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Aames Capital Corp. v. Interstate Bank Of Oak Forest

July 31, 2000


Appeal from the Circuit Court of Du Page County. No. 97--CH--0577 Honorable Bonnie M. Wheaton, Judge, Presiding.

The opinion of the court was delivered by: Justice Geiger

This appeal arises from a dispute concerning lien priority in a mortgage foreclosure proceeding. The issue is whether a mortgagee that pays off a priority mortgage pursuant to a refinancing agreement is entitled to be subrogated to the priority mortgage lien recorded by the original mortgagee.

On October 17, 1986, Patrick Wangler and Diane Wangler executed a note and mortgage in favor of Hinsdale Federal Savings and Loan that was later assigned to Standard Federal Bank (Standard). The note and mortgage were filed with the Du Page County recorder's office on November 7, 1986. Thereafter, the Wanglers executed junior mortgages in favor of Suburban Bank of Elmhurst (Suburban) that were recorded on July 12, 1988, June 30, 1989, January 31, 1990, and July 30, 1991.

On April 26, 1996, the defendant-appellee, Interstate Bank of Oak Forest (Interstate), obtained a judgment against the Wanglers in the amount of $75,891.06. Interstate recorded a memorandum of judgment with the Du Page County recorder's office on September 4, 1996.

On August 28, 1996, the Wanglers executed a note and mortgage for the sum of $174,000 in favor of Pacific Thrift and Loan Company (Pacific) pursuant to a refinancing agreement whereby Pacific would pay off the mortgages to Standard and Suburban. The mortgage document executed by the parties is the Fannie Mae/Freddie Mac Uniform Instrument for Illinois (Uniform Instrument). Pacific's mortgage was later assigned to plaintiff-appellant, Aames Capital Corporation (Aames). The Wanglers did not receive any funds from the refinancing. The closing agent issued checks to Standard and Suburban on September 4, 1996, in payment of the balance due under the mortgages held by them. On September 20, 1996, Pacific recorded its mortgage. On September 24, 1996, Suburban filed releases of its mortgages, but no release had been filed of the Standard mortgage.

On June 6, 1997, Aames filed this foreclosure action after the Wanglers defaulted on the note. In its foreclosure complaint, Aames alleged that Interstate's judgment lien was inferior and subordinate to Aames's first mortgage lien.

Both Aames and Interstate filed motions for summary judgment as to lien priority. The trial court entered an order denying Aames's motion and granting Interstate's motion, ruling that Interstate's judgment lien took priority because it was recorded prior to Aames's mortgage lien.

On appeal, Aames argues that, even though Interstate's judgment lien predates its mortgage with the Wanglers, it nevertheless holds first priority position because it is equitably subrogated to the priority mortgage liens perfected by Standard and by Suburban. Aames argues that the doctrine of equitable subrogation provides that a refinancing mortgage assumes the priority position of the prior mortgage that is satisfied through the refinancing. Interstate responds that the doctrine of first in time, first in right applies such that the judgment lien takes priority as the lien prior in time. Interstate also argues that the doctrine of equitable subrogation is only applied when there is an express agreement that the refinancing mortgage will assume the priority position.


We review the trial court's summary judgment order de novo. Wiseman-Hughes Enterprises, Inc. v. Reger, 248 Ill. App. 3d 854, 857 (1993). A lien is a hold or claim that one party has on the property of another for a debt. Podvinec v. Popov, 266 Ill. App. 3d 72, 77 (1994), rev'd on other grounds, 168 Ill. 2d 130 (1995). A lien that is first in time generally has priority and is entitled to prior satisfaction of the property it binds. Cole Taylor Bank v. Cole Taylor Bank, 224 Ill. App. 3d 696, 704 (1992).

A mortgage is a type of consensual lien on real property. See 735 ILCS 5/15-1207 (West 1996). Specifically, it is an interest in land created by written instrument providing security in real estate to secure the payment of a debt. Resolution Trust Corp. v. Holtzman, 248 Ill. App. 3d 105, 111 (1993). Under the Illinois Mortgage Foreclosure Law, a mortgage lien is created upon recording of the mortgage with the recorder of deeds. See 735 ILCS 5/15-1301 (West 1996); see also Firstmark Standard Life Insurance Co. v. Superior Bank FSB, 271 Ill. App. 3d 435, 439 (1995).

The perfection of mortgage liens is governed also by the Conveyances Act (765 ILCS 5/1 et seq. (West 1996)). Section 28 of the Conveyances Act provides that deeds, mortgages, and other instruments relating to or affecting the title to real estate shall be recorded in the county in which such real estate is situated. 765 ILCS 5/28 (West 1996). The purpose of this section is to give third parties the opportunity to ascertain the status of title to the property. Lubershane v. Village of Glencoe, 63 Ill. App. 3d 874, 879 (1978). The purchaser of real estate may rely on the public record of conveyances and instruments affecting title, unless he has notice or is chargeable with notice of a claim or interest that is inconsistent with the record. Bullard v. Turner, 357 Ill. 279, 283 (1934).

Section 30 of the Conveyances Act provides as follows:

"All deeds, mortgages and other instruments of writing which are authorized to be recorded, shall take effect and be in force from and after the time of filing the same for record, and not before, as to all creditors and subsequent purchasers, without notice; and all such deeds and title papers shall be adjudged void as to all such creditors and subsequent ...

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