Ranier v. Mount Sterling National Bank
Supreme Court of Kentucky
812 S.W.2d 154 (1991)
Ranier (plaintiff) agreed to subordinate her earlier $200,000 mortgage to a later $125,000 improvement loan from Mount Sterling National Bank (defendant), but the bank then secretly loaned the homeowners another $75,000 without informing Ranier or securing it with a third mortgage, and applied the homeowners' payments to that undisclosed later loan instead of paying down the subordinating 1983 loan; after foreclosure, the trial court awarded the bank over $140,000 -- covering the full 1983 loan plus interest, costs, and fees -- before Ranier could collect anything, and an intermediate court affirmed.
Whether a creditor who benefits from a subordination agreement owes a good-faith obligation not to prejudice the other creditor's subordinated interest.