airlines/Continental Express, 454 Mich. 373, 380-381, 563 N.W.2d 23 (1997). "The motion should be granted if no factual development could possibly justify recovery." Beaudrie, 465 Mich. at 130, 631 N.W.2d 308.
Finally, with respect to the well-established principles governing a motion for summary disposition brought pursuant to MCR 2.116(C)(10), this Court in Pioneer State Mut. Ins. Co. v. Dells, 301 Mich.App. 368, 377, 836 N.W.2d 257 (2013), explained:
Counts I, II, III, V (in part), and VI of Wells Fargo's complaint were reliant on the discharge of mortgage that the assistant vice president for Capitol had faxed to the closing department of the title company handling the closing on the 2005 Option One mortgage. Count I alleged an unlawful failure to discharge the mortgage and record the discharge; Count II alleged common-law indemnity predicated on a failure to honor and record the discharge;
Within the pertinent period, as prescribed by MCL 565.44(2), "after a mortgage has been paid or otherwise satisfied, the mortgagee ... shall prepare a discharge of the mortgage, file the discharge with the register of deeds for the county where the mortgaged property is located, and pay the fee for recording the discharge." MCL 565.41(1). A mortgagee is liable for statutory and actual damages for refusing or neglecting to discharge a mortgage "after full performance of the condition of the mortgage, ... or, if the mortgage is entirely due, after a tender of the whole amount due...." MCL 565.44(1).
There is no dispute that the mortgagors did not pay off, satisfy, or fully perform the conditions of the Capitol mortgage, so there was no general statutory entitlement to a discharge of mortgage. Rather, this case presented an attempted subordination of mortgages, as between the Capitol and Option One mortgages, through the planned use of a discharge of mortgage and a replacement mortgage, whereby Option One would retain its superior lien position despite recording the 2005 Option One mortgage after the 2004 Capitol mortgage had been recorded. See Black's Law Dictionary (7th ed.), p. 68 (defining a "subordination agreement" as "[an] agreement by which one who holds an otherwise senior interest agrees to subordinate that interest to a normally lesser interest ..."). Stated otherwise, Option One and Capitol contemplated subordination of Capitol's first lien to a second or junior lien, although not through the mechanism set forth in MCL 565.391.
The law of contracts recognizes that some agreements are not binding at the outset with respect to a right to performance, entailing conditions precedent to performance. Harbor Park Market, Inc. v. Gronda, 277 Mich.App. 126, 131-132,
In 1 Cameron, Michigan Real Property Law (3d ed.), Real Estate Sale Contracts, § 15.45, pp. 553-554, the author discussed conditions precedent in the context of real estate transactions, stating:
Given the uncontradicted affidavit executed by Capitol's assistant vice president, which was also consistent with the Capitol loan presentation document, see note 3 of this opinion, we conclude as a matter of law that Option One and Capitol had, at most, a conditional subordination agreement. Under the conditional agreement, Capitol was obligated to discharge the mortgage and record the discharge, but only if no new money was lent to the mortgagors as part of the Option One mortgage and a replacement mortgage was prepared and recorded in favor of Capitol. There is no genuine issue of material fact that neither of these conditions was satisfied, nor that Capitol engaged in conduct to prevent the occurrence of the conditions. Accordingly, Capitol had no legal obligation to perform by way of honoring and recording the faxed discharge of mortgage; the purported discharge was ineffective and unenforceable.
Although the trial court alluded to a variety of reasons to dismiss the counts at issue, including expiration of the period of limitations, failure to state a claim, and the lack of clear and convincing evidence relative to the fraud and misrepresentation count, the court also found that "there wasn't a discharge."
In general, Michigan is a race-notice state under MCL 565.29, wherein the owner of an interest in land can protect his or her interest by properly recording it, and the first to record an interest typically has priority over subsequent purchasers or interest holders. Coventry Parkhomes Condo. Ass'n v. Fed. Nat'l Mtg. Ass'n, 298 Mich.App. 252, 256, 827 N.W.2d 379 (2012); Richards v. Tibaldi, 272 Mich.App. 522, 539, 726 N.W.2d 770 (2006).
Under this statutory language, mortgages were subject to the satisfaction of the obligation on a mortgage note in the order in which the mortgages were recorded. Ameriquest Mtg. Co. v. Alton, 273 Mich.App. 84, 93, 731 N.W.2d 99 (2006).
Pursuant to 2008 PA 357, the Legislature rewrote Subsection (1) of MCL 565.25 and entirely repealed and deleted Subsection (4) of the statute. In revisiting the doctrine of equitable subrogation following the ruling in Ameriquest, this Court, in CitiMortgage, 295 Mich.App. at 75, 813 N.W.2d 332, stated:
The parties do not dispute the general application of race-notice principles; therefore, as a starting point, the Capitol mortgage, which was not discharged, had priority over the subsequently recorded Option One mortgage, which was the junior or second mortgage upon its recordation in 2005, with the original Option One mortgage being satisfied and discharged. In light of these circumstances, Wells Fargo, as an assignee of Option One, turned to the doctrine of equitable subrogation in an attempt to have the Option One mortgage placed in the same priority position that had been enjoyed by the original Option One mortgage.
In CitiMortgage, this Court indicated "that the caselaw ... in Michigan is consistent with Restatement Property, 3d, Mortgages, § 7.3, pp. 472-473[.]" CitiMortgage, 295 Mich.App. at 76, 813 N.W.2d 332.
CitiMortgage involved a fact pattern that is similar to the history in our case, except that there was no subordination attempt in CitiMortgage and, more importantly, CitiMortgage addressed a pure refinancing transaction, absent an increase in the principal amount and the lending of new or additional monies. This latter distinction served as a basis, in part, for the trial court's rejection of Wells Fargo's equitable-subrogation argument. We hold that the trial court erred in so ruling.
The framework enunciated in CitiMortgage did not indicate that equitable subrogation is wholly unavailable if funds are lent to a mortgagor above and beyond the amount needed to satisfy and discharge the original loan. The Court observed that the theory underlying equitable subrogation is that a junior lienholder's position is left unchanged by the conduct of the lender seeking subrogation and that the junior lienholder is not wronged or otherwise prejudiced as a consequence. CitiMortgage, 295 Mich.App. at 80, 813 N.W.2d 332.
The Reporters' Note to Restatement, § 7.3, explains that "courts usually regard an increase in the mortgage interest rate or principal amount as causing a pro tanto loss of priority to any intervening liens." Id. at 485.
We agree with and adopt the Restatement approach set forth in comment b, the illustrations, and the Reporters' Note as cited and discussed earlier. The original Option One mortgage was not a future advance mortgage,
Wells Fargo argues, however, that the issue of prejudice is irrelevant, invoking Restatement, § 7.3(c), p. 473, which provides that "[i]f the mortgagor and mortgagee reserve the right in a mortgage to modify the mortgage or the obligation it secures, the mortgage as modified retains priority even if the modification is materially prejudicial to the holders of junior interests in the real estate...." Paragraph 26 of the original Option One mortgage provided that "[t]his Security Instrument may be modified or amended ... by an agreement in writing signed by Borrower and Lender." Wells Fargo contends that, given this language in the original Option One mortgage, equitable subrogation should apply to the entire 2005 Option One mortgage, including the new monies that were lent to the mortgagors, regardless of any prejudice. We first note that while the CitiMortgage panel quoted Restatement, § 7.3(c), it is not clear that it actually adopted that specific provision, particularly because the panel later stated that it was adopting Restatement, § 7.3, as limited to the situations described in the commentary that the Court had quoted, which commentary did not discuss mortgage-modification language. CitiMortgage, 295 Mich.App. at 77, 813 N.W.2d 332. Regardless, the 2005 Option One mortgage did not entail a mere modification of the original mortgage; rather, it was a true replacement mortgage, resulting in the satisfaction, discharge, and cancelation of the original mortgage in its entirety. Accordingly, we reject Wells Fargo's argument on this matter.
With respect to the question whether it would be prejudicial to apply equitable subrogation relative to lent funds other than the new or additional monies, Capitol's position would have been left unchanged, and thus we cannot identify any resulting prejudice. Indeed, the general overall reduction in the interest rate reflected in the 2005 Option One mortgage would likely have been favorable to Capitol, not prejudicial.
First, the trial court ruled that a claim of equitable subrogation is subject to a six-year period of limitations and that Wells Fargo's assertion of the doctrine was time-barred. The trial court, agreeing with SBC and Capitol, invoked the catch-all period of limitations found in MCL 600.5813, which provides that "[a]ll other personal actions shall be commenced within the period of 6 years after the claims accrue and not afterwards unless a different period is stated in the statutes." On appeal, Wells Fargo contends that the applicable limitations period for equitable subrogation is 15 years under MCL 600.2932 and MCL 600.5801(4).
The trial court's ruling reflected a misunderstanding of the doctrine of equitable
With respect to the effect of the assignment of the Option One mortgage to Wells Fargo on the analysis concerning equitable subrogation, this Court has stated that "[i]t is well established that an assignee stands in the shoes of an assignor, acquiring the same rights and being subject to the same defenses as the assignor." Coventry Parkhomes, 298 Mich.App. at 256-257, 827 N.W.2d 379. Upon an assignment of a mortgage, the assignee, for all beneficial purposes, becomes a party to the mortgage, and "a mortgage assignee has the same priority rights as the original mortgage assignor." Id. at 257, 827 N.W.2d 379. In CitiMortgage, 295 Mich.App. at 78 n. 2, 813 N.W.2d 332, this Court made clear that these general assignment principles pursuant to which an assignee stands in the shoes of the assignor are equally applicable for purposes of equitable-subrogation analysis. Accordingly, the fact that Wells Fargo was not a direct party to the Option One mortgage but an assignee does not alter our ruling regarding the availability of equitable subrogation. Further, our conclusion is not changed by the fact that Wells Fargo was aware at the time of the assignment that the public record revealed the existence and superiority of the Capitol mortgage. To hold otherwise would stymie assignments and effectively preclude assignees from invoking equitable subrogation, which is only necessary to pursue in the first place when the public record reveals that another lien exists and is superior. Had it not been Wells Fargo as an assignee seeking equitable subrogation, it would have
SBC and Capitol argue that equitable subrogation is not available because Option One had intended to subordinate the 2005 Option One mortgage to the Capitol mortgage, given that Option One realized early on that there was no effective discharge of the Capitol mortgage and that the Capitol mortgage had been excepted from coverage under the title insurance policy, yet Option One did nothing in response. The CitiMortgage panel, quoting the Reporters' Note to Restatement, § 7.3, p. 483, observed that a senior mortgagee who discharges its mortgage and takes a replacement mortgage cannot avail itself of equitable subrogation if it intended a subordination of its replacement mortgage to the existing junior mortgage. CitiMortgage, 295 Mich.App. at 77, 813 N.W.2d 332. We conclude that, contrary to the claims of SBC and Capitol, the documentary evidence established that Option One did not intend to subordinate the 2005 Option One mortgage to the Capitol mortgage. Option One's closing instructions to the title company and the effort to obtain the discharge of mortgage from Capitol showed that Option One fully intended to retain its senior lien position at the time of the 2005 mortgage. The alleged failure by Option One thereafter to timely address the circumstances did not reveal an intent to subordinate its mortgage to the Capitol mortgage but was more in the nature of neglect at worst.
Next, SBC argues that it was a bona fide purchaser for value and thus protected by MCL 565.29, which, again, provides:
SBC contends that at the time it was assigned the Capitol mortgage in August 2013, it did not have actual or constructive notice of the original Option One mortgage given its discharge, nor did it have notice of Wells Fargo's equitable-subrogation claim.
Under MCL 565.29, a bona fide or good-faith purchaser for value of an
In the simplest of hypotheticals, MCL 565.29 dictates that a mortgagee who first obtains a mortgage but fails to record it loses to a subsequent mortgagee who obtains a mortgage relative to the same property and records the mortgage, so long as the subsequent mortgagee gave value for the mortgage and lacked notice of the first mortgage. In this case, SBC is not arguing that it did not have notice of the 2005 Option One mortgage, which was duly recorded. Rather, SBC is maintaining that it lacked notice that the Option One mortgage might potentially be given priority over the Capital mortgage that was assigned to SBC under the doctrine of equitable subrogation. "A party's status as a bona fide purchaser for value is relevant only when there has been a previously unrecorded conveyance." Trademark Props. of Mich., LLC v. Fed. Nat'l Mtg. Ass'n, 308 Mich.App. 132, 142 n. 4, 863 N.W.2d 344 (2014) (emphasis added), citing MCL 565.29.
Assuming for the sake of argument that the premise of SBC's theory is sound, i.e., that a mortgage interest conveyed to a bona fide purchaser for value is superior to an earlier-arising, equitable-subrogation interest, which of course would be unrecorded, SBC cannot show that it was indeed
First, CitiMortgage had been the law in Michigan for approximately two years when SBC was assigned the Capitol mortgage; therefore, in light of the public record showing the original 2003 Option One mortgage, the 2004 Capitol mortgage, the 2005 Option One mortgage, and the soon-thereafter discharge of the original Option One mortgage by Option One itself, SBC should have been aware of an available claim of equitable subrogation by Wells Fargo. Second, the affidavit by the asset manager for SummitBridge and SBC averred that "SBC was made aware of the civil action filed by Wells Fargo against [Capitol] ... in 2013," which was a reference to the previous quiet-title suit brought by Wells Fargo. Although Wells Fargo did not assert an argument for equitable subrogation in the 2013 quiet-title action, Wells Fargo did claim that there had been a discharge of the Capitol mortgage and that it ultimately had superior title. While SBC was assigned the mortgage seven days after the quiet-title action was dismissed, the dismissal was without prejudice, leaving open the possibility of future litigation over priority of the mortgages. Under these circumstances, we conclude that SBC had notice of a possibility that the outwardly appearing priority of the Capitol mortgage might be in peril, thereby necessitating further inquiry. Accordingly, SBC was not a good-faith purchaser for purposes of MCL 565.29.
Finally, Capitol argues that equitable subrogation is not available under Restatement, § 7.3(a)(2), which provides an exception to the doctrine "to the extent that one who is protected by the recording act acquires an interest in the real estate at a time that the senior mortgage is not of record." Assuming that CitiMortgage adopted this provision, the comment and illustration make clear that § 7.3(a)(2) applies in cases in which a senior mortgagee has recorded a discharge of its original mortgage but has yet to record its replacement mortgage, which was executed and used to satisfy the original mortgage, and a second mortgagee comes along and records its mortgage before the replacement mortgage is recorded. Restatement, § 7.3, comment b, p. 476, and Illustration 6, p. 478. In this case, the original Option One mortgage had not yet been discharged and was fully applicable when Capitol obtained its mortgage. Accordingly, § 7.3(a)(2) does not provide a basis to reject Wells Fargo's claim of equitable subrogation.
The trial court did not err by dismissing Counts I, II, III, V (mortgage discharge component), and VI of Wells Fargo's complaint, considering that the purported discharge of mortgage was ineffective and unenforceable as a matter of law for failure to satisfy conditions precedent. With respect to Count IV, which alleged equitable subrogation, we conclude that it was subsumed by Count V, which alleged mortgage superiority partly on the basis of equitable subrogation. And the trial court did err by dismissing Count V relative to the issue of equitable subrogation, but only to the extent that the court ruled that equitable subrogation was unavailable with respect to amounts not encompassing the new or additional monies. There was no error in excluding the new monies or the increase in the principal amount from being subject to equitable subrogation. We remand for entry of judgment in favor of Wells Fargo on Count V consistent with this opinion. To be clear, SBC retains title to the property purchased at the sheriff's sale, but that ownership interest is subject to Wells Fargo's equitably subrogated mortgage interest as outlined by our ruling. See MCL 600.3236.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction. Neither party having fully prevailed, we decline to award taxable costs pursuant to MCR 7.219.
MARKEY, P.J., and RONAYNE KRAUSE, J., concurred with MURPHY, J.
The term "conveyance" as used in MCL 565.29 "embrace[s] every instrument in writing, by which any estate or interest in real estate is created, aliened, mortgaged or assigned...." MCL 565.35 (emphasis added); see also Mich. Fire & Marine Ins. Co. v. Hamilton, 284 Mich. 417, 419, 279 N.W. 884 (1938) (stating that the race-notice statute applies to mortgages); Coventry Parkhomes, 298 Mich.App. at 256, 827 N.W.2d 379 (observing that MCL 565.29 and the principle that the first to record has priority apply to liens and mortgages); Church & Church, Inc. v. A-1 Carpentry, 281 Mich.App. 330, 345, 766 N.W.2d 30 (2008) (providing that MCL 565.29 "applies to mortgages"), vacated in part and aff'd in part on other grounds 483 Mich. 885, 759 N.W.2d 877 (2009).
