A junior lien jumps to first after a misstep – see how Capital Bank fought back
Capital Bank’s win in a Washington, DC lien‑priority fight offers insight into how courts may treat refinances where recording and title steps go wrong.
In April 2017, Matthew Edward Shkor bought 1738 R Street, N.W., Washington, DC, and borrowed $4,050,000 from Capital Bank, N.A., secured by a first-position deed of trust recorded on May 1, 2017. A month later, he borrowed $1,262,500 from Cornerstone Capital, LLC, secured by a second-position deed of trust recorded on June 23, 2017.
In early 2018, Shkor sought to refinance his Capital Bank loan. Capital Bank retained Standard Title Group, LLC as the settlement agent. Standard Title requested an ALTA Commitment for Title Insurance from Old Republic National Title Insurance Company. The commitment required that Cornerstone’s lien on the property be satisfied and/or released before closing, and Standard Title was responsible for making sure that happened.
Standard Title did not obtain a written release from Cornerstone. Its agent, Kevin Anderson, claimed that Cornerstone co‑manager Mark Schuman orally agreed to release the lien. Schuman denied that, and the bankruptcy court credited his testimony. Shkor also emailed Schuman, asking to complete the Capital Bank refinance with 100% of the proceeds paying down Cornerstone’s line and saying Cornerstone would still be significantly secured and its line reduced by $400,000. Cornerstone did not accept this proposal.
Despite the absence of a release, Standard Title allowed the refinancing to proceed without telling Capital Bank that Cornerstone’s lien remained. Capital Bank did not independently verify the release. It believed it retained first position based on the title commitment and the title insurance policy issued after closing, which did not list Cornerstone’s lien as an exception.
After the refinance, Capital Bank’s loan became a $2,000,000 home equity line of credit, secured by a deed of trust recorded on April 24, 2018. The new loan paid off the outstanding balance of the original Capital Bank loan, and the original lien was released. The transaction produced $394,948.58 in net proceeds, which were assigned to Cornerstone, reducing Cornerstone’s loan balance to $408,884.89. Cornerstone’s lien, however, remained of record. Because its deed of trust predated the deed securing the refinanced Capital Bank loan, District of Columbia land records showed Cornerstone’s lien in first position.
Relying on that apparent first position, Cornerstone made additional loans to Shkor totaling $1,756,000, bringing the total he owed Cornerstone to $2,193,882.88. In December 2020, Cornerstone began foreclosure proceedings on the property. That prompted Capital Bank to discover that Cornerstone’s lien had never been released.
Capital Bank sued in DC Superior Court and sought a temporary restraining order to halt the foreclosure. After Shkor filed for bankruptcy, the case was removed to the United States Bankruptcy Court for the District of Columbia. Capital Bank then pursued a declaratory judgment on lien priority.
On cross‑motions for summary judgment, the bankruptcy court addressed whether District of Columbia law would recognize the equitable doctrine of replacement of mortgages. Drawing on the Restatement (Third) of Property: Mortgages and DC precedent on equitable subrogation, the court concluded that DC courts would adopt that doctrine. It provides that when a senior mortgage is released and, as part of the same transaction, replaced with a new mortgage by the same lender, the new mortgage can keep the original priority unless changes in terms materially prejudice a junior interest.
After a two‑day bench trial, the bankruptcy court found that Capital Bank’s refinance paid off and replaced its original mortgage and that the changes in principal, interest rate, extension of time, and loan type did not materially prejudice Cornerstone. It also found that Capital Bank intended to remain in first position and that Cornerstone knew Capital Bank’s original loan had been paid off. The court concluded Cornerstone would receive an unwarranted benefit if it kept first priority solely because of the recording sequence.
The bankruptcy court held that Capital Bank held a first‑priority lien in the principal amount of $1,583,473.95 plus 5% interest per year, with Cornerstone’s lien in second position.
Cornerstone appealed, arguing that DC law does not recognize the replacement‑of‑mortgages doctrine and that, even if it did, the doctrine was misapplied and interest should be limited. On December 3, 2025, the United States District Court for the District of Columbia affirmed. It agreed that the DC Court of Appeals would recognize the doctrine, that the requirements were met on the undisputed facts, and that Cornerstone was not materially prejudiced. It also upheld the treatment of interest, finding Capital Bank’s secured claim did not exceed what would have been owed if the original interest rate had remained.
For mortgage professionals, the takeaway is fairly direct: in the District of Columbia, a court may preserve a refinancing lender’s priority when the original lender was expected to stay in first place and the junior lender is not materially harmed, even if the land records later show a different order. At the same time, the case underlines that settlement agents and title documentation still depend on proper follow‑through. If a release is required for closing, someone must confirm that it is actually obtained and recorded.
