Balch v. Leader Federal Bank for Savings
Supreme Court of Arkansas
868 S.W.2d 47 (1993)
The Balches (plaintiffs) owned a fee-simple interest in hotel parcels leased to Crestwood, whose predecessor had financed hotel construction through a mortgage the Balches also signed to secure the original Liberty National loan; when Crestwood later refinanced through Leader Federal Bank (defendant), the Balches signed only a certificate acknowledging and consenting to the new loan, not the mortgage itself. After Crestwood defaulted on the Leader Federal loan, the bank sued to foreclose on the hotel parcels, arguing the certificate had encumbered the Balches' full fee-simple ownership interest, not merely their leasehold interest; the trial court agreed, and the Balches appealed.
Whether a certificate subordinating a party's interest in a ground lease to a bank's mortgage, signed instead of the mortgage itself, automatically also encumbers that same party's separate fee-simple ownership interest in the underlying land.