Rule 23 Order filed
June 11, 2003; Motion
to publish granted
July 17, 2003.

JUSTICE KUEHN delivered the opinion of the court:

This case involves a determination of the priority of mortgage liens. FT MortgageCompanies appeals from the trial court's May 21, 2002, order resolving competing motionsfor a summary judgment on the matter of a lien priority in favor of Union Planters Bank,N.A. In reaching this decision, the trial court concluded that the doctrine of conventionalsubrogation did not apply to the facts at issue.

Charles and Theresa LaFore owned a home in Belleville, Illinois. In January 1994,they executed a note and mortgage in favor of Delmar Financial Company (Delmar) in theamount of $120,650. That mortgage was recorded on January 26, 1994.

In December 1996, the LaFores executed a second note and mortgage on theirBelleville home, in favor of Equicredit Corp. of America (Equicredit). This mortgageamount was $28,740. Equicredit recorded its mortgage on December 27, 1996.

In February 1998, the LaFores executed a third note and mortgage on their home, infavor of Magna Bank, N.A. This mortgage amount was $138,068. Magna Bank, N.A.,recorded its mortgage on March 25, 1998. Magna Bank, N.A., later merged with UnionPlanters Bank, N.A. (UPB), and the loan became UPB's loan.

Eight months later, in November 1998, the LaFores applied for a loan from thedefendant, FT Mortgage Companies (FT), in a "cash-out refinancing" deal in which theproceeds would be utilized to pay off prior mortgages and still provide the LaFores withsome cash. This mortgage was in the amount of $148,000 and was recorded on April 26,1999.

In applying for this final mortgage, the LaFores only acknowledged the initial twomortgages-Delmar and Equicredit, omitting the UPB mortgage. FT's underwriting of themortgage was premised upon the payoff and release of the Delmar and Equicreditmortgages. Its closing instructions additionally required the confirmation of the first-lienposition of the FT mortgage, in the form of a "First Lien Letter."

FT did not conduct its own title searches and hired a title company to do so. ReliableResearch (Reliable) conducted its title search and located only two mortgages on thisproperty, but not the same two mortgages listed by the LaFores. Reliable found theEquicredit and Magna Bank, N.A., mortgages. Reliable did not list the Delmar mortgage. FT's instructions to Reliable were to pay off all existing liens on the LaFores' property,stating, "NO SUBORDINATE LIENS TO REMAIN OPEN AT CLOSING." Interestingly,Reliable took the loan proceeds and paid off two mortgages, but not the two mortgages ithad located in its title search. Reliable paid off the Delmar and Equicredit mortgagestotaling $136,379, and it paid nothing to UPB, leaving an approximate $138,000 mortgageoutstanding. The sum of $3,892 was disbursed to the LaFores, and the balance of the FTmortgage went for closing costs. The UPB mortgage remained in effect.

Apparently, Reliable's closer made the erroneous assumption that Magna Bank, N.A.,had assigned its mortgage to Delmar. A quick look at the title search would have revealedthe error in this assumption, as the Magna Bank, N.A., mortgage was clearly dated andrecorded after the Delmar mortgage.

Apparently, the LaFores made no further payments to UPB on its mortgage, and afterthe passage of four months, UPB filed this foreclosure case on August 30, 1999. FT fileda counterclaim seeking a declaration that the subsequently recorded FT mortgage shouldhave priority over the earlier-filed UPB mortgage.

FT's mortgage contained the following clauses:

"Borrower shall promptly discharge any lien which has priority over thisSecurity Instrument ***. If Lender determines that any part of the Property is subjectto a lien which may attain priority over this Security Instrument, Lender may giveBorrower a notice identifying the lien. Borrower shall satisfy the lien or take one ormore of the actions set forth above within 10 days of the giving of notice.

*** If Borrower fails to perform the covenants and agreements contained inthis Security Instrument, or there is a legal proceeding that may significantly affectLender's rights in the Property ***, then Lender may do and pay for whatever isnecessary to protect the value of the Property and the Lender's rights in the Property. Lender's actions may include paying any sums secured by a lien which has priorityover this Security Instrument ***.

Any amounts disbursed by Lender under this paragraph *** shall becomeadditional debt of Borrower secured by this Security Instrument."

Each side filed a motion for a summary judgment. The trial court entered its ordergranting UPB's motion and denying FT's motion on May 21, 2002. FT appeals.

In determining the appropriateness of a summary judgment, the trial court strictlyconstrues all evidence in the record against the movant and liberally in favor of theopponent. Purtill v. Hess, 111 Ill. 2d 229, 240, 489 N.E.2d 867, 871 (1986). The courtmust consider all pleadings, depositions, admissions, and affidavits on file to decide if thereis any issue of material fact. Myers v. Health Specialists, S.C., 225 Ill. App. 3d 68, 72, 587N.E.2d 494, 497 (1992). On appeal, courts review summary judgment orders de novo. Myers, 225 Ill. App. 3d at 72, 587 N.E.2d at 497.

At issue is a somewhat rarely applied doctrine called conventional subrogation. FTcontends that even though its mortgage was recorded on April 26, 1999, the trial courtshould have found that it was subrogated to the lien priorities of the two mortgages it paidoff-Delmar's (filed on January 26, 1994) and Equicredit's (filed on December 27, 1996). If FT's lien was subrogated to the 1994 and 1996 dates, its lien would take priority overUPB's March 25, 1998, mortgage. Without the possibility of this subrogation theory, FTwould clearly be out of luck, because its mortgage was not recorded until 13 months afterUPB's mortgage was recorded.

The general rule with recorded liens, including mortgages, is that "[a] lien that is[recorded] first in time *** has priority and is entitled to prior satisfaction of the propertyit binds." Aames Capital Corp. v. Interstate Bank of Oak Forest, 315 Ill. App. 3d 700, 703,734 N.E.2d 493, 496 (2000) (citing Cole Taylor Bank v. Cole Taylor Bank, 224 Ill. App. 3d696, 704, 586 N.E.2d 775, 780 (1992)). However, "[t]he doctrine of first in time, first inright is not always as clear and obvious as it may seem" (Aames Capital Corp., 315 Ill. App.3d at 704, 734 N.E.2d at 497), and "blind adherence to the first in time, first in right doctrineis sometimes insufficient to determine lien priority." Aames Capital Corp., 315 Ill. App. 3dat 705, 734 N.E.2d at 497. The concept of subrogation is an exception to the "first in time,first in right" rule. Subrogation is a method by which one party involuntarily pays a debt ofanother and succeeds to the rights of the other with respect to the debt paid. Aames CapitalCorp., 315 Ill. App. 3d at 705, 734 N.E.2d at 497 (citing Dix Mutual Insurance Co. v.LaFramboise, 149 Ill. 2d 314, 319, 597 N.E.2d 622, 624 (1992)). Subrogation applies inthe context of lien priority in that one party is subrogated to the lien priority of another. Aames Capital Corp., 315 Ill. App. 3d at 705, 734 N.E.2d at 497.

There are two types of subrogation-contractual or conventional rights and commonlaw or equitable rights. Aames Capital Corp., 315 Ill. App. 3d at 706, 734 N.E.2d at 498(citing Schultz v. Gotlund, 138 Ill. 2d 171, 173, 561 N.E.2d 652, 653 (1990)). Theapplication of the doctrine of equitable subrogation does not depend upon any set ofcircumstances but depends upon the equities of each individual case. Aames Capital Corp.,315 Ill. App. 3d at 706, 734 N.E.2d at 498. Conventional subrogation occurs when thereis an express agreement between the parties to the effect that the party paying the debts onbehalf of the third party will be able to assert the rights of the original creditor. AamesCapital Corp., 315 Ill. App. 3d at 706, 734 N.E.2d at 498. By paying the debt, the subrogeeis entitled to the benefit of the security he satisfied with an expectation of receiving equalpriority in terms of a lien. Aames Capital Corp., 315 Ill. App. 3d at 706, 734 N.E.2d at 498(citing Home Savings Bank v. Bierstadt, 168 Ill. 618, 624, 48 N.E. 161, 162 (1897)). Inaddition to the requirement of an express agreement, the lender seeking the benefits of aconventional subrogation must prove that the loan proceeds were used to refinance themortgage for which the lender seeks to be subrogated, that no harm will come to an innocentparty if priority is granted to the lender, and that there has been no gross negligence. HomeSavings Bank, 168 Ill. at 624-25, 48 N.E. at 162. The precise language utilized by theIllinois Supreme Court in the Home Savings Bank case is as follows:

"It is the agreement that the security shall be kept alive for the benefit of theperson making the payment which gives the right of subrogation, because it takesaway the character of a mere volunteer. *** [E]quity will effectuate the realintention of the parties, where no injury is done to an innocent party, by applying theprinciple of conventional subrogation. [Citations.]

This principle will be applied even where the record shows a release of thesatisfied incumbrance, as the lien so satisfied will be removed for the benefit of theparty satisfying the same, where there has not been gross negligence and wherejustice requires it should be done[;] and this will be done as against a subsequentincumbrancer whose incumbrance has not been taken or his position changed becauseof the record showing the discharge of the senior incumbrance. [Citations.]" HomeSavings Bank, 168 Ill. at 624-25, 48 N.E. at 162.

The Illinois Supreme Court did not further expound upon its statement that gross negligencecould not be tolerated in a conventional subrogation setting.

The application of conventional subrogation in the arena of mortgage refinancing wassanctioned in Aames Capital Corp. v. Interstate Bank of Oak Forest. Aames Capital Corp.,315 Ill. App. 3d at 710, 734 N.E.2d at 501.

UPB contends that FT had no express agreement allowing it to assert the rights of theoriginal creditors. UPB points to the generic form contract language utilized by FT in itslegal documents. UPB presents no authority that generic contract language cannot form thebasis of an express agreement. Two clauses contained within UPB's documents wereidentified and found to create an express agreement in Aames Capital Corp. v. InterstateBank of Oak Forest. Aames Capital Corp., 315 Ill. App. 3d at 708, 734 N.E.2d at 500. TheAames Capital Corp. v. Interstate Bank of Oak Forest language appears to be formlanguage. We find that the form of the language at issue is not nearly as important as theintent of the parties to the contract.

Both the FT documents and the Aames Capital Corp. v. Interstate Bank of Oak Forestdocuments provided that no subordinate liens were to remain open at closing-to dischargeany lien with priority over the mortgage-and that the refinancing mortgage holder could payany sums secured by a lien that had priority over its mortgage and that any such sum paidwould become additional debt secured by the mortgage. The location of these clauses withinUPB's own documents is not relevant to the inquiry of the express agreement between theLaFores and FT.

The intent was clear-FT intended, by its actions, to receive equal priority in its lienand to be able to assert the rights of Delmar and Equicredit.

The loan proceeds were clearly used to refinance the mortgages for which the lenderseeks to be subrogated. UPB argues that because the LaFores received some cash out of thisrefinancing deal, this element has not been met. UPB is correct that the borrowers in AamesCapital Corp. v. Interstate Bank of Oak Forest received nothing after refinancing theirmortgages. Aames Capital Corp., 315 Ill. App. 3d at 702, 734 N.E.2d at 495. However, wedo not find this distinction to be critical. Refinancing a mortgage is somewhat of a guessinggame. The borrower and the lender attempt to arrive at a figure that will pay off the note ornotes, accrued interest, and oftentimes, costs of closing. This number is chosen before allfacts are known with precise detail. Sometimes at closing, the borrower will receive cashback. Sometimes at closing, the borrower will owe additional funds. The amount at issuein this case, less than $4,000, is not so great that it appears somehow inequitable. In thiscase, the refinancing was a "cash-out" refinancing, with the intent that the borrowers wouldreceive cash for the balance of the equity in their home. Regardless of whether some cashis handed to the borrowers at closing by way of purposeful means (the "cash-out"refinancing) or unintentional means, by overestimating the amount of funds necessary topay off existing loans, interest, and closing costs, authority for the proposition that theborrower cannot receive a dime in a subrogation setting is lacking.

We also conclude that UPB could not have been harmed by FT's jump in priority toa position superior to that of UPB. At first glance, UPB's argument that it is harmed isobvious-if conventional subrogation applies, UPB is supplanted by FT and there isinadequate equity available to satisfy UPB's debt after FT's debt is satisfied. However, FT can only be subrogated to the amounts of the debts extinguished in its refinancing. AamesCapital Corp., 315 Ill. App. 3d at 710, 734 N.E.2d at 501. In other words, the amount ofmoney received by the LaFores, the interest, and the closing costs do not take lien priorityover UPB. Furthermore, the previous mortgages were of record. Presumably, UPB hadconstructive knowledge of these unreleased mortgages when it loaned its money to theLaFores. Consequently, UPB would be in no worse a position than it was in prior to therefinancing.

We turn to the final issue-gross negligence. Arguably, negligence was committedin this case. FT did not directly commit negligence. However, its agent, Reliable, allegedlydid. We must decide whether Reliable's alleged negligence is imputable to FT. We mustalso determine if this negligence is "gross" in nature. If so, then FT is not entitled toconventional subrogation.

Before we get to the issue of gross negligence, we must first determine whetherReliable is truly FT's agent. An agency is essentially "a fiduciary relationship in which theprincipal has the right to control the agent's conduct and the agent has the power to act onthe principal's behalf." Amcore Bank, N.A. v. Hahnaman-Albrecht, Inc., 326 Ill. App. 3d126, 134, 759 N.E.2d 174, 181 (2001). The party alleging an agency relationship bears theburden of proof by a preponderance of the evidence. Amcore Bank, N.A., 326 Ill. App. 3dat 134, 759 N.E.2d at 181. The existence of an agency relationship turns on the facts, andtherefore we cannot reverse the trial court's findings on these issues unless they are contraryto the manifest weight of the evidence. Amcore Bank, N.A., 326 Ill. App. 3d at 135, 759N.E.2d at 181. In determining whether an agency relationship exists, "[t]he right to controlthe manner of doing the work is the predominant factor." Commerce Bank v. Youth Servicesof Mid-Illinois, Inc., 333 Ill. App. 3d 150, 153, 775 N.E.2d 297, 300 (2002).

Reliable's alleged negligently performed task was the title search. The facts containedwithin the record and the briefs and argument on appeal reflect no express or impliedauthority for FT to have exercised control over the manner in which Reliable performed andreported its title search. We find that Reliable was not FT's agent. FT cannot be bound byReliable's allegedly negligent actions for purposes of determining whether FT is free fromgross negligence. To the extent that the trial court determined that Reliable was FT's agent,we determine that such a finding is contrary to the manifest weight of the evidence. Becausewe conclude that any negligence on Reliable's part is not imputable to FT on agencytheories, we do not address whether this negligence was "gross" in nature. Since FT is freefrom gross negligence, conventional subrogation is applicable to the facts of this case.

For the foregoing reasons, the judgment of the circuit court of St. Clair County ishereby reversed, and a judgment is entered on behalf of FT.

Reversed; judgment entered.

HOPKINS, P.J., and CHAPMAN, J., concur.

Rule 23 Order Filed: June 11, 2003

Motion to Publish Granted: July 17, 2003

Opinion Filed: July 17, 2003

Justices: Honorable Clyde L. Kuehn, J.

Honorable Terrence J. Hopkins, P.J.

Honorable Melissa A. Chapman, J.

Concur

Attorneys Joshua G. Vincent, Hinshaw & Culbertson, 222 North LaSalle St.,

for Suite 300, Chicago, IL 60601-1081

Appellant

Attorneys Cherie K. Macdonald, The Stolar Partnership, 10 South Jackson St.,

for Suite 300, P.O. Box 484, Belleville, IL 62222-0484

Appellee