Key Decisions

October 2012 – Equitable Subrogation

(filed under: Key Decisions Archive | October 24, 2012)

Other Cases Of Interest

Equitable Subrogation Was Appropriate When Deeds Of Trust Securing Loans Were Recorded In The Wrong Order

JP Morgan Chase Bank, N.A. v. Banc of America Practice Solutions, Inc.
(Cal. Ct. of App., 4th Dist.), filed September 27, 2012

JP Morgan Chase Bank made a loan to Jon and Julie Siems to pay off their first and second deeds of trust on their residence. Chase intended its loan to be secured by a new first deed of trust.

Jon Siems also sought a business loan from Sky Bank, Banc of America Practice Solutions, Inc.’s predecessor in interest, at about the same time. Chase did not know about this loan.

The Sky Bank loan was primarily secured by the personal property assets of Jon Siems’s medical practice. However, it was also to be secured by a deed of trust on the Siemses’ real property, as the Siemses guaranteed the business loan. Sky Bank, knowing the real property was already secured by first and second deeds of trust that were in place before the Siemses applied for the Chase loan and the medical corporation applied for the Sky Bank loan, anticipated its loan would be secured by a third deed of trust on the property.

When the Chase and Sky Bank loans were funded, Sky Bank obtained and filed a deed of trust before Chase. This placed the Chase deed of trust in second position and rendered it much less secure.

Chase sought and obtained an order in the superior court placing its deed of trust ahead of Sky Bank’s deed of trust. It relied on principles of equitable subrogation. The trial court granted that order.

The Court of Appeal affirmed. It ruled that the case was an appropriate case for invocation of equitable subrogation. Chase sought to pay off the first and second deeds of trust and substitute its deed of trust in a position of primacy. Sky Bank sought to secure its loan with a deed of trust subordinate to the two other deeds that Chase paid off. Application of equitable subrogation did not prejudice Sky Bank. Rather, it put both parties exactly where each anticipated being in making their respective loans.