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SUPREME COURT, STATE OF COLORADO Court Address: 2 East Fourteenth Avenue Fourth Floor Colorado State ... - page 13 / 22





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the assignee to the amount of their down payment. On the surface of it, that seems utterly

reasonable. Hicks still has a lien, and he can still foreclose it if he wants to. But, in reality,

Hicks has lost the value of his judgment lien and his "equity" in the property.

The Court of Appeals decision asserts that this doctrine should only be applied in cases

where the junior lienholder is not "prejudiced." While this would appear on its face to be a

classic application of equitable principles, it simply misses the plain fact that the intervening

judgment lienholder is, in fact, prejudiced. There is an intrinsic value in a lien position that is

destroyed by the application of equitable subrogation. True, "priority" has not changed, but what

has changed is the character and, possibly, the terms of the lien that is given preference over the

judgment lien. Consider that, in a typical case, a judgment lienholder having a second position

behind a first mortgage has an option to foreclose her lien. She is not required to foreclose the

lien. It is perfectly reasonable, and not uncommon, that a junior lienholder would prefer to wait

in line while the first mortgage is paid down or paid off, creating ever-increasing value in the

second lien position. In other words, the "equity" in a second lien position is the difference

between the market value of the property and the amount of debt represented by the first lien

position (limited only by the debt secured by the second lien). As the debt of the first lien is

paid, the equity of the second lien becomes greater. In this case, had Grubbs been making

regular payments on the Washington Mutual loan, eventually the second lien would have become

a first lien, and the equity in the lien would have grown to equal the debt it secured. By

permitting the Londres and Chase Manhattan to "step into the shoes" of Washington Mutual, the

debt secured by the first lien position was paid in full, but the lien was somehow liquidated and

maintained at the full amount paid by the Londres and Chase Manhattan. The intervening junior


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