Life Estates in Real Property Are Subject to Principles of Equitable Subrogation

Ocwen Loan Services, LLC v. Quinn, 450 N.J. Super. 393 (App. Div. 2017).  The doctrine of equitable subrogation provides that “a refinancing lender whose security turns out to be defective is subrogated by equitable assignment to the position of the lender whose lien discharged by the proceeds of [a] later loan, there being no prejudice to or justified reliance by a party in adverse interest.”  In today’s decision by Judge Carroll, the Appellate Division faced a situation in which a lender agreed in 2007 to refinance a 2005 mortgage.  The title search for the 2007 mortgage did not reveal recorded life estates in the property in favor of defendants.

In this foreclosure case, the parties cross-moved for summary judgment as to whether the life estates were to be subordinated to the 2007 mortgage.  The Chancery Division applied equitable subrogation, granted plaintiff’s motion, and subordinated the life estates.  Defendants appealed, but the Appellate Division affirmed, applying an abuse of discretion standard of review in the context of application of the doctrine of equitable subrogation.

Judge Carroll’s decision largely relied on the Chancery Division’s decision below.  Prior precedent had applied equitable subrogation of one mortgage to another.  Since there was no “meaningful distinction” between a mortgage and a life estate in this context, it was a “logical extension” of the prior case law to apply equitable subrogation to a life estate.

Equitable subrogation does not arise often.  This opinion, which is not a long one, well describes the doctrine and is worth reading, especially for anyone involved in foreclosure or other Chancery matters involving the priority of interests in real property.