The Bank of New York Mellon v. Ashley et al

Filing 73

MEMORANDUM OPINION (c/m to Comptroller of Maryland c/o Brian Frosh 3/20/17 sat). Signed by Judge Deborah K. Chasanow on 3/20/2017. (sat, Chambers)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
THE BANK OF NEW YORK MELLON
:
v.

:

Civil Action No. DKC 14-2914

:
HOLLY G. ASHLEY, et al.
:
MEMORANDUM OPINION
Presently pending and ready for resolution in this priority
of liens case are:

(1) a motion for partial summary judgment

filed by Defendants United States Department of the Treasury and
Internal
(ECF

No.

Revenue
54);

Service

and

(2)

(collectively,
a

cross

motion

the
for

“United
partial

States”)
summary

judgment filed by Plaintiff Bank of New York Mellon, f/k/a the
Bank of New York, as Trustee for the Holders of GE-WMC AssetBacked Pass-Through Certificates, Series 2005-1 (“BONY”) (ECF
No. 57).

The issues have been briefed and the court now rules,

no hearing being deemed necessary.

Local Rule 105.6.

For the

following reasons, both motions will be granted in part and
denied in part.
I.

Background
A.

Factual Background

This case involves the question of the priority of liens in
the real property known as 2902 Matapeake Drive, Upper Marlboro,
Maryland (the “Property”).

Pursuant to a deed dated October 5,

1999, the Property was conveyed by recorded deed to Defendant
Holly

G.

Smith,

n/k/a

Holly

G.

Ashley.

(ECF

No.

57-3).

Pursuant to a recorded deed dated November 24, 2003, Mrs. Ashley
conveyed the Property to herself and Defendant Michael Ashley,
her husband, as tenants by the entirety.

(ECF No. 57-4).

On December 22, 2004, Mr. and Mrs. Ashley refinanced their
mortgage on the Property using proceeds obtained from a loan
granted by WMC Mortgage in the amount of $400,000 (the “Prior
Loan”) in exchange for a deed of trust to the Property (the
“Prior DOT”).

(See ECF No. 63-2).

Both Mr. and Mrs. Ashley

were signatories to the Prior Loan, which paid off an existing
$337,500.00

mortgage

lien;

both

Mr.

and

Mrs.

Ashley

were

identified as grantors on the Prior DOT; and both Mr. and Mrs.
Ashley executed the Prior DOT.

The Prior DOT was recorded in

the land records of Prince George’s County on July 7, 2005.
(Id.).

On July 5, 2005, Mr. Ashley applied for and was granted

a refinance loan from WMC Mortgage in the amount of $475,000
(the “Subject Loan”).

(ECF No. 63-4).

The Subject Loan was

funded and a closing was conducted in the ordinary course of the
loan.

Disbursement of the proceeds went to pay off the Prior

DOT, in the amount of $405,450.06.

(ECF No. 57-6).

Mr. Ashley

- but not Mrs. Ashley – was identified as a grantor on the
corresponding

deed

of

trust

Ashley executed on July 14.

(the

“Subject

(ECF No. 63-3).
2

DOT”),

which

Mr.

The Subject DOT

was recorded on December 21, 2005.
successor
current

in

interest

holder

Subject DOT.1

of

to

(Id. at 1).

Mortgage

Subject

the

WMC

Loan

and,

and

BONY is the

accordingly,

beneficiary

of

the
the

(ECF No. 43 ¶ 21).

On June 5, 2007, Mr. and Mrs. Ashley together conveyed the
Property to the Ashley Family Trust by recorded deed (the “Trust
DOT”).

(ECF No. 57-10).

Under the terms of the Ashley Family

Trust, both Mr. Ashley and Mrs. Ashley held an undivided 50%
interest in the Property.

(ECF No. 57-11 at 8-9).

On November

5, 2012, the United States filed Notices of Federal Tax Liens in
the

amount

of

$428,227.50,

noticed

on

October

11,

2012

assessed on December 12, 2011, as to Mr. and Mrs. Ashley.
No. 54-5).

and
(ECF

Finally, on December 21, 2012, the Ashley Family

Trust conveyed the Property to Mr. Ashley by recorded quitclaim
deed.

(ECF No. 57-12).
B.

Procedural Background

BONY filed this action requesting that the court determine
the priority of liens against the Property on September 12,
2014.

(ECF No. 1).

on October 29, 2015.

The operative amended complaint was filed
(ECF No. 43).

claims

against

complaint

asserts

parties:

(1) Mr. and Mrs. Ashley; (2) CitiFinancial, Trustee

1

four

The six-count amended
groups

of

interested

All references to BONY refer either to WMC Mortgage at the
relevant time or to Plaintiff BONY when it was the successor of
WMC Mortgage.
3

Nancy J. Liberto, and Trustee Betty Lou Crumrine (concerning a
now-discharged CitiFinancial deed of trust dated December 18,
2000 (the “CitiFinancial DOT”)); (3) the United States; and (4)
the

State

of

Maryland,

Comptroller”).

Comptroller

of

Maryland

(“Maryland

BONY seeks: declaratory relief determining that

it holds a first-priority lien on the Property (Count I); a
determination that it holds a first-priority lien by reason of
equitable

subrogation

(Count

II);

to

use

quiet

title

to

determine the owner of the Property and hold that the Subject
DOT

constitutes

obtain

a

a

decree

valid

first-priority

reforming

the

lien

Subject

(Count

DOT

to

III);

include

to
the

signature of Mrs. Ashley (Count IV); to obtain a constructive
trust

in

its

favor

(Count

V);

and

to

obtain

an

equitable

mortgage against the Property as of July 13, 2005 (Count VI).
(ECF No. 43).
The

Clerk

of

Court

entered

default

against

Defendants

CitiFinancial, Trustee Nancy J. Liberto, and Trustee Betty Lou
Crumrine

for

their

failure

to

plead

or

otherwise

defend

as

directed in the summonses and as provided by the Federal Rules
of

Civil

Procedure.

CitiFinancial

and

(ECF
its

Nos.

12;

14;

trustees

do

not

16).

Accordingly,

contest

that

the

CitiFinancial DOT has been paid and satisfied and that any error
in its release does not affect BONY’s interest.
43 ¶ 4; 53, at 6).

(See ECF Nos.

The court also previously granted a joint
4

motion establishing the priority of liens as to the Maryland
Comptroller, but ordered that the order of judgment would not be
entered until the entire case was resolved.

(ECF No. 53).2

Plaintiff previously filed a motion for consent judgment as
to Mr. and Mrs. Ashley (ECF No. 28), which the United States
opposed (ECF No. 31).

The consent motion, inter alia, would

have provided that the Subject DOT is equitably subrogated to
the position and priority of the Prior DOT and the CitiFinancial
DOT, and that Mr. and Mrs. Ashley intended for the Subject DOT
to be a first-priority deed of trust against the Property.
No. 28-1, at 2).
consent

motion

resolution

On March 14, 2016, the court denied the

without

would

have

States’ tax liens.

that

the

prejudice
affected

to
the

its

renewal

priority

of

because
the

its

United

Mr. and Mrs. Ashley answered the amended

complaint on June 23.
request

(ECF

(ECF No. 72).

court

enter

2

In their answer, they

judgment

in

favor

of

BONY

The State of Maryland issued state tax liens against Mr.
and Mrs. Ashley in the amounts of $127,711 and $19,942.
As
previously noted, there is a discrepancy concerning the dates on
which the state tax liens were issued. (ECF No. 53, at 7 n.2).
The Maryland Comptroller agrees with BONY that the Subject DOT
is senior to the state tax liens against Mr. Ashley, pursuant to
the doctrines of equitable subrogation and after-acquired
property, and that the state tax liens against Mrs. Ashley did
not attach to the Property because she had previously conveyed
away her interest at the time of their filing.
(See ECF No.
32).
The United States opposed the joint motion, but
represented that the Maryland Comptroller’s concession of lien
priority did not affect the lien priority of the United States.
(ECF No. 52, at 3).
5

establishing that the Subject DOT is the first-priority lien on
the property.
The

(Id.).

United

States

answered

the

amended

complaint

on

December 21, 2015 (ECF No. 47), and filed the instant motion for
partial

summary

judgment

on

March

21,

2016

(ECF

No.

54).

Plaintiff filed its cross motion for partial summary judgment on
April 20.

(ECF No. 57).

The United States filed a response in

opposition and reply in support of its motion (ECF No. 63), and
Plaintiff replied (ECF No. 68).
II.

Standard of Review
A motion for summary judgment will be granted only if there

exists no genuine dispute as to any material fact and the moving
party

is

entitled

to

judgment

as

a

matter

of

law.

See

Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986);

Anderson

v.

Liberty

Lobby,

Inc.,

477

U.S.

242,

250

(1986); Emmett v. Johnson, 532 F.3d 291, 297 (4th Cir. 2008).
Summary judgment is inappropriate if any material factual issue
“may reasonably be resolved in favor of either party.”
Lobby,

477

U.S.

at

250;

JKC

Holding

Co.

v.

Wash.

Liberty
Sports

Ventures, Inc., 264 F.3d 459, 465 (4th Cir. 2001).
The moving party bears the burden of showing that there is
no genuine dispute as to any material fact.

If the nonmoving

party fails to make a sufficient showing on an essential element
of its case as to which it would have the burden of proof,
6

however, then there is no genuine dispute of material fact.
Celotex, 477 U.S. at 322–23.

Therefore, on those issues on

which the nonmoving party has the burden of proof, it is that
party’s responsibility to confront the summary judgment motion
with an “affidavit or other evidentiary showing” demonstrating
that there is a genuine issue for trial.

See Ross v. Early, 899

F.Supp.2d 415, 420 (D.Md. 2012), aff’d, 746 F.3d 546 (4th Cir.
2014).

“A mere scintilla of proof . . . will not suffice to

prevent summary judgment.”
(4th Cir. 2003).
significantly

Peters v. Jenney, 327 F.3d 307, 314

“If the evidence is merely colorable, or is not

probative,

summary

judgment

may

be

Liberty Lobby, 477 U.S. at 249–50 (citations omitted).

granted.”
In other

words, a “party cannot create a genuine dispute of material fact
through mere speculation or compilation of inferences.”

Shin v.

Shalala, 166 F.Supp.2d 373, 375 (D.Md. 2001) (citation omitted);
see Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d 514,
522 (4th

Cir. 2003).

Indeed, this court has an affirmative

obligation to prevent factually unsupported claims and defenses
from going to trial.
(4th Cir. 1993).

See Drewitt v. Pratt, 999 F.2d 774, 778–79

At the same time, the court must construe the

facts that are presented in the light most favorable to the
party opposing the motion.

Scott v. Harris, 550 U.S. 372, 378

(2007); Emmett, 532 F.3d at 297.

7

“When

cross-motions

for

summary

judgment

are

before

a

court, the court examines each motion separately, employing the
familiar standard under Rule 56 of the Federal Rules of Civil
Procedure.”

Desmond v. PNGI Charles Town Gaming, LLC, 630 F.3d

351, 354 (4th Cir. 2011).

The court must deny both motions if it

finds there is a genuine dispute of material fact, “[b]ut if
there is no genuine issue and one or the other party is entitled
to prevail as a matter of law, the court will render judgment.”
10A Charles A. Wright, et al.,

Federal Practice & Procedure

§ 2720 (3d ed. 1998).
The United States moves for summary judgment against BONY
on the ground that it has a first-priority lien senior to the
Subject DOT against 50% of the Property.

(ECF No. 54).

BONY

opposes the United States’ motion and cross moves for summary
judgment

on

Count

II

(Equitable

Subrogation),

Count

V

(Constructive Trust), and Count VI (Equitable Mortgage) of the
amended complaint.

(ECF No. 57).

BONY argues that it enjoys a

first-priority lien against 50% of the Property pursuant to the
after-acquired

property

doctrine,

and

in

addition,

that

it

should enjoy a first-priority lien as the remaining 50% of the
Property under equitable doctrines.
III. Analysis
Federal

law

governs

the

priority

of

federal

tax

which are created pursuant to 26 U.S.C. § 6321 et seq.
8

liens,

Aquilino

v. United States, 363 U.S. 509, 512 (1960); Collier v. United
States,

432

F.3d

300,

(4th

304

Cir.

2005).

“The

threshold

question . . . is whether and to what extent the taxpayer had
‘property’ or ‘rights to property’ to which the tax lien could
attach,” and “both federal and state courts must look to state
law” to answer this question.

Aquilino, 363 U.S. at 512–513.

If the taxpayer had property or property rights to which the tax
lien

could

federal

attach,

law.

priority

then

“Federal

over

all

priority
tax

other

liens

liens.

must
do

be

not

Absent

determined

under

automatically

have

provision

to

the

contrary, priority for purposes of federal law is governed by
the common-law principle that ‘the first in time is the first in
right.’”

United States v. McDermott, 507 U.S. 447, 449 (1993)

(quoting United States v. New Britain, 347 U.S. 81, 85 (1954)).
Accordingly, federal law provides that “[t]he lien imposed
by [§] 6321 shall not be valid as against any purchaser, holder
of

a

security

interest,

mechanic’s

lienor,

or

judgment

lien

creditor until notice thereof which meets the requirements of
subsection (f) has been filed by the Secretary.”
§ 6323(a).

26 U.S.C.

The United States Court of Appeals for the Fourth

Circuit has clarified that, “if an asserted claim is a ‘security
interest’ within the meaning of the Tax Code, it takes priority
if it is created before the government properly files its tax
liens.”

United States v. 3809 Crain Ltd. P’ship, 884 F.2d 138,
9

142 (4th Cir. 1989).

Section 6323(h)(1) defines a “security

interest” as any interest in property acquired by contract for
the purpose of securing payment of an obligation.
two-part

inquiry

to

determine

whether

a

There is a

security

interest

exists:
A security interest exists at any time (A)
if, at such time, the property is in
existence
and
the
interest
has
become
protected
under
local
law
against
a
subsequent judgment lien arising out of an
unsecured obligation, and (B) to the extent
that, at such time, the holder has parted
with money or money’s worth.
26 U.S.C. § 6323(h)(1); see also 3809 Crain Ltd. P’ship, 884
F.2d at 142.
The material facts in this case are not in dispute.

The

Subject DOT, executed on July 13, 2005, predates the federal tax
liens

assessed

in

2011

and

noticed

in

2012.

The

relevant

question is whether BONY was the holder of a protected “security
interest” prior to the assessment of the tax liens.
part of this inquiry is clear:

The second

It is undisputed that BONY paid

“money or money’s worth” for the Property in issuing the Subject
Loan, and so has satisfied part (B) above.

The analysis under

part (A) requires examining local law to determine the time at
which BONY’s interest became protected.

The parties agree that

BONY has a senior security interest against one-half of the real
property and that the federal tax liens have first priority

10

against the other half of the property, absent equitable relief,
but disagree as to the reason for this priority.
A.

Mr. Ashley’s 50% Interest in the Property

The

United

States

appears

to

concede

that

BONY

had

a

protected security interest as to Mr. Ashley’s 50% interest in
the Property when he executed the Subject DOT.
at 5).

(ECF No. 54-1,

BONY, however, concedes that it did not have a protected

security interest upon the execution of the Subject DOT, and
instead argues that its interest became protected as to Mr.
Ashley’s 50% of the Property upon the Ashleys’ transfer of the
Property to the Family Trust.

(ECF No. 68, at 7 n.2).

Mr. and Mrs. Ashley held the Property as tenants by the
entirety when Mr. Ashley executed the Subject DOT.

“Although

some states have either abolished or significantly altered the
estate of tenancy by the entireties, Maryland retains the estate
in its traditional form.”

Bruce v. Dyer, 309 Md. 421, 426

(1987) (citation omitted).
[T]he tenancy by the entireties estate as it
currently
exists
in
Maryland
has
the
following pertinent incidents: the husband
and wife take the tenancy by the entireties
property
not
by
moieties
but
by
the
entirety; each spouse has an equal right to
income derived from the tenancy by the
entireties property but no right to compel
an accounting during marriage, see Howard v.
Howard, 245 Md. 182, 185 (1967); and neither
spouse may lease, dispose of or encumber
land held as tenants by the entireties
without the consent of the other.
11

Arbesman v. Winer, 298 Md. 282, 290 (1983).

A deed of trust

must list all grantors under Maryland law, Md. Code, Real Prop.
§ 4-101(a)(1), and Mrs. Ashley was not listed as a grantor on
the Subject DOT.

The Subject DOT was therefore defective to

establish any lien at the time of its execution.3
The Ashley Family Trust, a revocable living trust, provided
that Mr. and Mrs. Ashley “shall each equitably own an undivided
one-half interest in all property subject to the Trust.”
No. 57-11, at 8).

(ECF

A tenancy by the entireties may be terminated

through joint action of the spouses, and spouses may, by acting
jointly, grant any interest in property held in tenancy by the
entirety to themselves in joint tenancy or tenancy in common.
Md. Code, Real Prop. § 4-108(b); Bruce, 309 Md. at 428-29.

The

Ashleys acted jointly in executing the Trust DOT, and in doing
so, chose to forgo the protections and limitations of ownership
as tenants by the entirety.
on

June

5,

2007,

each

Upon the execution of the Trust DOT

spouse

owned

an

undivided

one-half

interest in the Property as tenants in common, and each could
encumber

the

Property

without

the

other.

BONY’s

security

interest then became protected under local law pursuant to the
3

The United States recognizes this principle in its
response in support of its motion.
(See ECF No. 63, at 6
(“[U]nder Maryland law, one ‘co-tenant of a tenancy by the
entireties . . . individually holds no legal power to convey by
deed of trust a title interest in the property to secure the
mortgage debt.’” (quoting In re Wilkinson, 186 B.R. 186, 190
(Bankr.D.Md. 1995)))).
12

after-acquired property doctrine as to the 50% of the Property
that Mr. Ashley could encumber on June 5, 2007.

See Columbia

Carbon Co. v. Knight, 207 Md. 203, 210 (1955) (“The grantor who
executes a deed purporting to convey land to which he has no
title or to which he has a defective title at the time of
conveyance will not be permitted, when he afterwards acquires a
good

title

to

the

deed. . . . [T]he

land,

title

to

vests

claim
by

in

opposition

operation

of

law

inurement as soon as it is acquired by the grantor[.]”).

to
or

his
by

As Mr.

Ashley’s acquisition preceded the federal tax liens, BONY has a
first priority security interest against 50% of the Property
that is senior to the federal tax liens.
B.

Mrs. Ashley’s 50% Interest in the Property

The

question

of

when

BONY’s

security

interest

became

protected then remains as to the other 50% of the Property.

The

parties agree that the federal tax liens have priority over
BONY’s security interest, but again disagree as to the reason.
The United States appears to argue that its tax liens could not
attach while the Property was held in the Ashley Family Trust.
(ECF No. 54-1, at 5-6).

Whether the taxpayer had property or

rights to property to which the tax lien could attach is a
threshold question.

The United States apparently contends that

Mr. and Mrs. Ashley did not have property rights to which the
tax liens could attach when its tax liens were filed, which was
13

at the time that the Property was held in the Ashley Family
Trust.

Accordingly, it argues that the tax liens and BONY’s

security interest attached simultaneously when the Property was
transferred from the Family Trust to Mr. Ashley on December 12,
2012, and that, under federal law, federal tax liens receive
priority over a security interest that attaches simultaneously.
A

revocable

living

federal tax liens.
were assessed.

trust

cannot,

however,

be

used

to

evade

Therefore, the tax liens attached when they

See United States v. Bond, 279 F.2d 837, 841 (4th

Cir. 1960).
BONY, however, could not have a protected security interest
in the entire Property, absent equitable considerations, until
Mr. Ashley acquired the remaining 50% interest on December 21,
2012, when the Ashleys transferred the Property from the Ashley
Family Trust to Mr. Ashley individually.

At that time, Mr.

Ashley had the right to encumber the entirety of the Property,
as he had purported in executing the Subject DOT in 2005, and
BONY’s security interest became protected pursuant to the afteracquired property doctrine.

As the federal tax liens had been

assessed by that time, however, the federal tax liens were first
in time and have a senior interest against 50% of the real
property.
have

Accordingly, BONY and the United States each would

priority

against

50%

of

application of equitable relief.
14

the

Property,

absent

the

C.

Equitable Relief

BONY seeks a judgment that it is entitled to first priority
for the first $405,450.06 of the Subject Loan under the doctrine
of equitable subrogation (Count II).

In addition, BONY contends

that the entire amount of the Subject Loan is a first-priority
lien against the Property under the doctrines of constructive
trust (Count V) or equitable mortgage (Count VI).
1.

Equitable Subrogation

Count II of the amended complaint seeks a determination
that BONY holds a first-priority lien by reason of equitable
subrogation.
summary

(ECF No. 43 ¶¶ 28-30).

judgment,

the

United

In its motion for partial

States

initially

argued

that

equitable subrogation relied on a relation back theory and was
barred by Treasury Regulation § 301.6323(h)-1(a)(2).
54-1,

at

6-7).

As

BONY

noted

in

its

cross

(ECF No.
motion

and

opposition, however, subrogation is permitted under 26 U.S.C.
§ 6323(i)(2), which provides that, “[w]here, under local law,
one person is subrogated to the rights of another with respect
to a lien or interest, such person shall be subrogated to such
rights for purposes of any lien imposed by section 6321[.]”
its

reply,

the

United

States

15

now

argues

that

In

equitable

subrogation is not available under local law.

(ECF No. 63, at

3).4
Maryland

recognizes

conventional,

statutory,

and

legal

subrogation, see Hill v. Cross Country Settlements, LLC, 402 Md.
281, 311 (2007), although only legal subrogation is at issue
here.

“Broadly defined, subrogation is the substitution of one

person in the place of another with reference to a lawful claim
or right.”

Rinn v. First Union Nat’l Bank of Md., 176 B.R. 401,

407-08 (D.Md. 1995).

“The party subrogated acquires all rights,

securities, and remedies the creditor has against the debtor and
is regarded as constituting one and the same person with the
creditor whom he succeeds.”

Id.

Equitable subrogation requires

that: (1) there is a debt which a party other than the subrogee
owes, and (2) the subrogee paid the debtor’s loan to protect his
or her own rights, not as a volunteer.

Fishman v. Murphy, 433

Md. 534, 554 (2013) (citing Hill, 402 Md. at 304).

4

The United States also briefly argues in a footnote to its
reply that, because the statute allows subrogation “[w]here,
under local law, one person is subrogated to the rights of
another with respect to a lien or interest,” 26 U.S.C.
§ 6323(i)(2) (emphasis added), it does not permit subrogation
where a lender seeks to be subrogated to rights it previously
held itself.
(ECF No. 63, at 3 n.3).
The United States
acknowledges, however, that Maryland law does allow subrogation
in this circumstance (id. (citing In re Schubert, 437 B.R. 787,
794 (Bankr.D.Md. 2010))), and offers no support for its
interpretation.
The statute allows subrogation where permitted
by local law, and local law permits subrogation where a person
seeks to be subrogated to that person’s previous rights.
Schubert, 437 B.R. at 793-94.
16

It is undisputed that the Ashleys owed a debt on the Prior
Loan, which was secured by a valid, first-priority mortgage on
the Property at that time.

It is also undisputed that proceeds

from the Subject Loan in the amount of $405,450.06 were paid to
discharge the Prior Loan, pursuant to Mr. Ashley’s instruction
and

in

reliance

discharged lien.

upon

obtaining

security

equivalent

(See ECF Nos. 63-2; 57-8).

to

the

A subrogee “is not

a volunteer . . . when he pays the debt at the . . . request of
the person whose liability he discharges,” where there is an
understanding
Springham

v.

or

agreement

Kordek,

55

that

the

Md.App.

benefit
449,

455

is

not

a

(1983);

gift.
accord

Milholland v. Tiffany, 64 Md. 455, 455 (1886) (“Where money has
been

loaned

upon

a

defective

mortgage

for

the

purpose

of

discharging a prior valid incumbrance, and has actually been so
applied, the mortgagee may be subrogated to the rights of the
prior incumbrancer who he has thus satisfied, there being no
intervening incumbrances.” (quoting Sheld. Subs. § 8)).

BONY

paid the Ashleys’ debt to protect its own interests and not as a
volunteer.
The

United

States

argues

that

equitable

subrogation

requires a mistake or fraud, and is unavailable where a subrogee
had “actual notice” that its interest was not protected, arguing
that here “there was no misreading of the land records, there
was no failure to discover an intervening lien, there was no
17

mistaken

release

of

a

prior

lien,

there

was

no

intervening

creditor, and the Bank had actual knowledge of Mrs. Ashley’s
interest in the property.”

(ECF No. 63, at 4).

In the context

of mortgage refinancing, the Court of Appeals of Maryland has
noted that:
Where a lender has advanced money for the
purpose of discharging a prior encumbrance
in
reliance
upon
obtaining
security
equivalent to the discharged lien, and his
money
is
so
used,
the
majority
and
preferable rule is that if he did so in
ignorance of junior liens or other interests
he will be subrogated to the prior lien.
Although stressed in some cases as an
objection to relief, neither negligence nor
constructive notice should be material.
G.E. Capital Mortg. Servs., Inc. v. Levenson, 338 Md. 227, 231–
32

(1995)

(quoting

G.E.

Osborne,

Handbook

Mortgages § 282, at 570 (2d ed. 1970)).

on

the

Law

of

While the instant case

involves priority among lienholders, this issue does not.

The

federal tax liens were assessed six years after the Subject DOT
was executed, and there is no evidence of an intervening lien
between the execution of the Prior DOT in December 2004 and the
Subject DOT in July 2005.
relies

concern

actual

The cases on which the United States

knowledge

of

an

intervening

lien,

knowledge of the invalidity of the security instrument.
Fishman, 433 Md. at 556; Levenson, 338 Md. at 231-32.
the

cases

demonstrate

concerning

knowledge

the

public

strong

18

of

policy

an

See

Moreover,

intervening

favoring

not

lien

subrogation,

allowing

subrogation

even

where

the

lender

had

notice of an intervening lien or was negligent.

constructive
See id.; see

also Rinn, 176 B.R. at 408 (noting that “subrogation is a highly
favored doctrine and expansively applied”).

BONY’s constructive

or actual knowledge of the invalidity of its security instrument
is immaterial to equitable subrogation.
It is clear that the elements of legal subrogation under
Maryland law are satisfied here, and BONY is entitled to be
subrogated to its rights under the prior valid mortgage that was
discharged

with

the

proceeds

of

the

invalid

mortgage.

See

Bierman v. Hunter, 190 Md.App. 250, 257 (2010), abrogation on
other grounds recognized by Thomas v. Nadel, 427 Md. 441 (2012).
It

can

be

subrogated

predecessor, however.

only
Id.

to

the

rights

it

possessed

as

This result causes no harm to the

interests of the United States, whose tax liens would have been
second in priority to BONY’s interest secured by the Prior DOT,
had

it

not

been

discharged

by

the

Subject

Loan.

It

also

prevents the unjust enrichment of the United States, which would
otherwise benefit from BONY’s mistake.5
556-57.

See Fishman, 433 Md. at

Subrogation places the parties in the same positions

they would have held had the 2005 refinance transaction never
5

The United States argues that a bona fide purchaser for
value cannot be unjustly enriched (ECF No. 63, at 6 n.5), but
the United States is equivalent to a judgment lien creditor, not
a bona fide purchaser, In re Restivo Auto Body, Inc., 772 F.3d
168, 178 (4th Cir. 2014).
19

occurred.

For the foregoing reasons, BONY’s motion for summary

judgment on Count II will be granted and an equitable lien in
the amount of $405,450.06 will be imposed in favor of BONY.
2.

Constructive Trust

Count V of the amended complaint requests the imposition of
a

constructive

trust

in

favor

of

BONY

on

the

terms

of

the

Subject DOT with priority on and against the Property as of the
date of its execution.

(ECF No. 43 ¶¶ 40-44).

A constructive trust is the remedy employed
by a court of equity to convert the holder
of the legal title to property into a
trustee for one who in good conscience
should reap the benefits of the possession
of said property. . . . The purpose of the
remedy is to prevent the unjust enrichment
of the holder of the property.
Siemiesz v.
Amend, 237 Md. 438 (1965).
Wimmer v. Wimmer, 287 Md. 663, 668 (1980).

BONY alleged in the

amended complaint that the Ashleys would be unjustly enriched if
they were permitted to retain the Property unencumbered, and
also that the “other lien holders would be unjustly enriched by
advancing in lien position by virtue of the lien payoffs made
through the Subject Loan.”

(ECF No. 43 ¶ 42).

In the instant

motions, the parties argue only whether the United States would
be unjustly enriched absent a constructive trust.6

6

The United

The United States also argues that a constructive trust
may
not
be
imposed
because
it
did
not
commit
fraud,
misrepresentation, or any other wrongful act to obtain its lien
position.
(ECF No. 63, at 6-7).
A constructive trust is
20

States is not, however, the holder of the property.

Imposition

of a constructive trust would not be appropriate to resolve the
priority of liens between BONY and the United States, and BONY
has not shown here that it is entitled to the imposition of a
constructive trust on the terms of the Subject DOT.
Even

if

constructive
prime

the

BONY

were

trust,

however,

federal

constructive
surrounding

tax

trust
the

entitled
a

be

inception

the

Although

established

of

imposition

constructive

liens.

must

to

the

trust

of

could

not

“[o]rdinarily,
from

transaction

a

a

circumstances
and

not

from

subsequent events,” Wimmer, 287 Md. at 672 (citing Annapolis v.
W.

Anna.

Fire

&

Imp.

Co.,

264

Md.

729,

constructive trust is an equitable remedy.

737

(1972)),

a

Subsequent events

may be relevant only to the extent that they reflect the intent
of

the

parties

establishment

of

at
a

the

time

constructive

of

the

trust,

transaction
but

the

for

the

constructive

trust itself is not established before it is imposed by a court.
Accordingly, a constructive trust is not choate prior to the
entry of judgment.

See Blachy v. Butcher, 221 F.3d 896, 904-06

(6th Cir. 2000) (distinguishing cases that “fail to explain how a
constructive trust that is judicially imposed after the filing

available to redress unjust enrichment, however, and the
imposition of a constructive trust “is no longer limited to
misconduct cases.”
Wash. Suburban Sanitary Comm’n v. Utils.,
Inc. of Md., 365 Md. 1, 39 (2001).
21

of

a

federal

tax

lien

can

retroactively

meet

the

federal

standard of ‘choateness,’ thus priming the lien” and holding
that “a judicially-created equitable remedy cannot be applied
retroactively

to

defeat

a

choate

federal

tax

lien”).

Additionally, if a constructive trust could relate back to the
date of the transaction under Maryland law, it would be barred
by § 301.6323(h)-1(a)(2).

BONY relies on Restivo, in which the

Fourth Circuit held that a lender acquired a protected security
interest prior to notice of federal tax liens under the Maryland
doctrine of equitable conversion.

772 F.3d at 177 (holding that

“a lender’s equitable interest in secured property is superior
to the interest of subsequent judgment lienholders” (emphasis
added)

(citing

Taylor

Elec.

Co.

v.

First

Mariner

Bank,

191

Md.App. 482, 503 (2010)); accord Taylor Elec. Co., 191 Md.App.
at 504 (“The overwhelming weight of authority is that once a
bona fide purchaser or lender for value acquires title by way of
execution

of

a

contract

purchaser

or

mortgagee

for

sale

takes

title

subsequent lien.” (emphasis added)).
not

have

a

valid

mortgage

or

a

or

valid

free

and

mortgage,

the

clear

any

of

Here, however, BONY did

protected

security

interest

against the entire Property when the tax liens were assessed.
As discussed above, BONY had a protected interest only as to Mr.
Ashley’s 50% interest in the Property, and recognition of that
interest

does

not

require

the
22

imposition

of

a

constructive

trust.

Finally,

proper

to

impose

considering
a

the

constructive

equities,
trust

while

between

it

BONY

may
and

be
the

Ashleys, the United States is without fault here, and it would
be unfair to subordinate its choate tax lien by retroactively
creating a constructive trust in favor of BONY.
F.3d at 906.
Count

V

See Blachy, 221

Accordingly, BONY’s motion for summary judgment on

will

be

denied,

and

the

court

will

hold

that

the

imposition of a constructive trust would not affect the first
priority of the federal tax liens against 50% of the Property.
D.
BONY

Equitable Mortgage
also

argues

that

it

is

entitled

to

an

equitable

mortgage enforceable on both Mr. and Mrs. Ashley, despite the
absence of Mrs. Ashley’s name and signature as a grantor on the
Subject DOT, as of the date of the Subject DOT.

(ECF No. 57-1,

at 9-11).
It is well settled in this State, since
Dyson v. Simmons, 48 Md. 207 (1878), that
generally where an instrument intended to
operate as a mortgage fails as a legal
mortgage because of some defect or infirmity
in its execution, an equitable mortgage may
be recognized, with priority over judgments
subsequently obtained.
See also Jackson v.
County Trust Co., 176 Md. 505 (1939); W.
Nat’l Bank of Balt. v. Nat’l Union Bank, 91
Md. 613 (1900); cf. Berman v. Berman, 193
Md. 614 (1949).
The theory underlying the
equitable mortgage doctrine is that an
instrument which is intended to charge
certain
lands,
even
though
defectively
executed, is nevertheless considered to be
evidence of an agreement to convey, and a
23

court
of
equity
should
enforce
the
obligation despite the technical defects in
the instrument.
Lubin

v.

Klein,

232

Md.

369,

371

(1963).

“[A]

defective

instrument should be treated as an equitable mortgage when the
intent

of

the

parties

is

obvious.”

Taylor

Elec.

Co.,

191

Md.App. at 498 (citing W. Nat’l Bank of Balt., 91 Md. at 621).
BONY has not shown that it is entitled to an equitable mortgage
under local law.7

7

Although it is not necessary to decide here whether an
equitable mortgage is established upon payment because the
doctrine of equitable mortgage does not apply, the application
of state equitable principles to create an equitable mortgage
may also be barred by 26 C.F.R. § 301.6323(h)-1(a)(2).
The
Fourth Circuit noted in Restivo that:
federal courts have often invoked equitable principles
of state law when applying § 6323(h)(1)(A).
See [In
re] Haas, 31 F.3d [1081,] 1091 [(11th Cir. 1994)]
(holding
that
state
equitable
principles
would
retroactively
reinstate
an
erroneously
released
mortgage but that those principles were nonetheless
barred by Treas. Reg. § 301. 6323(h)–1(a)(2)’s
prohibition against relation back); Regions Bank [v.
United States, No. 3:12-cv-21], 2013 WL 635615, at *2–
3 [(E.D.Tenn. Feb. 20, 2013)] (same); Bank of N.Y.
Mellon Trust [v. Phipps, No. L-10-1271], 2011 WL
1322393, at *2–3 [(D.Md. Apr. 1, 2011)] (assuming
arguendo
that
state
equitable
principles
would
retroactively impose an equitable mortgage where a
deed of trust accidentally omitted the name of a
purchaser, but holding that those principles were
barred by Treas. Reg. § 301.6323(h)–1(a)(2)).”).
772 F.3d at 180.
Thus, even if judgment could be entered for
BONY on its claim for an equitable mortgage, the equitable
relief would affect only its relationship with the other
defendants and not the priority of its security interest in
relation to the federal tax liens.
24

Maryland law provides:
grantor

the

“Any deed containing the names of
a

and

grantee,

description

of

the

property

sufficient to identify it with reasonable certainty, and the
interest or estate intended to be granted, is sufficient, if
executed,
Code,

acknowledged,

Real

Prop.

and,

where

required,

§4-101(a)(1).

It

is

recorded.”

undisputed

that

Md.
the

Subject DOT did not contain Mrs. Ashley’s name as a grantor and
was not executed by her.
technical

defect,

recognized.

and

BONY argues that this exclusion is a
that

an

equitable

mortgage

may

be

It relies on Taylor Electric Co., in which the

Court of Special Appeals of Maryland established an equitable
mortgage where the deed of trust did not include the required
property description because the intent of the parties to convey
the property via the deed of trust was obvious.
499-501.

191 Md.App. at

An equitable mortgage cannot be created where the

person who executed the mortgage did not have the legal power to
do

so,

however.

Lubin,

232

Md.

at

372

(“[T]he

equitable

mortgage doctrine must be limited to situations where the person
who executed the mortgage had the legal power to do so, and
cannot be extended to cure mortgages which have been executed by
persons with no legal authority.”); see also Wilkinson, 186 B.R.
at 189.

As previously noted, BONY does not dispute that at the

time Mr. Ashley executed the Subject DOT, he held the Property
in tenancy by the entirety with Mrs. Ashley and did not have the
25

power to convey an interest in or encumber the Property alone.
Accordingly, Mr. Ashley did not have the legal power to execute
the Subject DOT and an equitable mortgage cannot be created.
BONY’s motion for summary judgment on its equitable mortgage
claim will be denied.
IV.

Conclusion
For the foregoing reasons, the motions for partial summary

judgment filed by BONY and the United States will be denied in
part and granted in part.
valid mortgage.

BONY will be subrogated to its prior

Accordingly, the Property is subjected to a

first-priority equitable lien of $405,450.06 in favor of BONY.
To the extent the value of the property exceeds this amount, the
United

States’

federal

tax

lien

of

$428,227.50

against

Mrs.

Ashley is next in priority as to her former 50% interest in the
Property.

After

its

first-priority

equitable

lien

of

$405,450.06, BONY has no interest in Mrs. Ashley’s former 50%
interest

in

the

Property.

As

to

Mr.

Ashley’s

former

50%

interest in the Property, the $69,549.94 remainder of BONY’s
$475,000 lien is second in priority, and the United States’
federal tax lien of $428,227.50 against Mr. Ashley would be
third in priority.

A separate order will follow.

/s/
DEBORAH K. CHASANOW
United States District Judge
26