Independence National Bank v. Buncombe Professional Park

Respondent David DeCarlis was the sole member of respondent Buncombe Professional Park, L.L.C., which owned an undeveloped parcel of land. In 2007, DeCarlis, as Buncombe's representative, executed a note and mortgage with Independence National Bank. At the same time, DeCarlis executed a personal guaranty. As part of this transaction, Bank satisfied the existing first mortgage at closing. Buncombe stopped paying on the mortgage. As Bank prepared to foreclose, it learned in 2010 that DeCarlis held what had been, prior to Bank's satisfaction of the original first mortgage, a second mortgage on the property executed and properly recorded in 2006. The same attorney represented both Bank and Buncombe at the 2007 mortgage closing, and had actual notice of DeCarlis' 2006 mortgage at the time of the 2007 closing since he had conducted the title search. The attorney testified at the hearing in this matter that he erroneously neglected to have DeCarlis execute a satisfaction, release, or subordination of his 2006 mortgage at the 2007 closing in order to effectuate the parties' agreement that Bank was to have a first mortgage. Since no such document was executed, DeCarlis' 2006 second mortgage became the first lien, with priority over Bank's 2007 mortgage. The Bank then foreclosed on Buncombe and DeCarlis. In a post-trial order following the parties' Rule 59 motions, the master found Bank was equitably subrogated to the original first mortgage which Bank had satisfied as part of the 2007 closing, thus giving Bank's 2007 mortgage priority over the 2006 DeCarlis mortgage on a second ground. Buncombe and DeCarlis appealed, and the Court of Appeals reversed. Upon review, the Supreme Court concluded the appellate court erred in finding that the Bank had notice of the 2006 second mortgage by virtue of its agent's actual knowledge of that lien. Accordingly, the Supreme Court reversed the Court of Appeals and reinstated the master's judgment. View "Independence National Bank v. Buncombe Professional Park" on Justia Law