UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Specialized Loan Servicing, LLC, Appellant

v. Case No. 20-cv-1039-SM Opinion No.

Town of Bartlett, Appellee

O R D E R

Appellant, Specialized Loan Servicing, LLC (“SLS”), filed

an adversary proceeding in the bankruptcy court, seeking to

resolve a dispute with the Town of Bartlett, New Hampshire.

Invoking the court’s equitable authority, SLS asked the

bankruptcy judge to reprioritize liens attached to a parcel of

land and give its mortgage deed priority over a lien that the

Town had recorded prior in time. The bankruptcy court denied

SLS’s request and granted summary judgment in favor of the Town.

SLS appeals that order, asserting that the bankruptcy court

erred.

For the reasons discussed, the challenged order of the

bankruptcy court is affirmed. Background

Edward Furlong, the debtor in the underlying bankruptcy

proceeding, owned property located at 1467 Route 302, Bartlett,

New Hampshire (the “Property”). In April of 2006, Furlong

obtained a loan from Countrywide Home Loans, Inc. in the amount

of $220,000. To secure that loan, Furlong conveyed a mortgage

deed to the Property to Mortgage Electronic Registration Systems

(“MERS”) as nominee for Countrywide (the “2006 Mortgage”). At

the same time, Furlong also obtained a home equity line of

credit in the amount of $27,500, which was secured by a second

mortgage deed to the Property (the “Home Equity Mortgage”).

Both mortgage deeds securing those loans were recorded in the

Carroll County Registry of Deeds on April 28, 2006. About seven

years later, in late 2013, Furlong applied to refinance the 2006

loan through Nationstar Mortgage LLC.

Before beginning the refinancing process, Furlong had been

engaged in protracted and ongoing litigation with the Town over

an alleged zoning violation at a second property he owned in

Bartlett which abuts the Property. That continuing violation

prompted the Town of Bartlett to assess substantial fines

against Furlong. Eventually, on December 19, 2012, the Carroll

County Superior Court ordered Furlong to pay statutory fines

totaling $344,025, with all but $10,000 suspended, provided

2 Furlong corrected the violation within 60 days (the “2012

Order”). Furlong never corrected the violation, and in June,

2013, the Town filed a Petition to Attach, seeking attachment

and judgment lien to secure the court’s order. That petition

was granted and, on December 11, 2013, the Town properly

recorded the Petition to Attach and Order of Attachment in the

amount of $362,000 in the Carroll County Registry of Deeds.

That lien encumbered, among other things, the Property; it was

properly recorded and indexed in Furlong’s chain of title; and

it was discoverable by anyone conducting a title review and

searching Furlong’s name.

Meanwhile, at the start of Furlong’s refinancing process

with Nationstar, on October 29, 2013, the refinancing settlement

agent obtained a title report that (correctly) reflected no

“Judgment/Liens” on the Property. But, as noted above, six

weeks later, on December 11, the Town recorded its attachment in

the Carroll County Registry of Deeds. As of that date, the

Town’s attachment was a third priority lien on the Property,

inferior to both the 2006 Mortgage and the Home Equity Mortgage.

As part of the refinancing process, Nationstar obtained a

copy of Furlong’s credit report. That report notes “serious

delinquency, and derogatory public record or collection filed,”

3 and stated that the “time since delinquency is too recent or

unknown.” That adverse credit report appears to have prompted

no response from Nationstar.

Furlong completed an application for a refinance mortgage

loan from Nationstar in the amount of $201,200. The loan

application disclosed that Furlong owed $199,305.98 on the 2006

Mortgage loan, and $27,500 on the Home Equity Mortgage loan, and

represented that the total amount of liens and encumbrances on

the Property was the sum of those two amounts: $226,805.98.

Furlong’s application did not disclose the Town’s attachment.

An appraisal done at that time valued the Property at $199,000 -

much less than the sum of those (disclosed) encumbrances.

Accordingly, as a condition of the refinance, Nationstar sought

and obtained a subordination of the Home Equity Mortgage to the

mortgage deed that Nationstar would eventually record to secure

Furlong’s repayment obligations (the “Refinanced Mortgage”).

That subordination agreement would allow the Refinanced Mortgage

to have priority over the Home Equity Mortgage and the value of

the security pledged by Furlong would be more closely aligned

with the amount of the loan Nationstar planned to extend to him.

Furlong signed the Refinanced Mortgage on January 3, 2014,

and, on January 8, 2014, the proceeds from the associated loan

4 were used to discharge the 2006 promissory note. The Refinanced

Mortgage was recorded on January 16, 2014, as was the

subordination of the Home Equity Mortgage. On February 4, 2014,

a discharge of the 2006 Mortgage was recorded. Critically,

however, neither Nationstar nor any party acting on its behalf

(or on behalf of the title insurance company) updated the

October 29 title search prior to closing, or upon recording the

Refinanced Mortgage, or upon recording the discharge of the 2006

Mortgage. Nor did Nationstar seek the Town’s agreement to

subordinate its lien on the Property to the Refinanced Mortgage.

Nationstar’s inaction/inattention was costly because, at that

point, the Town’s attachment lien was senior in priority to

Nationstar’s subsequently-recorded Refinanced Mortgage; the

Refinanced Mortgage did not simply assume the lien priority

formerly associated with the 2006 Mortgage. See, e.g., Bank of

Am., N.A. v. Citizens Bank, No. 14-CV-455-PB,

,

at *2 (D.N.H. Dec. 21, 2015) (“When a lien is discharged,

priority rights associated with the lien ordinarily are lost and

the next most senior lienholder succeeds to the priority

position of the lienholder whose lien was discharged.”)

Meanwhile, litigation between the Town and Furlong

continued and the zoning violations remained unabated. In 2015,

the New Hampshire Supreme Court affirmed the 2012 Order

5 compelling Furlong to pay statutory fines to the Town totaling

$344,025. Consequently, on May 26, 2016, the Town recorded an

Execution of Judgment for all amounts due under the 2012 Order,

including costs, attorney’s fees, and interest, for a total of

$396,801.42. Around that time, the Town learned that the 2006

Mortgage had been discharged and that its attachment had

priority over the Refinanced Mortgage. Because the Town’s

attachment was obvious to anyone who might examine the relevant

records at the registry of deeds, and because Nationstar never

asked the Town to subordinate its lien to the Refinanced

Mortgage, the Town says it “assumed that [Forlong]’s note was

cross-collateralized with other assets of the Debtor, ostensibly

in different jurisdictions given [Furlong’s] frequent travel and

apparent business dealings in Maine and Florida.” Appellee’s

Brief at 7. And, without the 2006 Mortgage in place (which once

had priority over the Town’s lien), the Property was far more

attractive to third-party purchasers, or even for purchase by

the Town (which would remediate the violations and resell the

lot to recoup its remediation costs).

Accordingly, the Town decided to proceed with a sheriff’s

sale of the Property which, once completed, would eliminate any

subordinate liens on the Property, including the Refinanced

Mortgage. In reaching that decision (and foregoing other

6 collection options), the Town says it relied upon the land

records at the Carroll County Registry of Deeds, which clearly

revealed that its attachment had priority over Nationstar’s

Refinanced Mortgage: “a sheriff’s sale of the Property would be

illogical if the Property was subject to the [Refinanced]

Mortgage that had priority over the Town’s Attachment. A

sheriff’s sale would not extinguish any prior mortgage, and as

such no buyer would bid on the property secured by a mortgage

equal to or greater than the value of the parcel.” Appellee’s

Brief at 8.

So, with the understanding that its attachment lien was

superior to the Refinanced Mortgage, the Town scheduled a

sheriff’s sale of the Property for the summer of 2016. A copy

of the notice of sheriff’s sale was sent to Nationstar, as well

as all other lienholders of record. Nationstar did not respond.

But, before the sheriff’s sale could proceed, on August 12,

2016, Furlong filed a chapter 7 bankruptcy petition. In

accordance with the Bankruptcy Code’s automatic stay provisions,

the sheriff’s sale was cancelled.

On March 9, 2017, seven months after Furlong sought

bankruptcy protection, counsel for Nationstar filed an

appearance in the bankruptcy case. Then, in January of 2018,

7 the Town entered into a Stipulation and Settlement Agreement

with the chapter 7 trustee (the “Stipulation”). The Stipulation

contemplated the sale of all Furlong’s real estate, including

the Property. As a part of the Stipulation, the Town agreed to

“carve out” for the bankruptcy estate a portion of the real

estate sale proceeds to which the Town says it would otherwise

have been entitled. In exchange, the trustee agreed to settle

numerous lawsuits that Furlong had brought against the Town and

its officials.

According to the Town, it and the bankruptcy trustee relied

upon the priority position of the Town’s lien when negotiating

the Stipulation, estimating the available proceeds upon the sale

of the Property, and negotiating a split of those proceeds

between the Town and the trustee (for the benefit of unsecured

creditors of Furlong’s estate). The Town and the trustee join

in saying that neither would have entered into the Stipulation –

certainly not on the terms to which they agreed - absent their

reasonable understanding that the Town held a senior lien

position with respect to the Refinanced Mortgage.

The chapter 7 trustee filed a motion to approve the

Stipulation, a copy was provided to all parties, and the court

set the matter for hearing on February 7, 2018. Meanwhile, the

8 day before the hearing, Nationstar assigned the Refinanced

Mortgage to SLS. Neither SLS nor Nationstar appeared at the

hearing. Nor did either object to the proposed Stipulation.

Following the hearing, the court granted the trustee’s motion

and approved the Stipulation.

Parenthetically, the court notes that SLS argues that

“there was no need for it to object to the Stipulation because

the Stipulation protected SLS’s equitable subrogation claim by

giving priority ahead of the Town to ‘any and all liens

determined to be superior to the Town’s judgment lien thereon’

as an encumbrance on the Property.” Appellant’s Brief at 29

(quoting the Stipulation). But, the Stipulation does not

acknowledge any potential equitable claim by SLS (indeed it is

unlikely that the Town or the trustee even contemplated such a

claim). Rather, the Stipulation provides that, “the parties

agree that the Town has a first-position lien on the property at

1467 Rte 302, following any outstanding taxes.” Stipulation at

para. 3. The Town explains the language upon which SLS relies

as follows:

Ultimately, the Trustee, the Town, and another secured creditor entered into the Stipulation. The Stipulation provides that the Town enjoys a first position lien on the Property. The Stipulation also provides for the possibility that liens secured by the Property may be adjudged prior to the Town’s lien.

9 This provision refers to the Bank of America line of credit [i.e., the Home Equity Mortgage], which was perfected prior to the Town’s lien but was subordinated to the [2006] Mortgage. This provision also pertains to a certain United States tax lien recorded at the Registry at Book 3139, Page 0456: the Town believed that the United States tax lien was junior to the Town’s lien, but an IRS official suggested that the United States’ lien enjoyed priority over the Town. To address these ambiguities, the parties inserted language into the Stipulation to provide for the possibility that the equity line of credit and/or the United States tax lien would be determined to have priority over the Town’s lien. No affidavit or deposition transcript exists to challenge the Town and Trustee’s sworn assertion of the purpose of said language.

Appellee’s Brief at 10 (emphasis supplied).

The following month, SLS filed an appearance in Furlong’s

bankruptcy proceeding. Then, in the fall of 2018 - nearly five

years after the Town recorded its attachment - SLS commenced

this adversary proceeding against the Town. In an effort to

secure priority over the Town’s lien for its Refinanced

Mortgage, SLS urged the bankruptcy court to apply the doctrine

of equitable subrogation to reorder the priority of the parties’

respective liens and subordinate the Town’s lien to the

Refinanced Mortgage.

Once discovery was completed the parties filed cross

motions for summary judgment. Following oral argument, the

bankruptcy court issued a thorough and well-reasoned decision

10 in which it denied SLS’s motion for summary judgment, and

granted the Town’s cross-motion. In other words, the bankruptcy

court declined to exercise its equitable authority to

subordinate the Town’s lien to the Refinanced Mortgage. This

appeal followed.

Standard of Review

This court has jurisdiction to hear appeals from final

judgments, orders, and decrees issued by the bankruptcy court.

(a)(1). Here, the bankruptcy court granted the

Town’s motion for summary judgment. “The legal standards

traditionally applicable to motions for summary judgment . . .

apply without change in bankruptcy proceedings.” In re

Moultonborough Hotel Grp., LLC,

(1st Cir. 2013).

See also Fed. R. Bankr. P. 7056.

This court’s review of the bankruptcy court’s order on

summary judgment is de novo. See In re Hannon,

(1st Cir. 2016); ROK Builders, LLC v. 2010-1 SFG Venture, LLC,

No. 12-CV-57-PB,

, at *3 (D.N.H. Aug. 30, 2012);

see also Brae Asset Fund, L.P. v. Kelly,

(D.

Mass. 1998) (“[T]he district court reviews the bankruptcy

court’s decision under the same standards of review as those the

Court of Appeals invokes in reviewing a district court’s

11 decision on a motion for summary judgment filed in the district

court.”). Consequently, the question presented is “whether any

‘genuine issue of material fact exists’ and whether ‘the moving

party is entitled to judgment as a matter of law.’” In re

Moultonborough Hotel Grp., LLC,

(quoting Soto-Rios

v. Banco Popular de Puerto Rico,

(1st Cir.

2011)).

Discussion

Equitable subrogation applies “where one who has discharged

the debt of another may, under certain circumstances, succeed to

the rights and position of the satisfied creditor.” Chase v.

Ameriquest Mortg. Co.,

(2007) (citation and

internal punctuation omitted). It is a “broad doctrine, which

is given liberal application.”

Nevertheless, as this court

(Laplante, J.) has observed, the New Hampshire Supreme Court

views resort to equity to reorder the priority of recorded liens

with some “trepidation” because that relief “runs counter to the

‘essential purpose’ of recording statutes in ‘ensuring notice to

the public of property interests.’” Green Tree Servicing, LLC

v. United States,

(D.N.H. 2011)

(quoting Hilco, Inc. v. Lenentine,

(1997)).

Here, having discharged the 2006 Mortgage and associated loan,

SLS asserts that equity should permit it to succeed to the

12 priority lien position once held by the 2006 Mortgage – that is,

a position superior to the Town’s lien. In other words, SLS

“invoke[s] equity to relieve [it] from the result that would

follow from the established order of priority as dictated by our

recording system.” Hilco,

.

All agree that the bankruptcy court accurately stated the

essential elements of a viable claim for equitable subrogation

under New Hampshire common law. To prevail on that claim, SLS

was required to demonstrate that: (a) in paying off Furlong’s

2006 loan and discharging the 2006 Mortgage, SLS did not act as

a volunteer; (b) SLS was not primarily liable for that debt; (c)

SLS paid the entire debt associated with the 2006 mortgage loan;

and (d) the subrogation of the Town’s lien to the Refinanced

Mortgage would not work any injustice to the rights of the Town

or others. See Chase,

; Bank of Am.,

, at *1. That SLS (or its predecessor in interest,

Nationstar) was negligent in failing to discover the Town’s lien

does not, standing alone, preclude application of the doctrine

of equitable subrogation. See Fifield v. Mayer,

(1918) (“The mere fact that the loss of the party seeking to be

subrogated arose from his own negligence will not debar him from

the right, unless its enforcement would be prejudicial to others

who are not in fault.”) (citation omitted). But see, Hilco, 142

, 268 (1997) (“The plaintiffs do not allege deceit, and

excusable ignorance is not present here. The plaintiffs had

constructive notice of the Lenentines’ recorded mortgage, and we

hold that the trial court abused its discretion when it allowed

the plaintiffs to be shielded by equity from the consequences of

their agent’s negligence in not discovering the Lenentines’

mortgage.”).

Here, when the Town recorded its lien against the Property,

that lien was subject to the 2006 Mortgage. But, through

inattention and/or negligence, SLS discharged the 2006 Mortgage

and then recorded the Refinanced Mortgage without first

obtaining a subordination agreement from the Town (or a

discharge of its lien), thereby placing the Refinanced Mortgage

in an inferior position relative to the Town’s lien. But, if

the Town’s lien could be subordinated to the Refinanced Mortgage

without otherwise unfairly prejudicing the Town (or other

parties), the bankruptcy court could have exercised its

equitable authority to restore the status quo ante and allowed

SLS to enjoy the first priority lien it says was anticipated

when Furlong refinanced.

The Town concedes that SLS has established the first three

elements of a viable claim for equitable subrogation. The

14 parties’ dispute turns entirely upon the fourth and final

element: whether subordinating the Town’s lien to SLS’s mortgage

would work an “injustice to the rights of others.” Chase,

. In reaching the conclusion that the Town had

demonstrated that SLS was not entitled to the benefit of

equitable subrogation, the bankruptcy court first noted that

SLS’s failure to act in a timely manner when specifically

notified of the Town’s claims of priority, undermined its

request for equitable relief:

The Court further finds SLS’s failure to act upon notice of the Town’s prior claims of priority greatly weakens the strength of its current plea for equitable relief. As stated by the New Hampshire Supreme Court, it is the Court’s duty to “guard the integrity and reliability of our recording system, viewing claims to circumvent the established order of priority, through resort to equity, with trepidation.” Hilco Inc. v Lenentine,

,

(1997); Amoskeag v. Chagnon, 133 N.H. at 14, 572 A.2d at 1155 (“The [recording] statutes serve to protect both those who already have interests in land and those who would like to acquire such interests”). The grant of equitable relief is within the sound discretion of the trial court and may only be awarded, “not in opposition to, but in accordance with established principles of law.” Hanslin v. Keith,

,

(1980).

Bankruptcy Order at 13. In light of the facts presented, the

bankruptcy court concluded that SLS was not entitled to the

equitable relief it sought – the prejudice to the Town (and the

trustee) was simply too significant.

15 In this case, the Town, an attaching lien creditor, took actions based on the registry record that are incongruous with SLS’s claim for equitable subrogation and equitable reinstatement. Although the mere passage of time is not preclusive to the requested relief, it weakens the equities of the plaintiff’s case if, during that time, third parties have made decisions and taken actions based on the registry record. The Court finds, under the facts of this case, because the Town acted in reliance on the registry record, equitable subrogation or equitable reinstatement would each work an injustice to the rights of the Town, as well as the chapter 7 trustee, thus precluding the equitable relief which SLS seeks.

Bankruptcy Order at 14.

I. SLS’s Delay in Seeking Equitable Relief and the Town’s Reasonable Reliance on the Land Records.

While negligence alone will not necessarily preclude a

party from obtaining the benefit of equitable subrogation, SLS’s

repeated failures to protect its own interests and its delay in

seeking equitable relief are certainly factors that cannot be

overlooked when evaluating its request for equitable relief. As

noted in one legal treatise:

Since the purpose of [equitable] subrogation is to prevent unjust enrichment, it will not be granted where it would produce injustice. In virtually all cases in which injustice is found, it flows from a delay by the payor in recording his or her new mortgage, in demanding and recording a written assignment, or in otherwise publicly asserting subrogation to the mortgage paid. The delay may lead the holder of an intervening interest to take

16 detrimental action in the belief that that interest now has priority.

Restatement (Third) of Property: Mortgages, § 7.6(f) (emphasis

supplied). So it was in this case: during the nearly five-year

delay between the discharge of the 2006 Mortgage and SLS’s

asserted entitlement to equitable subrogation, the Town and

trustee detrimentally (and in good faith) relied upon the

registry records which revealed the Town’s lien had priority

over the Refinanced Mortgage.

In 2014, before paying off the 2006 loan and discharging

the 2006 Mortgage, SLS neglected to update its title search of

the Property. Such a search would have revealed the Town’s

lien. More than two years later, in the summer of 2016, SLS

failed to respond to notice of the Town’s planned sheriff’s sale

of the Property – another indication that the Town’s lien had

priority over SLS’s Refinanced Mortgage. And, in 2018, SLS

ignored notice it received of the Trustee’s motion before the

bankruptcy court to approve the Stipulation between the trustee

and the Town, pursuant to which the Property would be sold, the

proceeds divided between those two parties, and SLS’s Refinanced

Mortgage would be eliminated. If, at any of those points, SLS

had undertaken a review of the registry records (or even

inquired of the Town), it would have realized that the Town had

17 priority over its lien on the Property and it could have

intervened, before the Town and the trustee detrimentally relied

upon the registry records that plainly disclosed the Town’s

senior lien position.

Meanwhile, during those intervening years, the Town

considered various means by which it could put a halt to the

ongoing zoning violations at the Property and/or recover at

least some of the monies Furlong owed. The options available to

the Town included seeking an injunction against Furlong to stop

the zoning violations, seeking judicial authorization to raze or

repair the offending structures, conducting a tax sale of the

abutting parcel owned by Furlong (which was subject to

significant tax liens), and/or foreclosing its lien on the

Property through a sheriff’s sale. In considering its various

options and formulating its strategy, the Town understandably

relied upon the land records at the registry of deeds, which

plainly and unmistakably showed that its lien on the Property

was superior to the Refinanced Mortgage. The priority of its

lien was a critical factor in the Town’s decision-making.

Initially, the Town settled upon a strategy involving a

sheriff’s sale of the Property. Once Furlong sought bankruptcy

protection, however, the Town was forced to reconsider its

18 options. So, after negotiating with the bankruptcy trustee, the

Town embarked upon a new plan – one outlined in the Stipulation

approved by the bankruptcy court, pursuant to which the Town

would, in exchange for the settlement of numerous claims

advanced against it by Furlong, share the proceeds derived from

a sale of the Property with the bankruptcy trustee. It probably

also bears noting that the Town spent significant resources not

just negotiating the Stipulation with the trustee, but also

defending that agreement from repeated attack by Furlong. See,

e.g., Furlong v. Town of Bartlett, 17-cv-718-JL, “Objection to

Motion to Vacate Stipulation” (document no. 58); Furlong v. Town

of Bartlett, 19-cv-351-JL, “Motion to Dismiss Appeal” (document

no. 13).

But, says SLS, when the Town and the trustee negotiated the

Stipulation, they were aware that the loan associated with the

Refinanced Mortgage had been used to pay off the 2006 Mortgage.

See Appellant’s Brief at 26. So, according to SLS, applying the

doctrine of equitable subrogation would not work an “injustice”

upon them: SLS’s Refinanced Mortgage would simply be given the

same priority once held by the 2006 Mortgage and the Town’s lien

would, once again, be in an inferior position. SLS’s factual

statement is correct, but it fails to tell the full story. As

noted above, based upon their review of the registry records,

19 the Town and the trustee assumed - not unreasonably - that when

Furlong refinanced the 2006 Mortgage, he secured his repayment

obligations by giving SLS a junior lien on the Property

(subordinate to the Town’s) along with additional liens on other

property he owned, whether in New Hampshire, Maine, Florida, or

elsewhere.

That is a reasonable and logical conclusion to draw

because, even if SLS had been aware of the Town’s lien when it

recorded the Refinanced Mortgage, there were only a few ways it

could have achieved priority over that lien – it did not happen

by operation of law. See Bank of Am., N.A. v. Citizens Bank,

No. 14-CV-455-PB,

, at *2. The simplest and most

obvious way would have been to ask theTown to voluntarily

subordinate its lien to the Refinanced Mortgage. It is,

however, entirely unclear how the Town would have responded to

such a request. Alternatively, it could have paid some amount

to the Town to release its lien (a highly unlikely outcome).

Or, it could have spent significant resources going to court to

argue its entitlement to the benefit of equitable subrogation

(as it eventually did, years later). Or, of course, it could

have simply refused Furlong’s application to refinance the 2006

mortgage loan. At the time, however, SLS took none of those

actions. Consequently, a review of the registry records could

20 lead one to reasonably infer that SLS consciously chose to

encumber the Property with a mortgage deed that it knew was

inferior to the Town’s lien (but that SLS may have minimized its

unsecured risk by also obtaining additional security from

Furlong with liens on other property he owned).

The Town’s (and the trustee’s) reliance upon the land

records at the Carroll County Registry of Deeds, as well as its

understanding that its lien was superior to SLS’s Refinanced

Mortgage, were reasonable.

II. Prejudice to the Town and Trustee.

Presumably, if SLS were granted the equitable relief it

seeks, the Stipulation between the Town and the trustee would be

nullified and, to avoid any prejudice to them, they would

somehow have to be restored to their “pre-Stipulation”

positions. That would be difficult, if not impossible, to

achieve (and SLS has certainly not proposed any viable options).

First, it has been nearly five years since the Town and the

trustee entered the Stipulation and decided to settle all

litigation between them. It is, then, entirely possible that

evidence relevant to those cases has gone stale, witnesses’

memories have faded, and some evidence may no longer be

available. So, even if the trustee were somehow able to

21 reinstate those claims, he would plainly suffer some prejudice:

prosecuting them at this late point in time would undeniably be

more difficult. Prejudice to the trustee would be even more

significant if those claims could not be reinstated: the

trustee, on behalf of the estate’s unsecured creditors, would

have abandoned (or lost) those claims and received no

consideration at all in exchange. Likewise, granting SLS the

relief it seeks would deprive the Town of the benefit of its

bargain with the trustee: the settlement of all outstanding

claims brought against the Town by Furlong. Additionally, the

time, energy, and money the Town spent defending the Stipulation

against Furlongs’ various attacks in this court would have been

wasted.

The point is this: neither the Town nor the trustee can be

easily restored to the positions they occupied prior to their

negotiation of the Stipulation and subsequent sale of the

Property. In reliance upon the records at the registry of deeds

showing the Town’s senior lien position, each has spent

significant financial resources and each has materially and,

perhaps, irretrievably altered its position. SLS has not shown

how either the Town or the trustee could be restored to a

position that is at least roughly equivalent to the position it

occupied prior to the discharge of the 2006 Mortgage. The Town,

22 on the other hand, has shown that it (and the trustee) would be

significantly prejudiced if SLS were granted the relief it

seeks.

SLS largely ignores the harm that would be imposed upon the

Town and the trustee if its request for equitable relief were

granted. Instead, it focuses on minimizing the financial cost

to the Town associated with its (aborted) efforts to conduct the

sheriff’s sale and argues that the alternatives considered, but

rejected, by the Town were not truly viable options (suggesting

it suffered no harm by “rejecting” those alternatives and

settling upon the sheriff’s sale). Indeed, SLS asserts that

“there is no evidence of actual or quantifiable harm or

prejudice to the Town,” Appellants Brief (document no. 7) at 2,

and says “there is no proof of prejudice to the trustee, who is

not even a party to the adversary proceeding,” id. at 11. The

bankruptcy court sustainably concluded otherwise.

Conclusion

For the foregoing reasons, as well as those set forth in

Appellee’s brief (document no. 10), the court, having reviewed

the bankruptcy court’s decision de novo, concludes that the Town

of Bartlett demonstrated that SLS was not entitled to the

benefits of equitable subrogation. Specifically, the Town

23 established that it and the bankruptcy trustee reasonably relied

to their detriment upon the land records at the Carroll County

Registry of deeds – records that plainly revealed the priority

of the Town’s lien over the Refinanced Mortgage. Additionally,

the Town demonstrated that if the doctrine of equitable

subordination were applied to elevate the priority of the

Refinanced Mortgage over that of the Town’s lien, the Town (and

the trustee) would be significantly prejudiced. The bankruptcy

court correctly and properly declined to exercise its equitable

powers to reprioritize the liens in SLS’s favor. The decision

by the bankruptcy court is affirmed.

SO ORDERED.

____________________________ Steven J. McAuliffe United States District Judge

September 29, 2021

cc: John F. Willis, Esq. Christopher T. Hilson, Esq. Edmond J. Ford, Esq. Richard K. McPartlin, Esq.

24