The Bank of New York Mellon v. Ashley et al
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
Civil Action No. DKC 14-2914
HOLLY G. ASHLEY, et al.
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
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
The issues have been briefed and the court now rules,
no hearing being deemed necessary.
Local Rule 105.6.
following reasons, both motions will be granted in part and
denied in part.
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
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
(See ECF No. 63-2).
Both Mr. and Mrs. Ashley
were signatories to the Prior Loan, which paid off an existing
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.
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
Disbursement of the proceeds went to pay off the Prior
DOT, in the amount of $405,450.06.
(ECF No. 57-6).
- but not Mrs. Ashley – was identified as a grantor on the
Ashley executed on July 14.
(ECF No. 63-3).
The Subject DOT
was recorded on December 21, 2005.
(Id. at 1).
BONY is 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
(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).
5, 2012, the United States filed Notices of Federal Tax Liens in
assessed on December 12, 2011, as to Mr. and Mrs. Ashley.
Finally, on December 21, 2012, the Ashley Family
Trust conveyed the Property to Mr. Ashley by recorded quitclaim
(ECF No. 57-12).
BONY filed this action requesting that the court determine
the priority of liens against the Property on September 12,
(ECF No. 1).
on October 29, 2015.
The operative amended complaint was filed
(ECF No. 43).
(1) Mr. and Mrs. Ashley; (2) CitiFinancial, Trustee
The six-count amended
All references to BONY refer either to WMC Mortgage at the
relevant time or to Plaintiff BONY when it was the successor of
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)
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
determine the owner of the Property and hold that the Subject
signature of Mrs. Ashley (Count IV); to obtain a constructive
mortgage against the Property as of July 13, 2005 (Count VI).
(ECF No. 43).
CitiFinancial, Trustee Nancy J. Liberto, and Trustee Betty Lou
directed in the summonses and as provided by the Federal Rules
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
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).
On March 14, 2016, the court denied the
States’ tax liens.
Mr. and Mrs. Ashley answered the amended
complaint on June 23.
(ECF No. 72).
In their answer, they
The State of Maryland issued state tax liens against Mr.
and Mrs. Ashley in the amounts of $127,711 and $19,942.
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.
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).
establishing that the Subject DOT is the first-priority lien on
December 21, 2015 (ECF No. 47), and filed the instant motion for
Plaintiff filed its cross motion for partial summary judgment on
(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).
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
Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322
(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.”
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,
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.
“A mere scintilla of proof . . . will not suffice to
prevent summary judgment.”
(4th Cir. 2003).
Peters v. Jenney, 327 F.3d 307, 314
“If the evidence is merely colorable, or is not
Liberty Lobby, 477 U.S. at 249–50 (citations omitted).
words, a “party cannot create a genuine dispute of material fact
through mere speculation or compilation of inferences.”
Shalala, 166 F.Supp.2d 373, 375 (D.Md. 2001) (citation omitted);
see Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d 514,
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.
court, the court examines each motion separately, employing the
familiar standard under Rule 56 of the Federal Rules of Civil
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).
opposes the United States’ motion and cross moves for summary
(Constructive Trust), and Count VI (Equitable Mortgage) of the
(ECF No. 57).
BONY argues that it enjoys a
first-priority lien against 50% of the Property pursuant to the
should enjoy a first-priority lien as the remaining 50% of the
Property under equitable doctrines.
which are created pursuant to 26 U.S.C. § 6321 et seq.
v. United States, 363 U.S. 509, 512 (1960); Collier v. United
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
contrary, priority for purposes of federal law is governed by
the common-law principle that ‘the first in time is the first in
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
creditor until notice thereof which meets the requirements of
subsection (f) has been filed by the Secretary.”
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
United States v. 3809 Crain Ltd. P’ship, 884 F.2d 138,
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.
There is a
A security interest exists at any time (A)
if, at such time, the property is in
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.
Subject DOT, executed on July 13, 2005, predates the federal tax
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:
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
against the other half of the property, absent equitable relief,
but disagree as to the reason for this priority.
Mr. Ashley’s 50% Interest in the Property
protected security interest as to Mr. Ashley’s 50% interest in
the Property when he executed the Subject DOT.
(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.
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
following pertinent incidents: the husband
and wife take the tenancy by the entireties
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.
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).
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.
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.
Upon the execution of the Trust DOT
interest in the Property as tenants in common, and each could
interest then became protected under local law pursuant to the
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
after-acquired property doctrine as to the 50% of the Property
that Mr. Ashley could encumber on June 5, 2007.
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
deed. . . . [T]he
inurement as soon as it is acquired by the grantor[.]”).
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.
Mrs. Ashley’s 50% Interest in the Property
protected then remains as to the other 50% of the Property.
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
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
at the time that the Property was held in the Ashley Family
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.
federal tax liens.
Therefore, the tax liens attached when they
See United States v. Bond, 279 F.2d 837, 841 (4th
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
Accordingly, BONY and the United States each would
application of 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).
Count II of the amended complaint seeks a determination
that BONY holds a first-priority lien by reason of equitable
(ECF No. 43 ¶¶ 28-30).
In its motion for partial
equitable subrogation relied on a relation back theory and was
barred by Treasury Regulation § 301.6323(h)-1(a)(2).
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[.]”
subrogation is not available under local law.
(ECF No. 63, at
subrogation, see Hill v. Cross Country Settlements, LLC, 402 Md.
281, 311 (2007), although only legal subrogation is at issue
“Broadly defined, subrogation is the substitution of one
person in the place of another with reference to a lawful claim
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.”
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).
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
(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
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.
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
(See ECF Nos. 63-2; 57-8).
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
Milholland v. Tiffany, 64 Md. 455, 455 (1886) (“Where money has
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)).
paid the Ashleys’ debt to protect its own interests and not as a
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
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
Where a lender has advanced money for the
purpose of discharging a prior encumbrance
equivalent to the discharged lien, and his
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–
Mortgages § 282, at 570 (2d ed. 1970)).
While the instant case
involves priority among lienholders, this issue does not.
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.
The cases on which the United States
knowledge of the invalidity of the security instrument.
Fishman, 433 Md. at 556; Levenson, 338 Md. at 231-32.
notice of an intervening lien or was negligent.
See id.; see
also Rinn, 176 B.R. at 408 (noting that “subrogation is a highly
favored doctrine and expansively applied”).
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
Bierman v. Hunter, 190 Md.App. 250, 257 (2010), abrogation on
other grounds recognized by Thomas v. Nadel, 427 Md. 441 (2012).
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,
prevents the unjust enrichment of the United States, which would
otherwise benefit from BONY’s mistake.5
See Fishman, 433 Md. at
Subrogation places the parties in the same positions
they would have held had the 2005 refinance transaction never
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).
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.
Count V of the amended complaint requests the imposition of
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.
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
The United States also argues that a constructive trust
misrepresentation, or any other wrongful act to obtain its lien
(ECF No. 63, at 6-7).
A constructive trust is
States is not, however, the holder of the property.
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.
subsequent events,” Wimmer, 287 Md. at 672 (citing Annapolis v.
constructive trust is an equitable remedy.
may be relevant only to the extent that they reflect the intent
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
Wash. Suburban Sanitary Comm’n v. Utils.,
Inc. of Md., 365 Md. 1, 39 (2001).
standard of ‘choateness,’ thus priming the lien” and holding
that “a judicially-created equitable remedy cannot be applied
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
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
subsequent lien.” (emphasis added)).
Here, however, BONY did
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
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.
See Blachy, 221
Accordingly, BONY’s motion for summary judgment on
imposition of a constructive trust would not affect the first
priority of the federal tax liens against 50% of the Property.
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,
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
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
executed, is nevertheless considered to be
evidence of an agreement to convey, and a
obligation despite the technical defects in
instrument should be treated as an equitable mortgage when the
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
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).
Fourth Circuit noted in Restivo that:
federal courts have often invoked equitable principles
of state law when applying § 6323(h)(1)(A).
re] Haas, 31 F.3d [1081,] 1091 [(11th Cir. 1994)]
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
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.
Maryland law provides:
“Any deed containing the names of
sufficient to identify it with reasonable certainty, and the
interest or estate intended to be granted, is sufficient, if
Subject DOT did not contain Mrs. Ashley’s name as a grantor and
was not executed by her.
BONY argues that this exclusion is a
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.
191 Md.App. at
An equitable mortgage cannot be created where the
person who executed the mortgage did not have the legal power to
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.
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
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.
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.
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
Ashley is next in priority as to her former 50% interest in the
$405,450.06, BONY has no interest in Mrs. 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.
DEBORAH K. CHASANOW
United States District Judge
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