(dissenting) — Accepting the doctrine of equitable subrogation as set forth in the Restatement (Third) of Property: Mortgages § 7.3 (1997), the majority nevertheless denies its benefits to the PHH Mortgage Services Corporation (PHH). Its analysis begins on an incoherent note:
This is a discretionary review of a Court of Appeals’ decision *94which extended to Yakima Title & Escrow Company the first lienholder position of its insured, ....
Majority at 82.
No, Yakima Title is an insurance company which intervened in this action to defend the asserted legal right of its insured, PHH, to first lien priority over judgment creditor Hu Hyun Kim. Yakima Title does not now, nor has it ever, held a lien on the property, first or otherwise. Rather under the terms and conditions of its policy Yakima Title owed PHH a defense, and this action evidences the fact that it is providing one. If Yakima Title prevails, judgment creditor Kim would be equitably subrogated to PHH’s first lien position. If, on the other hand, the equitable subrogation claim fails, PHH may have a valid claim against its insurer, Yakima Title, because it insured against all claims on the title not excepted—and Kim’s judgment was not. But that is their problem, not ours. Our problem is to decide whether Kim’s judgment (subsequent to the original deed of trust but prior to its replacement) should take precedence over PHH’s subsequently recorded deed of trust. Since the original deed of trust was recorded before the judgment lien, it is argued the replacement deed of trust should relate back to the date the original deed of trust was recorded for the purpose of establishing its priority.
In any case, however, the fact that PHH had title insurance is no more relevant to this case than the availability of automobile insurance in the typical personal injury case. And whether Yakima Title negligently failed to except a previously filed judgment from coverage is also quite beside the point; it is the consequence of that prior filing which is here at issue.
The general rule is aptly expressed in Washington’s recording act, RCW 65.08.070, that first in time is first in right. 18 William B. Stoebuck, Washington Practice: Real Estate: Transactions § 17.21, at 311 (1995). That is to say that the first instrument recorded (or judgment filed) takes precedence over subsequent filings and recordings. The issue here, however, is whether there should be an excep*95tion to that rule and, if so, the contours of that exception. I have no quarrel with the majority’s conclusion that the doctrine of equitable subrogation provides a legitimate basis for such an exception and that the nature of that exception is described in Restatement (Third) of Property: Mortgages § 7.3, at 472 (1997):
(a) If a senior mortgage is released of record and, as part of the same transaction, is replaced with a new mortgage, the latter mortgage retains the same priority as its predecessor, except
(1) to the extent that any change in the terms of the mortgage or the obligation it secures is materially prejudicial to the holder of a junior interest in the real estate, ....
The majority, however, finds the exception inapplicable because (1) Yakima Title had “actual notice of Kim’s judgment lien before the title policy was issued,” majority at 90 (emphasis added), and (2) Kim would be prejudiced if the doctrine were applied.6 I find the first point not only misleading but irrelevant; whereas the second point is simply wrong. To put the facts in focus a chronology follows:
Chronology
December 5, 1995 Kenneth K. Chang and Yun Ok Chang bought the property in question on behalf of their daughter Sharon Lee and her husband Stanley Lee for $165,000, of which $130,000 was financed by Sterling Trust Company. Clerk’s Papers (CP) at 9, 88.
December 11, 1995 Statutory warranty deed and Sterling deed of trust recorded. CP at 88.
*96April 25, 1997 Kim’s default judgment against the Lees entered. CP at 115-17.
April 28, 1997 Kim’s default judgment filed with King County Superior Court Clerk. CP at 115.
May 16, 1997 Kim’s judgment was recorded with Yakima County Auditor’s Office. CP at 121.
December 22, 1997 Changs quitclaimed one-half of their interest to the Lees. CP at 88.
March 1998 The Lees procured financing through Pioneer Bank to refinance the Sterling deed of trust. CP at 88-89.
March 16, 1998 Effective date of Yakima Title’s commitment to insure Pioneer Bank’s title. CP at 35.
April 9, 1998 As part of the refinance, the Changs quitclaimed their remaining one-half interest to the Lees. CP at 31, 88.
April 20, 1998 Lees executed their promissory note to Pioneer Bank as part of the refinancing. CP at 178-79.
April 22, 1998 Yakima Title supplemented its commitment to reflect the fully vested title in the Lees, the identity of the refinance lender as being Pioneer Bank, and title insurance coverage liability in the amount of $132,700. CP at 36.
April 28, 1998 Replacement deed of trust in favor of Pioneer Bank recorded. CP at 42-51.
May 18, 1998 Pioneer Bank assigns its deed of trust to PHH Mortgage Services *97Corporation. CP at 66.
May 23, 1998 Yakima Title was informed of the assignment. CP at 65.
June 17, 1998 Pioneer Bank’s assignment of deed of trust was recorded, but the assignee was misnamed. CP at 66, 159.
July 13, 1998 Kim actually notifies Yakima Title of his judgment lien. CP at 149.
July 16, 1998 Corrected assignment of deed of trust from Pioneer to PHH re-recorded. CP at 66, 159.
July 17, 1998 Yakima Title issues title insurance policy showing PHH as the assignee. CP at 67, 159.
December 10, 1998 Efim gives actual notice to PHH of his judgment lien. CP at 140.
May 10, 1999 PHH tendered defense of its lien position to Yakima Title. CP at 159.
June 21, 1999 Kim formally informed Yakima Title of his intent to begin execution on July 26, 1999. CP at 71.
October 12, 1999 Yakima Title filed motion to intervene and quash writ of execution. CP at 91.
Actual Notice Irrelevant/Nonexistent
As to actual notice, the Restatement does not condition application of the doctrine of equitable subrogation upon its absence. Second, there is no claim here that lienholder PHH or Pioneer had actual notice prior to making its loan. Majority at 84. And third, not that it matters, Yakima Title did not have actual notice until after it had issued its March 16, 1998 commitment to insure Pioneer Bank’s first lien position in any event. Majority at 83.
1. Equitable subrogation not defeated by actual notice.
*98Under the Restatement (Third) rule, actual knowledge of a prior lien is irrelevant to application of equitable subrogation.7 Even those jurisdictions which accept the proposition that actual notice to the potential lienholder undermines equitable subrogation reject the claim that constructive notice should suffice.8 See Grant S. Nelson & Dale A. Whitman, Real Estate Finance Law § 10.6 (3d ed. 1993).
We have also previously held constructive knowledge of a properly recorded lease and option to buy is legally insufficient to deny equitable subrogation. See Coy v. Raabe, 69 Wn.2d 346, 349, 351, 418 P.2d 728 (1966). Of course if constructive knowledge were sufficient to defeat application of the doctrine of equitable subrogation in this jurisdiction, there would be no such doctrine since absent a prior filing or recording there would be no priority to contest.
2. No actual notice to lienholder.
Even in jurisdictions where actual knowledge may defeat equitable subrogation, only knowledge by the lienor may have this effect. Neither Pioneer Bank nor PHH received actual notice of the Kim judgment prior to making the loan. PHH did not receive actual notice of the judgment lien until *99December 1998, seven months after the refinance was complete.
3. No actual notice to title company until after transaction.
It is the date of the commitment to insure which is relevant (if at all), not the date the policy actually issued. By the terms and conditions of the commitment issued on March 16, the title company undertook to insure title to its insured, save and except identified exceptions as well as encumbrances “if any, created, first appearing in the public records or attaching subsequent to the effective date hereof [March 16, 1998].” CP at 41. At that point Yakima Title became obligated to issue a title insurance policy to its insured, Pioneer Bank (and later its assignee PHH), without excepting the Kim judgment lien because that lien had been filed prior to the date of the commitment and was not expressly excepted. Had Yakima Title attempted to add an exception to the policy not expressed in the commitment it would have breached the commitment.
According to the facts as the majority describes them (majority at 83), the commitment for title insurance was issued on March 16,1998, Pioneer Bank recorded its deed of trust and second quit claim deed on April 28, but Kim’s attorney first informed the title company of its judgment on July 13, 1998. Even the assignment of Pioneer Bank’s deed of trust to PHH occurred prior to that, on June 17, 1998 (although it was not re-recorded until July 16).9 Therefore Yakima Title, much less the real parties in interest, Pioneer *100and PHH, had no actual notice of the Kim judgment prior to the refinance.
No Prejudice
A legitimate concern under the Restatement (Third) formulation of the rule is whether the prior lienholder would be prejudiced by subrogation to the replacement mortgage or deed of trust. Arguably if the refinance significantly increased the principal balance of the loan, there might be prejudice. By the same token if the terms and conditions of the loan repayment were less favorable to the obligor, that might be prejudicial as well. Here, however, the majority notes that the amount of the indebtedness did not change significantly, whereas the interest rate was reduced from 10.5 percent to 6.75 percent, and the maturity date was extended from 6 years to 30 years, eliminating a balloon payment. Moreover the size of the property subject to the judgment lien doubled.
Under section 7.3 equitable subrogation will not be granted if a change in the terms of the refinance mortgage or the underlying debt is “materially prejudicial” to the holder of a junior interest. Restatement (Third) of Prop.: Mortgages § 7.3(a)(1) (1997). A change is generally deemed materially prejudicial only if (1) it is in the form of an increase in principal amount;10 (2) it is in the form of an increase in interest rate;* 11 or (3) the refinance mortgagee fails to record its mortgage and the intervening lienor takes detrimental action as a result.12 None of these situations is at hand in this proceeding.
*101Although this refinance did lead to a small increase in the principal amount, from $130,000 to $132,700, the majority correctly concedes this change is not materially prejudicial. See majority at 87-88. Furthermore, the refinancing led to a substantial beneficial reduction in interest rate from 10.5 percent to 6.75 percent. Lastly, Pioneer Bank’s deed of trust was promptly recorded, and there has been no suggestion Kim has taken any detrimental action in response to any failure on Pioneer Bank’s part in this context.
However, the majority apparently finds the extension of time for payment (majority at 88) was prejudicial to the rights of the judgment creditor. But quite to the contrary, an extension of time to repay a loan is generally presumed beneficial to junior lienors, not prejudicial. See, e.g., Crutchfield v. Johnson & Latimer, 243 Ala. 73, 8 So. 2d 412, 414 (1942); Lennar N.E. Partners v. Buice, 49 Cal. App. 4th 1576, 57 Cal. Rptr. 2d 435, 439 (1996) (citing Resolution Trust Corp. v. BVS Dev., Inc., 42 F.3d 1206, 1215 (9th Cir. 1994)); Eurovest Ltd. v. 13290 Biscayne Island Terrace Corp., 559 So. 2d 1198, 1198 (Fla. Dist. Ct. App. 1990); Larson Cement Stone Co. v. Redlim Realty Co., 179 Neb. 134, 137 N.W.2d 241, 245 (1965). But see Citizens & S. Nat'l Bank v. Smith, 277 S.C. 162, 284 S.E.2d 770, 772 (1981) (holding extension of senior mortgage resulted in loss of priority because intervening mortgagee had agreed to be subordinated on the assumption the senior mortgage would be fully satisfied on the initial due date).
Instead of a note amortized over 15 years with the full balance due on a balloon payment in 6, the terms of repayment were liberalized to allow amortized payments over 30 years with no balloon. This is anything but prejudicial to junior liens. The elimination of a balloon payment representing 70 percent of the purchase price was beneficial to Bum’s junior judgment lien.13
*102Perhaps the majority forgets that this is an action to quash a sheriff’s sale initiated by the judgment creditor against the subject property. Had the sheriff’s sale gone to fruition, and had there been no refinance, the judgment creditor would simply step into the shoes of the judgment debtor and take title subject to all prior liens, including the one with high interest and a balloon payment in six years.14 It is hardly a doubtful proposition that the successful bidder would prefer a lower interest rate and 30 years to pay to higher interest and a 6 year balloon.15 Moreover as a result of the refinance the judgment lien would now attach to all the property not just half, as was the case prior to the refinance. If this is prejudice, what is benefit?
Conclusion
Taken on its face the majority opinion cannot support its own conclusion. It confuses the status of title insurer with the property owner insured, relies on “actual notice” which came after the transaction, and misconstrues benefit as prejudice.
I dissent.
Madsen, J., concurs with Sanders, J.
Reconsideration denied April 12, 2002.
Justice Chambers’ concurring opinion says the doctrine of equitable subrogation is inapplicable because “[t]he transaction involved different mortgagors and different mortgagees.” (Chambers, J., concurring at 93). I can find no such basis to limit the doctrine as formulated by the Restatement, nor does Justice Chambers cite any authority to support his view.
Under the Restatement (Third) of Prop.: Mortgages § 7.6 cmt. e, at 519 (1997), equitable subrogation is appropriate notwithstanding actual knowledge of the intervening lien. Some courts have granted subrogation in spite of actual knowledge in part because, regardless of the subrogee’s knowledge, intervening lienors would not be in a worse position. See, e.g., Wilkins v. Gibson, 113 Ga. 31, 38 S.E. 374, 382 (1901); Klotz v. Klotz, 440 N.W.2d 406, 409-10 (Iowa Ct. App. 1989); Providence Inst. for Sav. v. Sims, 441 S.W.2d 516, 520 (Tex. 1969). At least one court has granted subrogation in spite of actual knowledge without further explanation. See, e.g., Med Ctr. Bank v. Fleetwood, 854 S.W.2d 278, 287 (Tex. Ct. App. 1993).
Constructive knowledge by virtue of a failure to discover a properly recorded lien is typically not considered culpable and inexcusable neglect, which would deny equitable subrogation. See, e.g., Smith v. State Sav. & Loan Ass’n, 175 Cal. App. 3d 1092, 223 Cal. Rptr. 298, 301 (1985); Rusher v. Bunker, 99 Or. App. 303, 782 P.2d 170, 172 (1989); Mut. Life Ins. Co. of N.Y. v. Grissett, 500 F. Supp. 159 (M.D. Ala. 1980); Fed. Land Bank of Springfield v. Smith, 129 Me. 233, 151 A. 420 (1930). At least two courts have granted subrogation in spite of constructive knowledge because to hold otherwise would enable junior lienors to “convertO the mistake of the lender ‘into a magical gift for [themselves]’.” United States v. Baran, 996 F.2d 25, 29 (2d Cir. 1993) (quoting Long Island City Sav. & Loan Ass’n v. Skow, 25 A.D.2d 880, 881, 270 N.Y.S.2d 234 (1966)).
Assignment of a properly recorded mortgage will not cause it to lose priority as against subsequent mortgages or other liens. Id. This is so even though the assignment is unrecorded. Miller v. Fryberg, 119 Wash. 243, 250, 205 P. 388 (1922). The critical fact from the standpoint of later purchasers or mortgagees is notice the earlier mortgage exists, not that it has been assigned. 18 William B. Stoebdck, Washington Practice: Real Estate: Transactions § 17.21, at 311 (1995). An unrecorded assignment may be void against subsequent bona fide purchasers for value who take without notice of the preceding mortgage. See Price v. N. Bond & Mortgage Co., 161 Wash. 690, 698, 297 P. 786 (1931). However, since a judgment creditor is not a purchaser, that is not an issue in the case at bar. See RCW 65.08.060(2); Aberdeen Fed. Sav. & Loan Ass’n v. Empire Manufactured Homes, Inc., 36 Wn. App. 81, 84, 672 P.2d 409 (1983) (citing Dawson v. McCarty, 21 Wash. 314, 57 P. 816 (1899)).
See, e.g., Skaneateles Sav. Bank v. Herold, 50 A.D.2d 85, 376 N.Y.S.2d 286, 289-90 (1975).
See, e.g., Shultis v. Woodstock Land Dev. Assocs., 188 A.D.2d 234, 594 N.Y.S.2d 890, 892-93 (1993).
See, e.g., Rock River Lumber Corp. v. Universal Mortgage Corp., 82 Wis. 2d 235, 262 N.W.2d 114, 119 (1978) (citing 73 Am. Jub. 2d Subrogation § 105 (1974); Annotation, Subrogation to Prior Lien of One Who Advances Money to Discharge it and Takes New Mortgage, as against Intervening Lienor, 70 A.L.R. 1396, 1416, 1417 (1931)).
Kim’s argument he is prejudiced by having to give up his newly acquired first hen position misses the point of subrogation entirely. Under the equitable subrogation doctrine, Kim would not acquire the first lien position. See Restatement (Third) of Prop.: Mortgages § 7.6(a) (“Even though the performance would *102otherwise discharge the obligation and the mortgage, they are preserved and the mortgage retains its priority in the hands of the subrogee.”).
The purchaser at an execution sale acquires only the right, title, and interest of the debtor. RCW 6.21.100; White v. McSorley, 47 Wash. 18, 21, 91 P. 243 (1907); Desimone v. Spence, 51 Wn.2d 412, 415, 318 P.2d 959 (1957); Banks v. Morse, 17 Wn.2d 18, 21, 134 P.2d 952 (1943); N. Commercial Co. v. E.J. Hermann Co., 22 Wn. App. 963, 971, 593 P.2d 1332 (1979).
The original note provided the remaining balance shall be paid upon sale. Clerk’s Papers (CP) at 176. However, the replacement note makes this a matter of lender discretion. CP at 179. Thus, the replacement note was beneficial, not prejudicial, to the purchaser at a sheriff’s sale. Cf. majority at 88 n.3.