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Legal Memorandum: Doctrine of Equitable Subrogation

Issue: When should a court refuse to apply the doctrine of equitable subrogation to require another to pay an earlier mortgage?

Area of Law: Real Estate Law
Keywords: Doctrine of equitable subrogation; Mortgage
Jurisdiction: New Jersey
Cited Cases: None
Cited Statutes: None
Date: 10/01/2007

Subrogation of an earlier mortgage can be done by agreement, by statute, or judicially “as an equitable device to compel the ultimate discharge of the obligation by the one who should in good conscience pay it.”  First Union Nat’l Bank v. Nelkin, 354 N.J. Super. 557, 565 (App. Div. 2002).  Equitable subrogation requires that the second mortgagee lack knowledge of the prior mortgage.  Ibid.  “[T]he new lender is not entitled to subrogation, absent an agreement or formal assignment, if it possess actual knowledge of the prior encumbrance.”  Id. at 565-66 (citing Metrobank for Sav., FSB v. Nat’l Cmty. Bank, 262 N.J. Super. 133, 143-44 (App. Div. 1993).)  Thus, actual knowledge of the prior mortgage will bar the second mortgagee from then remedy of equitable subrogation. 

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