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2. If the court rules that the elderly widow's mortgage is entitled priority over the woman's mortgage, which of the following determinations are necessary to support that ruling?
The $50,000 debt secured by the woman's mortgage was not paid when it was due, and the woman brought an appropriate action to foreclose, joining the owner, the businessman, and the elderly widow as defendants and alleging that the woman's mortgage was senior to the elderly widow's mortgage on Blackacre.
The owner of Blackacre in fee simple mortgaged Blackacre to a man to secure a loan of $100,000. The mortgage was promptly and properly recorded. The owner later mortgaged Blackacre to a woman to secure a loan of $50,000. The mortgage was promptly and properly recorded. Subsequently, the owner conveyed Blackacre to a businessman. About a year later, the businessman borrowed $100,000 from an elderly widow and gave her a mortgage on Blackacre to secure repayment of the loan. The elderly widow did not know about the mortgage held by the woman. The understanding between the businessman and the elderly widow was that the businessman would use the $100,000 to pay off the mortgage held by the man and that the elderly widow would, therefore, have a first mortgage on Blackacre. The elderly widow's mortgage was promptly and properly recorded. The businessman paid the $100,000 received from the elderly widow to the man and obtained and recorded a release of the man's mortgage.
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For real property, the notice is by recording the mortgage. Recording is the act of giving public notice of changes in interests in real estate. A mortgage is valid between the parties whether or not it is recorded, but a mortgagee might lose to a third party — another mortgagee or a good-faith purchaser of the property — unless the mortgage is recorded.
When there are multiple mortgages given on a property, and none are purchase money mortgages, priority is determined according to which mortgage came first in time. However, under the doctrine of equitable subrogation, a person other than the mortgagor who pays off a mortgage can step into the shoes of the now-paid-off mortgagee.
D is correct. In this case, the original order is the man's mortgage, the woman's mortgage, conveyance to the businessman, and finally the widow's mortgage. Therefore, in order for the court to find that the widow's mortgage has priority over the woman's mortgage, it must treat the agreement between the businessman and the widow as a subrogation of rights, by which the widow purchased the man's mortgage. If the man's mortgage was originally senior to the woman's mortgage, and the elderly widow is entitled to have the man's mortgage revived for her benefit and be subrogated to the man's original position as senior mortgagee, then the man's mortgage (now held by the elderly widow) is senior to the woman's, and the elderly widow is entitled to hold the man's position as the first mortgagee. Therefore, both determinations are required. Finally, it is possible that the woman could have an equitable argument against the transfer, as the agreement was not technically between the first mortgagee and the widow, making this determination necessary as well.
A is incorrect. This answer has the correct answer, but the wrong conclusion. While the woman is entitled to have the mortgage revived for her own benefit, it requires both determinations, as explained above.
B is incorrect. The countervailing equities of subrogation and improper transfer make this answer incomplete.
C is incorrect. This answer is also incomplete. It does not include that the woman's mortgage was originally senior to the man's, which is integral to finding that the woman's mortgage should be revived.