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Eastern Savings Bank, FSB v. Pappas

August 14, 2003


Appeal from the Superior Court of the District of Columbia (CA9061-00) (Hon. Susan R. Winfield, Trial Judge)

Before Steadman, Schwelb, and Ruiz, Associate Judges.

The opinion of the court was delivered by: Schwelb, Associate Judge

Argued April 22, 2003

Eastern Savings Bank (Eastern) brought this action for a declaratory judgment to determine the priority of secured interests in real property as between Eastern's Deed of Trust securing the payment of an indebtedness owed to Eastern by Vasiliki Pappas and a lien based on an earlier judgment against Vasiliki Pappas in favor of three judgment creditors. The trial court granted summary judgment in favor of the judgment creditors. On appeal, Eastern contends that its lien is entitled to priority over the creditors' lien pursuant to the doctrine of equitable subrogation. We agree, reverse, and remand.


In June 1980, Aphrodite Pappas, who was the owner of certain real property at 2507 33rd Street, N.W. in Washington, D.C., conveyed that property to Vasiliki Pappas in fee simple. Soon thereafter, Aphrodite Pappas died, leaving three children as heirs. *fn1 Vasiliki Pappas was named personal representative of Aphrodite Pappas' estate. In 1986, however, the Probate Court removed Vasiliki Pappas as personal representative on account of numerous improprieties on her part in exercising her fiduciary responsibilities. On April 18, 1990, Vasiliki Pappas executed a deed of trust on the 33rd Street property to secure a loan made to her by CitiBank Federal Savings Bank in the amount of $159,000.00 which was duly recorded.

In 1992, and again in 1996, the successor personal representative of Aphrodite Pappas' estate obtained judgments against Vasiliki Pappas in the Superior Court for breach of fiduciary duty. Each judgment was against Vasiliki Pappas personally, and not against her in her capacity as p ersonal representative. These judgments were duly recorded in the land records, and they became effective as judgment liens against all real property titled in the name of Vasiliki Pappas. D.C. Code §15-102 (a) (2001).

Meanwhile, Vasiliki Pappas' financial difficulties continued, and by 1998, she was in serious default on the CitiBank Deed of Trust. CitiBank instituted foreclosure proceedings. On November 3, 1998, Vasiliki Pappas secured a loan from Eastern which had the effect of refinancing the earlier CitiBank loan, and she duly executed a promissory note in the amount of $168,000.00 payable to Eastern, $153,800.00 of which was used to discharge the earlier CitiBank loan. This note was secured by a new Deed of Trust of the same date. *fn2

Certified Title Corporation (Certified) performed a title search on the property on behalf of Eastern in connection with the refinancing of the Vasiliki Pappas indebtedness. Certified discovered the first judgment, which had been secured by the Successor Representative of the E state of Aphrodite Pappas against Vasiliki Pappas in the amount of $3,461.12. Certified mistakenly understood, and incorrectly represented to Eastern, that this judgment had been entered against Vasiliki Pappas solely in her capacity as the former Personal Representative of Aphrodite Pappas' estate. A duly recorded judgment against Vasiliki Pappas in the amount of $62,397.76, which had been entered by the Probate Division of the Superior Court in 1992, apparently was not discovered, or, at least, not related to Eastern, during the initial title search. The title examinations were performed by an independent abstractor retained by Certified, and Eastern did not receive any title documents which would have imparted actual knowledge of any judgment beyond the one for $3,461.12. *fn3

Soon after executing the promissory note and Deed of Trust in favor of Eastern, Vasiliki Pappas defaulted on the Eastern loan. As CitiBank had done following Vasiliki Pappas' earlier default, Eastern instituted foreclosure proceedings. In connection with these proceedings, counsel for Eastern caused the title to be examined, and Eastern then actually learned for the first time that the judgment in favor of the heirs was against Vasiliki Pappas individually, and not in her capacity as Personal Representative of Aphrodite Pappas' estate. *fn4 It was also at this time that Eastern learned the full amount of Vasiliki Pappas' total judgment debt.

In March 1999, sixteen years after the death of Aphrodite Pappas, the Probate Court ordered the distribution to the heirs of p ortions of the judgments secured by the Successor Personal Representative against Vasiliki Pappas. On December 19, 2000, Eastern brought suit against the heirs, claiming that its lien was superior to their judgment liens under the principle of equitable subrogation. Eastern and the judgment creditors filed cross-motions for summary judgment.

On December 30, 2001, in an eight-page order, the trial court granted the heirs' motion for summary judgment and denied Eastern's motion for the same relief. C iting, inter alia, Associated Fin. Servs. of America v. District of Columbia, 689 A.2d 1217 (D.C. 1997), the judge wrote that "the common law principle of 'first in time, first in right' governs competing creditors' claims against a property in the absence of an exception." She noted that the only statutory exception in the District is D.C. Code § 15-104 (2001), which provides that

[t]he lien of a mortgage or deed of trust upon real property, given by the purchaser to secure the payment of the whole or any part of the purchase money, is superior to that of a previous judgment or decree against the purchaser. *fn5

The judge raised, but found it unnecessary to resolve, the issue whether this statutory exception should be extended by the court to a lender like Eastern, who provides refinancing to the borrower by paying off and retiring a prior indebtedness. Relying on Associated Fin. Servs., 689 A.2d at 1222, and on Clay Properties v. Washington Post Co., 604 A.2d 890, 895 (D.C. 1992) (en banc), the judge determined that "a crucial question in deciding the competing interests of lienholders and creditors is notice." The judge went on to hold that because the judgments were recorded Eastern "was on inquiry notice of the judgment against Vasiliki Pappas," that Eastern "did not acquire creditor status for value without notice," and ...

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