Judgment Liens; Mortgages

Osterman v Baber, 714 NE 2d 735 (Ind App 1999).

Facts: Alan and Vona Orr planned to sell real estate to Osterman. Lincoln National Bank & Trust Company (Lincoln) held two mortgages on the property. The initial title search revealed no liens on the property. Osterman obtained a title insurance commitment based on the initial title search, effective January 9, 1995. On January 24, Baber obtained a judgment against the Orrs, and the following note was handwritten on the title insurance commitment: "See new judgment against Orr - 02D01-9412-CP-1862." Subsequently, on February 9, 1995, Baber recorded a judgment lien on the property. On February 16, Osterman closed on the sale of the property and obtained financing from First Security, secured by a mortgage on the property. The mortgage was then assigned to Norwest. Norwest paid Lincoln the balance of what was owed in satisfaction of Lincoln's two mortgages on the property. The trial court determined that Baber's judgment lien has priority over Norwest's mortgage lien as a matter of law, and granted Baber summary judgment. Norwest appealed, claiming that it was unaware at closing of the judgment against the Orrs and that the doctrine of equitable subrogation should be applied.

Holding: Affirmed. The notation at the bottom of the title commitment gave Norwest inquiry notice of the Baber's judgment lien. Additionally, Norwest had the means to do an updated title search. A party who pays the debt of another may benefit from equitable subrogation only if the party is not culpably negligent. The determination of whether a party deserves equitable subrogation should be made on a case-by-case basis. As a general matter, however, stricter standards should be imposed upon professionals than lay persons in determining whether mistakes are excusable. In Universal Title Co v United States, 942 F2d 1311 (8th Cir 1991). Norwest is a sophisticated professional lender. Thus, its mistake was inexcusable. By ignoring the notation and failing to do an updated title search before closing the deal, Norwest acted at its own risk. Therefore, it cannot benefit from equitable subrogation, and its mortgage lien is subordinate to Baber's judgment lien.

ILLINOIS ANALYSIS: Based on the facts provided, it does not appear that there was an express subrogation agreement. Therefore, it is likely that an Illinois court would also find for Baber and deny subrogation. At least one Illinois court has held that the doctrine of subrogation should not be applied unless there was an express agreement to elevate the latter mortgage to a first mortgage. Firstmark Standard Life Insurance Company, 271 Ill App 3d 435, 649 NE 2d 465 (1st D 1995).

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