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Equitable Subrogation Appropriate Despite Payor Being Party to Mortgage

The Michigan Court of Appeals recently held that a party to a mortgage can take advantage of equitable subrogation. In Albace v. RAAW Enterprises, et al., case no. 326435 (Mich. Ct. App. June 21, 2016), the defendants owed the plaintiff $300,000 for the purchase of property under a land contract. Defendants executed a promissory note to a bank in order to obtain $200,000 to pay to the plaintiff. The plaintiff was not a party to the promissory note, but granted a mortgage to the bank on the property as collateral. When defendants defaulted under the loan, the plaintiff paid the amount owing to the bank in order to protect his interest in the property, and later attempted to recover this amount against defendants under the theory of equitable subrogation. The defendants argued that equitable subrogation was inappropriate in this case because the plaintiff was liable for the debt to the bank as a party to the mortgage. The Michigan Court of Appeals disagreed because the mortgage did not expressly obligate the plaintiff to pay the indebtedness. "[A] mortgage can set forth the terms of indebtedness . . . But this one does not. The mortgage contains no promise to make payments on the underlying debt." Therefore, because the mortgage did not expressly create a payment obligation for the plaintiff, the mortgage was "mere security of the money debt" and the plaintiff could recover under equitable subrogation.

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