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US Bank, N.A. v. JPMorgan Chase Bank, N.A.

Court of Appeals of Arizona, First Division

June 29, 2017

US BANK, N.A., Plaintiff/Appellee,
JPMORGAN CHASE BANK, N.A., Defendant/Appellant.

         Appeal from the Superior Court in Maricopa County No. CV2013-016656 The Honorable Arthur T. Anderson, Judge

          Jaburg & 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.

          Judge Diane M. Johnsen delivered the opinion of the Court, in which Presiding Judge Samuel A. Thumma and Judge Patricia K. Norris joined.


          JOHNSEN, JUDGE

         ¶1 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.


         ¶2 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.

         ¶3 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.

         ¶4 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 it.[1] Thereafter, the Loepers continued to take advances on the HELOC, resulting in an unpaid balance of more than $203, 000 by 2013.

         ¶5 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.

         ¶6 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.

         ¶7 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) (2017).[2]


         A. General Principles.

         ¶8 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).[3] 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. v. ...

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