from the Superior Court in Maricopa County No. CV2013-016656
The Honorable Arthur T. Anderson, Judge
& Wilk, PC, Phoenix By David L. Allen, Nichole H. Wilk
Counsel for Plaintiff/Appellee.
Maynard, Cronin, Erickson, Curran & Reiter, PLC, Phoenix
By Douglas C. Erickson Counsel for Defendant/Appellant.
Diane M. Johnsen delivered the opinion of the Court, in which
Presiding Judge Samuel A. Thumma and Judge Patricia K. Norris
In this dispute between two lenders, we address the doctrines
of "replacement" and equitable subrogation as they
apply to respective lien rights. We affirm the superior
court's application of the replacement doctrine to a
claim by U.S. Bank, N.A. for declaratory relief. We vacate
the court's application of equitable subrogation and
remand for entry of judgment in favor of JPMorgan Chase Bank,
N.A. ("Chase") on U.S. Bank's second claim for
declaratory relief. We also remand for consideration of U.S.
Bank's remaining claims.
AND PROCEDURAL BACKGROUND
In 1997, Dietrich and Susanne Loeper obtained a $200, 000
home equity line of credit ("HELOC") from
Chase's predecessor in interest, Bank One, Arizona, N.A.
("Bank One"). The HELOC was secured by a deed of
trust on the Loepers' home ("HELOC Deed of
Trust"). In 2001, the HELOC was modified to increase the
available credit to $250, 000.
In 2004, the Loepers executed a note and deed of trust in
favor of U.S. Bank's predecessor in interest, First
Magnus Financial Corporation ("FMF") for $387, 000
("2004 FMF Note" and "2004 FMF Deed of
Trust"). At that time, Bank One executed and recorded a
subordination agreement waiving the HELOC Deed of Trust's
priority in favor of the 2004 FMF Deed of Trust.
In 2005, the Loepers executed a new note and deed of trust in
favor of FMF for $682, 000 ("2005 FMF Note" and
"2005 FMF Deed of Trust"), and used $384, 040.34
from the loan proceeds to pay off the 2004 FMF Note. The 2004
FMF Deed of Trust was released. The closing statement also
allocated $211, 148.30 from the proceeds of the new loan to
pay off the HELOC. According to Chase, which by then owned
the HELOC, it received and deposited this sum but did not
close the HELOC or release the HELOC Deed of Trust because
the payment "was $3, 452.13 short of what was required
to pay off the Loan." Chase advised the title company of
the shortfall, but no action was taken to correct
Thereafter, the Loepers continued to take advances on the
HELOC, resulting in an unpaid balance of more than $203, 000
Meanwhile, the Loepers defaulted on the 2005 FMF Note, and
the trustee began non-judicial foreclosure proceedings. The
trustee obtained a trustee sale guaranty report, which showed
the HELOC Deed of Trust as superior to the 2005 FMF Deed of
Trust. Thereafter, the trustee under the HELOC Deed of Trust
also began foreclosure proceedings.
US Bank, now holder of the 2005 FMF Note and Deed of Trust,
then filed a four-count complaint in superior court for (1)
declaratory relief - lien priority pursuant to the
replacement doctrine, (2) declaratory relief -lien priority
pursuant to equitable subrogation, (3) unjust enrichment, and
(4) estoppel. The parties agreed to postpone any
trustee's sale until the superior court's final
ruling on the lien priorities.
Following discovery, U.S. Bank moved for summary judgment on
counts one and two of the complaint, and Chase cross-moved
for summary judgment on all four counts. Following oral
argument, the superior court granted U.S. Bank's motion
and denied Chase's cross-motion. Applying both the
replacement doctrine and equitable subrogation, the court
concluded that "equity favors subordinating Chase's
lien to U.S. Bank's lien." The court then entered
judgment pursuant to Arizona Rule of Civil Procedure 54(b),
awarding U.S. Bank its attorney's fees. Chase timely
appealed, and we have jurisdiction pursuant to Article 6,
Section 9, of the Arizona Constitution and Arizona Revised
Statutes ("A.R.S.") section 12-2101(A)(1)
Previously recorded deeds of trust normally take priority
over later deeds of trust. See BAC Home Loans Servicing,
LP v. Semper Invs. L.L.C.,230 Ariz. 587, 590, ¶ 6
(App. 2012). Two equitable doctrines, replacement and
subrogation, however, may permit a later-recorded deed of
trust to assume priority over an earlier deed of trust.
See Markham Contracting Co. v. Fed. Deposit Ins.
Co.,240 Ariz. 360, 363, ¶ 15 (App. 2016). Although
replacement and subrogation are similar doctrines, they apply
in different situations. Subrogation applies when there are
two different lenders "because, by definition, one
cannot be subrogated to one's own previous deed of
trust." Cont'l Lighting & Contracting, Inc.