No “Leap-Frog” in Refinancing: Delaware Supreme Court Embraces Delaware’s Pure Race Priority Status

Fall 2015

Publication| Real Estate Services

A recent Delaware Supreme Court opinion reinforced Delaware’s “pure race” approach to lien status in the context of mortgage refinancing transactions. In Eastern Savings Bank, FSB v. CACH, LLC, CA No. N13A-09-008 (Sept. 28, 2015),the Delaware Supreme Court held that the doctrine of equitable subrogation (see discussion below) does not apply to a mortgage refinancing absent other equitable circumstances. In other words, lenders that provide funds to refinance existing mortgage liens will have to rely upon their record status in the Recorder of Deeds Office; they cannot step into the shoes of the existing lienholder that is being taken out of the transaction and enjoy the lien priority of such existing lender’s mortgage lien. So, what is the takeaway for mortgage lenders? Given the holding in Eastern Savings Bank, second mortgage lenders—indeed, all mortgage lenders—should require a policy of lender’s title insurance, dated as of the date of closing, with particular emphasis on having the title insurance company cover any gap between signing and recording. And while no standardized forms of mortgage lender due diligence checklists are used throughout the state, the opinion also demonstrates the value to mortgage lenders of establishing best practices such as using a mortgage lender’s closing checklist to guide it through the closing practice, as discussed more fully in the link below.

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