By: Nick Enns

Equitable subrogation is an equitable doctrine which allows one who has discharged the debts of another to succeed the rights of the satisfied creditor. In Eastern Savings Bank, FSB v. Cach, LLC (ESB)[1], the Supreme Court of Delaware made a majority ruling holding that the doctrine of equitable subrogation does not apply to mortgage refinances in Delaware when the funds that refinancing lenders disburse are used to pay off pre-existing mortgages.

CACH obtained a judgement against Aaron Johnson Jr. to satisfy a deficiency for a car loan. That judgment turned into a lien against Johnson’s property in Newark, DE. Two days before CACH obtained the lien on Johnson’s premises, Johnson engaged in a mortgage refinancing with Eastern Savings Bank which made him and his wife tenants by the entireties. Both Johnsons then proceeded to execute a mortgage in the amount of $168,000 to pay off other secured liens against their Newark property. The total debt paid with Eastern Savings’ funds was $148,479.56.[2] CACH’s judgment lien had not been recorded yet and was not paid off with the refinancing of the Johnson’s mortgage through Eastern Savings. The funds loaned by Eastern Savings exceeded the liens paid off by more than $19,000 which was more than the amount owed on CACH’s judgment lien. The Eastern Savings mortgage was not recorded for 10 days after its execution.

In August 2008, Eastern Savings filed for foreclosure against the Johnson’s property, after which an attorney for CACH informed Eastern Savings that their lien was ahead of Eastern Savings’ mortgage. Eastern Savings did not respond and the property was subsequently sold at a Sheriff’s auction for $133,000 with all proceeds going to Eastern Savings. CACH then demanded the $16,000 it was owed, from Eastern Savings. Eastern Savings refused, and CACH filed suit in the Court of Common Pleas alleging misappropriation and unjust enrichment.[3] Eastern Savings’ motion to dismiss was granted but the case was appealed to the Delaware Supreme Court. The Supreme Court of Delaware remanded the case to examine equitable subrogation and the case made its way back to the Delaware Supreme Court to examine that issue.

The priority of mortgages in Delaware is subject to 25 Del C. § 2106, which is a pure race statute that gives CACH’s lien priority over Eastern Savings mortgage, because they recorded first. However, Eastern Savings contended that because it paid the pre-existing mortgages and judgments on the Johnson’s property, it stepped into the shoes of the previous lien holders and were now first priority. CACH responded that equitable subrogation does not apply. Equitable subrogation is a doctrine, which allows one who has discharged the debts of another to succeed the rights of the satisfied creditor. Though Delaware has expanded the doctrine to many equitable situations, the Supreme Court of Delaware declined to extend it to cases that enable a mortgage lender who funds the homeowner’s refinancing to assume the position of the original lender.[4] According to the Delaware Supreme Court, equitable subrogation will not be extended when it would work any injustice to the rights of others, and applied to the case at hand they refused to extend, basing the decision on a differentiation in the current case and two older cases, Stoeckle and Oldham. In both of those cases there was a either a reasonable mistake or unjust enrichment, which allowed for the doctrine of equitable subrogation to be applied. Further, CACH did not bargain for its subordinate position and therefore never agreed to be subjected to another mortgage.[5]

This case will have an impact on fault based analysis in the Delaware court system, meaning that if a mistake is made during the recording process of a mortgage such as failing to record the mortgage in a timely manner like what happened in this case, the remedy available for the aggrieved party it to sue the title insurance or recording company. However, the cost involved in that are entirely placed on the homeowner which likely will discourage people from buying and lead them to seek alternative means of housing besides ownership. Further, the doctrine of equitable subrogation as applied is supposed to provide an equitable remedy, but not allowing equitable subrogation in the instance of one mortgagee being negligent essentially kills the doctrine entirely. Judge Seitz, dissenting, states that “negligence on the part of the refinancing lender should only be a counterweight to equitable subrogation when the intervening lienholder has been harmed, which is not the case here.[6]


[1] Eastern Savings Bank, FSB v. Cach, LLC C.A. No. 695, 2014 N13A-09-008 (Del. 2015)

[2] Eastern Savings Bank, C.A. No. 695 at 3

[3] Id at 5

[4] Id at 10

[5] Id at 15

[6] Eastern Savings Bank, C.A. No. 695 at 33

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