Bank of America, N.A. v. Diamond Financial, LLC

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14-P-1315 Appeals Court

BANK OF AMERICA, N.A.1 vs. DIAMOND FINANCIAL, LLC.

No. 14-P-1315.

Suffolk. June 12, 2015. - October 20, 2015.

Present: Cohen, Green, & Trainor, JJ.

Subrogation. Mortgage, Priority, Junior lien. Jurisdiction,
Equitable. Land Court.

Civil action commenced in the Land Court Department on
December 22, 2011.

The case was heard by Judith C. Cutler, J., on motions for
summary judgment.

George E. Sousa for the defendant.
Howard S. Goldman for the plaintiff.

TRAINOR, J. Bank of America (BOA), the plaintiff, brought

suit against Diamond Financial, LLC (Diamond),2 seeking equitable

1
Successor by merger to BAC Home Loans Servicing, L.P.,
formally known as Countrywide Home Loans Servicing.
2
There were other named defendants initially. Two of the
defendants defaulted and a third did not file any papers
2

subrogation of a mortgage it holds on property located at 18

Eastwood Road, in the town of Shrewsbury. The parties filed

cross motions for summary judgment. In granting the plaintiff's

summary judgment motion, the judge found that BOA "is entitled

to be equitably subrogated to the priority position" for

$330,368.29 of the previously recorded mortgage, which was

discharged. The defendant, Diamond, appeals.

Background. We review the relevant undisputed facts.

Milton J. Miranda and Solange D. Miranda purchased a property in

Shrewsbury on July 31, 2002. The purchase was financed for the

most part with a mortgage loan from Moneyone Corporation. On

August 24, 2004, the Mirandas refinanced with a $336,150

mortgage loan from Argent Mortgage Company, LLC (Argent).3 This

mortgage was recorded.

On or about June 28, 2006, the Mirandas borrowed $50,000

from the defendant and granted the defendant a mortgage on the

Shrewsbury property and on a property in the city of Worcester.4

On September 29, 2006, the Mirandas refinanced the Argent

mortgage with a mortgage loan of $344,000 from Equity Advantage

regarding the motions for summary judgment. The only original
defendant involved in this appeal is Diamond Financial, LLC.
3
The parties agree this mortgage was assigned to the
Mortgage Electronic Registration System shortly thereafter.
4
In addition, the mortgage and security agreement included
as collateral various personal property held at both properties.
3

(Equity). As part of the refinancing, $330,368.29 of the Equity

loan was used to pay the full balance of the Argent mortgage.

The Equity mortgage was recorded on October 12, 2006, and the

discharge of the Argent mortgage was recorded on October 30,

2006. The closing of the Equity mortgage was conducted by a

closing attorney and Closeline, LLC. The Diamond mortgage was

not identified during the refinancing process and Equity did not

enter into a subrogation agreement. The closing attorney issued

a title insurance policy through TICOR Title Insurance Company

(TICOR).

There is no evidence that Diamond learned of the change in

the record order of liens prior to this action. There also is

no evidence that Diamond extended additional credit or changed

the terms of its loan to the Mirandas at any time after the

initial loan. BOA is the current holder of the Equity mortgage.

BOA began foreclosure proceedings due to the Mirandas' default,

but stopped the proceedings when the Diamond mortgage was

discovered.

Discussion. The defendant's underlying argument appears to

be that the plaintiff is barred from receiving an equitable

subrogation because BOA could make a title insurance claim, and

therefore has a remedy at law.5

5
Diamond also argues that the action does not contain a
real party in interest, because BOA's title insurance company is
4

Over the long history of our equity jurisprudence the

general rule has maintained a limitation on the exercise of

equity jurisdiction if an adequate remedy existed at law. Prior

to 1857, the equity jurisdiction of the Supreme Judicial Court

consisted of specified topics, each of which were generally

qualified by the phrase "when the parties have not a plain,

adequate, and complete remedy at the common law." Acts of 1817,

c. 87, and Revised Statutes 1836, c. 81, § 8. When full equity

jurisdiction was given to the Supreme Judicial Court in 1857, it

was expressly limited to matters "where there is not a full,

adequate and complete remedy at law." Acts of 1857, c. 214.

This limitation upon equity jurisdiction was removed in 1877 but

a similar limitation was retained in 1882 for specific equity

cases enumerated in the statute. Compare Acts of 1877, c. 178,

involved in prosecuting the claim. BOA is the named party who
has a real interest in the litigation. See Mass.R.Civ.P.
17(a), 461 Mass. 1401 (2011) ("every action shall be prosecuted
in the name of the real party in interest"). There is no merit
to the defendant's argument that this action is missing a real
party in interest. Diamond also seems to argue that it is a
violation of the title insurance policy for the plaintiff's
title insurance company to assist with litigating this case.
This argument also lacks merit. Even assuming the policy did
not allow TICOR to assist with litigation, but see GMAC Mort.,
LLC v. First Am. Title Ins. Co., 464 Mass. 733, 743 (2013)
("initiating suit to cure a title defect is generally an option
available to the title insurer under a standard title insurance
contract"), the defendant has no right to enforce the terms of
the title insurance policy. See James Family Charitable
Foundation v. State St. Bank & Trust Co., 80 Mass. App. Ct. 720,
724 (2011) ("an incidental beneficiary obtains no right to
enforce the contract").
5

§ 1, with Public Statutes of 1882, c. 151, § 4. See Public

Statutes of 1882, c. 151, § 2. The 1882 act employed particular

topics of jurisdiction that are still employed in G. L. c. 214,

§ 3. The limiting language is no longer included in the

statute. See G. L. c. 214, § 3.6 However, after the limiting

language in the statute was removed, there was still a

continuing limitation expressed in our case law. When a remedy

at common law is full, adequate, and complete, "a party is still

remitted to the law court, unless a remedy in equity is given

expressly by statute." Maguire v. Reough, 238 Mass. 98, 99

(1921). See Jones v. Newhall, 115 Mass. 244, 251 (1874). This

limitation is grounded in the fundamental right to a trial by

jury guaranteed by our State Constitution. See Proctor v.

MacClaskey, 278 Mass. 238, 242 (1932).

It has been generally held that Massachusetts courts have

no inherent equitable authority and, since their creation,

6
Chapter 178 of the Acts of 1877 provided that, "The
[S]upreme [J]udicial [C]ourt shall have jurisdiction in equity
of all cases and matters of equity, cognizable under the general
principles of equity jurisprudence; and in respect of all such
cases and matters, shall be a court of general equity
jurisdiction" (original and concurrent jurisdiction in the
Superior Court was added by the Acts of 1883, c. 223, § 1).
This enactment would seem to confer an unlimited and
unrestricted jurisdiction except for the principles inherent in
equity jurisprudence.
6

exercise purely common law authority.7 Any equitable power they

may exercise is because of an express grant of such power by the

terms of a statute. Our courts have generally employed this

restrictive method of interpretation and have limited even

express grants of equitable authority to situations where there

is no "plain, adequate and complete remedy at law."8 Cadigan v.

Brown, 120 Mass. 493, 494 (1876). See Black v. Black, 4 Pick.

234 , 237-238; (1826); Bowditch v. Banuelas, 1 Gray 220, 228

(1854); Jones v. Newhall, supra; and Suter v. Matthews, 115

Mass. 253, 255 (1874).

Since the merger of the procedure for bringing suits in

equity and at law in 1974, some of our modern authorities have

determined that, "[a]s a practical matter today, the adequacy of

a remedy at law is anachronistic because of the merger of law

and equity. All actions, whether formerly at law or in equity,

are commenced as civil actions in a uniform manner." Nolan &

Sartorio, Equitable Remedies § 4.18 (3d. ed. 2007). See

7
See Parker v. Simpson, 180 Mass. 334, 350 (1902) (" . . .
although up to the time of the adoption of the constitution the
common law courts were given certain powers to chancer bonds and
to relieve against the foreclosure of mortgages, there never was
in actual operation in the colony or province a court of
chancery.")
8
For example, the power to decree the specific execution of
a written contract was given by specific legislative grant of
statutory authority. See Revised Statutes of 1873, G. L.
c. 113, § 2 (now G. L. c. 214).
7

Mass.R.Civ.P. 2, 365 Mass. 733 (1974). The Reporter's Notes to

rule 2, however, emphasize that "'[m]erger' of [l]aw and

[e]quity, refers only to the procedure involved, i.e., the

manner of framing and trying the issues, and the type of relief.

'Merger' does not alter the traditional substantive distinctions

between legal and equitable remedies. Although the once

separate procedures have been merged, the right to equitable

remedies still exists; now, however, a party may seek legal and

equitable relief simultaneously."9 We are reminded that even in

our desire and enthusiasm for ease and simplicity of practice

and procedure, "[t]he controlling reason why the boundaries of

general equity jurisdiction ought not to be widened by judicial

decision beyond those indicated by established principles, is

that the constitutional right of trial by jury would thereby

9
The reporter is not unique in this observation. "The
reformed procedure, in its abolition of all distinction between
actions at law and suits in equity; in its abrogation of the
common law forms of action, and its institution of one 'civil
action' for all remedial purposes . . . was not intended to
affect, and does not affect, the differences which have
heretofore existed, and still exist, between the separate
departments of 'law' and 'equity.'" The reformed procedure "was
not intended to affect and does not affect, the settled
principles, doctrines, and rules of equity jurisprudence and
equity jurisdiction." Pomeroy, Equity Jurisprudence, § 354 (4th
ed. 1918).
8

become correspondingly narrowed." Parkway, Inc. v. United

States Fire Ins. Co., 314 Mass. 647, 651 (1943).10

Notwithstanding this limitation on the exercise of equity

jurisdiction in our common law, commentators have long

maintained that "exclusive equitable jurisdiction, or the power

of the courts to adjudicate upon the subject matters coming

within that jurisdiction, exists independently of the adequacy

or inadequacy of the legal remedies obtainable under the

circumstances of any particular case." Pomeroy, Equity

Jurisprudence, § 218 (4th ed. 1918). Pomeroy maintains that

exclusive equity jurisdiction exists in the areas of equitable

10
While the incidence of appellate review and discussion of
this issue has significantly decreased since the change to our
rules of civil procedure in 1974, our cases continue to suggest
that an adequate remedy at law is still a material consideration
when considering equitable relief. See, e.g., Foster v. Evans,
384 Mass. 687, 694 (1981) ("In cases involving fraudulent
conveyances, attempts to levy upon an execution are particularly
likely to prove futile. . . . We hold, therefore, that a
plaintiff who has obtained a judgment at law against a debtor,
and who alleges that the judgment cannot be satisfied because
the debtor has fraudulently transferred his assets to a third
party, has stated a case which is cognizable under the general
principles of equity jurisprudence. Since the plaintiff here
has no adequate remedy at law, he is entitled to the equitable
relief he seeks"); Frank J. Linhares Co. v. Reliance Ins. Co., 4
Mass. App. Ct. 617, 619 (1976) ("It is a fundamental principle
that, in the absence of a statute specifically conferring equity
jurisdiction, a party may not seek in equity what he could
obtain in an action at law. Otherwise the defendants' right to
trial by jury might be infringed. [The plaintiff's] bill, while
lacking in detail, alleged sufficient facts against [one of the
defendants] to state a common law cause of action in tort for
negligence. Having an adequate remedy at law against [that
defendant], [the plaintiff] could not resort to equity").
9

estates, mortgages, and liens: specifically in the context of

"[s]ubstituted [l]iens" (subrogation). See Pomeroy & Symons,

Equitable Jurisprudence, § 719a (5th ed. 1941). At least one of

our appellate decisions agrees that some plaintiff rights are

purely equitable in nature and the existence of an adequate and

complete remedy at law is irrelevant. See Boston v.

Santosuosso, 298 Mass. 175, 180 (1937). As a practical matter

however, this claim of exclusive jurisdiction is neither

incompatible nor inconsistent with our application of equitable

remedies only in the absence, or inadequacy, of an available

legal remedy. It is with this history and these considerations

in mind that we address the argument made by the defendant in

this case.

Massachusetts courts have long exercised broad powers over

mortgages including the power of equitable subrogation.11 "It is

the general rule that, where a mortgage has been discharged by

mistake, equity will set the discharge aside and reinstate the

mortgage to the position the parties intended it to occupy,

where the rights of intervening lienors have not been affected."

North Easton Co-op. Bank v. MacLean, 300 Mass. 285, 292 (1938).

11
The Land Court has jurisdiction over this action because
it has "original jurisdiction concurrent with the [S]upreme
[J]udicial [C]ourt and the [S]uperior [C]ourt of . . . [a]ll
cases and matters cognizable under the general principles of
equity jurisprudence where any right, title or interest in land
is involved." G. L. c. 185, § 1(k).
10

Cf. Bates v. Boston Elev. R.R. Co., 187 Mass. 328, 341 (1905)

("The court of law has no jurisdiction to inquire into and

adjust the equitable rights, if any, between the several

mortgagees where the mortgage debts are also secured by liens on

other funds. If such rights exist they must be enforced by a

court of general equity jurisdiction"). Subrogation allows "the

substitution of one person in place of another . . . so that he

who is substituted succeeds to the rights of the other."

Provident Co-op. Bank v. James Talcott, Inc., 358 Mass. 180, 188

(1970), quoting from Jackson Co. v. Boylston Mut. Ins. Co., 139

Mass. 508, 510 (1885).

While equitable subrogation has no specific statutory

authority for its application, see G. L. c. 214, § 3, a review

of our appellate cases, well into the early part of the last

century and the later part of the previous century, involving

the subrogation of mortgages applied equitable principles even

when a legal remedy was available as it was in each of those

cases.12

12
See, e.g., Worcester N. Sav. Inst. v. Farwell, 292 Mass.
568, 573-574 (1935) (subrogation was allowed for the new bank
where plaintiff's attorney examined the title to the premises
and presented it with a written certificate as to the state of
the title, which did not mention the junior lien); North E. Co-
op. Bank v. MacLean, 300 Mass. at 289 (original first mortgagee
had a title examiner who "certified to it that the new mortgage
. . . would be a first lien on the property" but was allowed to
return to first position under principles of equity); Provident
Co-op. Bank v. Talcott, Inc., supra at 184 (allowing intended
11

While being mindful of the general rule that equity can

retain jurisdiction only in cases where there is no "plain,

adequate and complete remedy at law," Cardigan v. Brown, 120

Mass. at 494, our courts have consistently applied equitable

principles to actions involving mortgages generally and

specifically to actions requesting equitable subrogation. The

exercise of equity jurisdiction in these cases appears to have

been unlimited except for application of the limiting principles

inherent in our equity jurisprudence. See East Boston Sav. Bank

v. Ogan, 428 Mass. 327, 328-332 (1998). Our courts have always

applied equitable subrogation even though a remedy at law has

also always been available. The issue in this situation is the

adequacy and appropriateness of the legal remedy. The equitable

remedy sought is fundamentally different than any potential

remedy at law and is the only remedy capable of providing

complete justice in the situation. Here, the availability of a

remedy at law becomes immaterial, because it is inadequate and

inappropriate to resolve the issue fairly to all parties.13

senior lien holder declared as such even when the current lien
holder was the attorney's mother who paid the mortgage to avoid
a claim against her son's "errors and omission liability
insurer").
13
See Noyes v. Bragg, 220 Mass. 106, 109 (1915) ("The
objection that the plaintiff had an action at law to recover
damages for breach of agreement does not deprive equity of its
jurisdiction to compel specific performance of the contract");
Boston v. Santosuosso, 298 Mass. at 180 ("The city of Boston, in
12

Additionally, a legal remedy in the form of money damages

would not restore the plaintiff to its rightful senior position.

Any proposed legal remedy would also result in the unjust

enrichment of a junior interest because of the potential

unjustified windfall it would receive by advancing to the

priority position. Subrogation of a mortgagee, as an equitable

remedy, was always intended to prevent a person, in this case a

junior interest, from receiving an unearned windfall at the

expense of another person, who represents the rightful priority

interest. See Restatement (Third) of Property (Mortgages) § 7.6

comments a & f(1997). The existence of a remedy at law is

irrelevant unless it provides a plain, adequate and complete

remedy to the issues confronting the parties. Here, only an

its brief, points out that the bill of complaint does not seek
an equitable remedy for the protection of a legal right, but, as
the beneficiary of a trust, seeks to have the trustees who
received the legal title to the res of the trust [a fund of
$50,000] perform the trust. The right of the city of Boston as
a cestui que trust is preeminently an equitable right, and it
arose as soon as the agreement was made and the fund was
received by its mayor. When the fund was received under the
agreement by the mayor the defendants held the legal title in
trust to pay it over to the city of Boston. The trust
obligation was not performed by holding the fund, dissipating
the fund or converting the fund into a substituted res. The
right of the plaintiff is a pure equitable right, and it is
immaterial that it may have also a plain, adequate and complete
remedy at law. . . . This court said in Wilkinson v. Stitt, 175
Mass. 581, 583, [1900], . . . 'we have never supposed that the
fact that an action for the money had and received would lie at
law was sufficient to oust the jurisdiction of the court in
equity to compel the delivery of the money . . . [if] the
cestuis que trust elected to proceed in that court'").
13

equitable subrogation could make the plaintiff whole without

also creating an unjust enrichment. Furthermore, the

plaintiff's remedy at law is against another third party. The

plaintiff has no legal remedy against the defendant. The

decision of the Land Court judge also satisfied the requirements

of equity jurisprudence in order to apply an equitable

subrogation.

In East Boston Sav. Bank v. Ogan, 428 Mass. 327, 330

(1998), quoting from Mort v. United States, 86 F.3d 890, 894

(9th Cir. 1996), the Supreme Judicial Court adopted five factors

that must be determined before equitable subrogation can be

applied. These five factors are:

"(1) the subrogee made the payment to protect his or her
own interest, (2) the subrogee did not act as a volunteer,
(3) the subrogee was not primarily liable for the debt
paid, (4) the subrogee paid off the entire encumbrance, and
(5) subrogation would not work any injustice to the rights
of the junior lienholder."

In addition, "[t]he court must also examine the actions of the

subrogee." Id. at 331. "The subrogee's behavior is an

important consideration that the court must balance in its

equitable analysis of the interests of both mortgages." Id. at

332. However, the subrogee's negligence or lack of diligence
14

does not bar recovery and is only a material consideration when

the intervening lienholder has been prejudiced.14 See ibid.

Here, the judge appropriately found that the equities in

this case supported applying an equitable subrogation. There

was no evidence noted by either party indicating that Diamond

learned of the change in priority and changed its position based

upon that knowledge. As the judge correctly concluded, lack of

diligence or a mistake by the subrogee is only material if there

is evidence that the junior lienholder was prejudiced. See id.

at 332.

Finally, the judge ensured that the priorities in applying

equitable subrogation were accomplished. See id. at 330 ("A

court applying equitable subrogation must ensure that the

intervening mortgagee is not unjustly enriched by succeeding to

first priority, but it also must ensure that the intervening

mortgagee does not receive a lower priority as a result of the

subrogee's mistake"). BOA was not equitably subrogated for the

full value of the loan it acquired. Instead, only the portion

14
Under the Restatement (Third) of Property (Mortgages)
§ 7.6 comment e (1997), subrogation can be granted even in the
presence of actual or constructive knowledge of the intervening
interest, because notice is not necessarily relevant. The
expectation of securing the same priority as the mortgage being
paid is the relevant consideration. See id at 331 (subrogation
is allowed where actual or constructive knowledge exists and
equity will determine if subrogation is inappropriate under the
circumstances).
15

of the Equity loan proceeds that were used to pay off the Argent

mortgage were moved to the first position. As a result, BOA was

neither unjustly enriched by succeeding to first priority nor

was Diamond placed in a position of lower priority.

Judgment affirmed.