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Kim v. Lee9/20/2001
e sufficient to defeat application of the doctrine of equitable subrogation in this jurisdiction, there would be no such doctrine since absent a prior filing or recording there would be no priority to contest.
2. No actual notice to lienholder.
Even in jurisdictions where actual knowledge may defeat equitable subrogation, only knowledge by the lienor may have this effect. Neither Pioneer Bank nor PHH received actual notice of the Kim judgment prior to making the loan. PHH did not receive actual notice of the judgment lien until December 1998, seven months after the refinance was complete.
3. No actual notice to title company until after transaction.
It is the date of the commitment to insure which is relevant (if at all), not the date the policy actually issued. By the terms and conditions of the commitment issued on March 16, the title company undertook to insure title to its insured, save and except identified exceptions as well as encumbrances 'if any, created, first appearing in the public records or attaching subsequent to the effective date hereof {March 16, 1998}.' CP at 41. At that point Yakima Title became obligated to issue a title insurance policy to its insured, Pioneer Bank (and later its assignee PHH), without excepting the Kim judgment lien because that lien had been filed prior to the date of the commitment and was not expressly excepted. Had Yakima Title attempted to add an exception to the policy not expressed in the commitment it would have breached the commitment.
According to the facts as the majority describes them (majority at 4), the commitment for title insurance was issued on March 16, 1998, Pioneer Bank recorded its deed of trust and second quit claim deed on April 20, but Kim's attorney first informed the title company of its judgment on July 13, 1998. Even the assignment of Pioneer Bank's deed of trust to PHH occurred prior to that, on June 17, 1998 (although it was not re-recorded until July 16). Therefore Yakima Title, much less the real parties in interest, Pioneer and PHH, had no actual notice of the Kim judgment prior to the refinance.
No Prejudice
A legitimate concern under the Restatement (Third) formulation of the rule is whether the prior lienholder would be prejudiced by subrogation to the replacement mortgage or deed of trust. Arguably if the refinance significantly increased the principal balance of the loan, there might be prejudice. By the same token if the terms and conditions of the loan repayment were less favorable to the obligor, that might be prejudicial as well. Here, however, the majority notes that the amount of the indebtedness did not change significantly, whereas the interest rate was reduced from 10.5 percent to 6.75 percent, and the maturity date was extended from 6 years to 30 years, eliminating a balloon payment. Moreover the size of the property subject to the judgment lien doubled.
Under section 7.3 equitable subrogation will not be granted if a change in the terms of the refinance mortgage or the underlying debt is 'materially prejudicial' to the holder of a junior interest. Restatement (Third) of Prop.: Mortgages sec. 7.3(a)(1) (1997). A change is generally deemed materially prejudicial only if (1) it is in the form of an increase in principal amount; (2) it is in the form of an increase in interest rate; or (3) the refinance mortgagee fails to record its mortgage and the intervening lienor takes detrimental action as a result. None of these situations is at hand in this proceeding.
Although this refinance did lead to a small increase in the principal amount, from $130,000 to $132,700, the majority correctly concedes this change is not
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