## Facts

- Gary and Martha Burney and Gary and Patsy Snadon held a deed of trust securing a $1.2 million note arising from the sale of a hotel property (the Foxborough Inn) on a “front parcel” in Taney County, Missouri.
- The buyer, C & J Properties, Inc., also had bank financing secured by deeds of trust on the property.
- On June 23, 1993, Bank of America financed C & J to refinance prior bank debt and received a deed of trust on the front parcel; the respondents executed a subordination agreement subordinating their deed of trust to the Bank’s lien.
- In 1994, the Bank received a deed of trust covering both the front parcel and an additional “back parcel” associated with an expansion of the hotel.
- Between 1993 and 1999, after C & J encountered financial difficulties, the Bank and C & J entered into multiple recorded modification agreements that extended maturity dates, increased interest rates, and otherwise changed loan terms.
- The respondents were not parties to the modifications, did not consent to them, and were unaware of them.
- C & J ultimately defaulted, and the Bank scheduled a foreclosure sale.
- Two days before the scheduled sale, the respondents sued for equitable relief, obtained a temporary restraining order (TRO) preventing foreclosure, and posted an injunction bond.
- The trial court found the modifications materially impaired the respondents’ security interest and granted equitable relief reordering lien priority on the front parcel, and later released the injunction bond.

## Issues

1. Whether material, adverse loan modifications made by a senior lender without a subordinated junior lienholder’s consent permit equitable reordering of deed-of-trust priorities in favor of the junior lienholder.
2. Whether the trial court erred in issuing a TRO restraining foreclosure.
3. Whether the trial court erred in releasing the injunction bond.

## Decision

- The Missouri Court of Appeals affirmed.
- The court upheld equitable reordering of priorities on the front parcel, placing the respondents’ deed of trust ahead of the Bank’s interest as modified.
- The court affirmed the issuance of the TRO restraining foreclosure.
- The court affirmed the release of the injunction bond after the merits were resolved in respondents’ favor.

## Legal Principles

- A junior lienholder’s contractual subordination does not obligate it to bear materially increased risk created by later, adverse modifications to the senior debt made without the junior lienholder’s consent.
- When a senior lender materially modifies loan terms (including extending maturity and increasing interest) in a manner that impairs a subordinated junior lienholder’s security, a court of equity may grant relief by adjusting lien priority to prevent prejudice.
- Injunctive relief restraining foreclosure may be appropriate to prevent irreparable harm while a priority dispute is adjudicated; release of an injunction bond may be proper once the injunction’s basis is resolved on the merits.

## Conclusion

The court held that substantial, adverse loan modifications between a senior lender and borrower—made without the subordinated junior lienholders’ knowledge or consent—could materially impair the junior lienholders’ security and justify equitable reordering of deed-of-trust priority, and it affirmed related injunctive relief and bond release.


Burney v. McLaughlin, 63 S.W.3d 223 (Mo. Ct. App. 2001)