Owcen Loan Servicing, LLC v. Summit Bank, et al., No. 13-1615 (8th Cir. 2014)
Annotate this CaseAfter debtors filed for Chapter 7 bankruptcy protection, GMAC filed this adversary proceeding claiming that it was entitled to a first-priority lien on a home and surrounding twenty-two acres of land by operation of the Arkansas doctrine of equitable subrogation, or to reformation correcting the mutual mistake in its mortgage. The court concluded that, at the time Summit and Southern State made their new loans, knowledge that GMAC made a mistake by describing the wrong property on its earlier mortgage was not knowledge that GMAC had or even claimed to have a superior unrecorded interest, because GMAC had for many months made no attempt to correct the known error, or to reform its mortgage; the principle of Killam v. Tex. Oil & Gas Corp. did not apply to mortgage priority disputes; and the blame for the uncertainty regarding GMAC's lien position lies with GMAC. Had GMAC taken timely action, it would have held the senior recorded lien. Accordingly, the court affirmed the district court's denial of relief for GMAC.
Court Description: Civil case - Bankruptcy. Where the lender failed to properly record a mortgage and failed to take timely action to protect the seniority of its lien, giving its lien priority over later lenders would not be consistent with the purpose of the doctrine of equitable subrogation, and the district court did not err in denying the lender relief. [ April 24, 2014
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