Bank of America, NA v Ping (IN)

NE2d 665 (Ind Ct App 2008)

Facts: On April 9, 1999 Ping secured an $80,000 revolving line of credit mortgage from Bank One. On March 9, 2001, Ping took a second mortgage of $103,700 on the same property, the second mortgage being assigned to Bank of America Mortgage (BOA). On March 14, 2001, part of the new funds were used to pay the Bank One revolving credit mortgage down to a zero balance. No party made efforts to cancel the original credit agreement with Bank One, and Ping eventually used an additional $76,000 of that credit.

On July 21, 2004, BOA filed and amended its mortgage foreclosure complaint against Ping and Bank One, arguing that it should have priority to be paid over Bank One. The trial court disagreed and ruled that the payment order should be (1) costs and taxes (2) Bank One mortgage (3) BOA mortgage. BOA appealed, arguing that it was (1) entitled to a release of Bank One's mortgage under Indiana Law and (2) BOA is entitled to relief under the doctrine of equitable subrogation.

Holding: Affirmed. Under Indiana Code Section 32-28-1-1(b), the holder of a mortgage must discharge it once it has been fully paid and discharged. However, the Bank One mortgage contained several requirements, one of which was to "terminate" the credit agreement. Here Ping made no effort to terminate the agreement once it was paid. Where a mortgage is designed as a revolving credit and contractually requires an affirmative act to cancel, mere payment is not enough to remove the lien. Therefore BOA was not entitled to an automatic release under Indiana law.

In regards to the second claim, the doctrine of equitable subrogation allows a party paying off a creditor to 'step into the shoes' of that creditor's rights in relation to the debt. The key is that the doctrine is based on equity, and that parties with 'culpable negligence' may not be eligible. In this case equity did not work in BOA's favor. BOA made no efforts to close the first mortgage, and Bank One actually continued to advance funds from the credit line to Ping after he paid down the Bank One revolving credit mortgage. So there was no unfair windfall for Bank One. It was an error by BOA that they failed to make their new loan dependent on the closing of old line of credit, not error by Bank One, and equity would not be served by holding Bank One responsible for BOA's error.

Opinion Year: 
By: ATG Underwriting Department | Posted on: Thu, 07/31/2008 - 12:28pm