All practitioners involved in New Jersey real estate litigation need to be aware of the Appellate Division decision in Tr. 2005-3 Mortg.-Backed Notes, U.S. Bank Nat’l Ass’n as Tr. v. Deely, 2021 WL 520063 (App. Div. 2021), which expands the situations in which a lender can use the doctrine of equitable subrogation to protect the priority status of a lien by holding that a lender’s knowledge of a prior competing lien does not bar the application of the doctrine.
Case Law Pre-Deely
To appreciate the import of Deely, some background is helpful. The doctrine of equitable subrogation allows a lender’s refinance mortgage to obtain priority over earlier-recorded mortgages and other property interests by placing the lender’s refinance mortgage by equitable assignment in the position of the mortgage that was discharged by the proceeds of the lender’s refinance loan. See Equity Sav. and Loan Ass’n v. Chicago Title Ins. Co., 190 N.J. Super. 340, 342 (App. Div. 1983). The doctrine is frequently used on behalf of lenders to secure a priority lien position when a mortgage is found to be technically invalid, improperly recorded, or other prior mortgages are not discharged as intended due to mistake, fraud or other circumstances. See Mortg. Elec. Registration Sys. v. Massimo, 2006 WL 1477125, *4 (N.J. Super. Ch. Div. May 26, 2006). The doctrine is an equitable device intended to avoid the unjust enrichment and “to compel the ultimate discharge of an obligation by the one who in good conscience ought to pay it.” Standard Acc. Ins. Co. v. Pellecchia, 15 N.J. 162, 171 (1954).