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 reinforcedDelaware’s “pure race” approach to lien status in the contextof mortgage refinancing transactions. In Eastern SavingsBank, FSB v. CACH, LLC, CA No. N13A-09-008 (Sept. 28, 2015),the Delaware Supreme Court held that the doctrine of equitablesubrogation (see discussion below) does not apply to a mortgagerefinancing absent other equitable circumstances. In other words,lenders that provide funds to refinance existing mortgage lienswill have to rely upon their record status in the Recorder of DeedsOffice; they cannot step into the shoes of the existing lienholderthat is being taken out of the transaction and enjoy the lien priorityof such existing lender’s mortgage lien. So, what is the takeawayfor mortgage lenders? Given the holding in Eastern Savings Bank,second mortgage lenders—indeed, all mortgage lenders—shouldrequire a policy of lender’s title insurance, dated as of the dateof closing, with particular emphasis on having the title insurancecompany cover any gap between signing and recording. And whileno standardized forms of mortgage lender due diligence checklistsare used throughout the state, the opinion also demonstrates the value to mortgage lenders of establishing best practices such asusing a mortgage lender’s closing checklist to guide it throughthe closing practice, as discussed more fully in the link below.

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