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SUPREME COURT, STATE OF COLORADO Court Address: 2 East Fourteenth Avenue Fourth Floor Colorado State ... - page 14 / 22

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lienholder is now consigned to remain behind a lien without a corresponding debt in the amount

of $1,427,191.12, and which will now, whether or not the original loan was in default, certainly

be foreclosed, because that is the way that the title company will make good on its contractual

obligation under the title policies issued to the Londres and Chase Manhattan. The amount paid

by the Londres is not even the subject of a third party loan which may be paid down over time.

Instead, it becomes "protected" equity. Application of equitable subrogation instantly turns a

loan which may or may not be performing into a non-performing debtless lien with no obligor,

giving the subrogees the right to foreclose and clear title in themselves, irrespective of whether

the prior lender had the same right.

One might argue that the Chase Manhattan loan becomes the new, performing, loan that

can only be foreclosed upon if it were to go into default. This, however, begets more questions.

First, what are the terms of the subrogated loan? The Court of Appeals treated the intervening

junior lienholder as having been subordinated to the new loan, in total. It would seem facially

prejudicial to the junior lienholder if the terms of this new loan are in any way different than the

original loan. What if, for example, the new loan is of greater principal, a higher interest rate, or

provides an earlier or later maturity date? The Court of Appeals used the word "subrogation"

but, in practice, it subordinated the intervening junior lienholder to whatever the Chase

Manhattan mortgage provided. Second, assume the Londres paid the Washington Mutual loan in

full, much like the purchaser in Capitol National Bank. What terms will a court ascribe to this

newly subrogated equity position? The courts ultimately become responsible for fashioning an

equitable remedy that is unnecessary, is potentially unfair to innocent parties, and is outside of

the clear, express, and readily available title records.

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