JP Morgan Chase Bank v. Banc of America Practice Solutions, Inc.
209 Cal. App. 4th 855
Cal. Ct. App.2012Background
- Chase refinanced by paying off the property’s existing first and second deeds of trust and obtained a new first deed of trust; escrow instructed disbursement only if Chase would remain in the primary position.
- Banc, knowing preexisting liens,Loaned to the Siemses to finance a medical practice and took a deed of trust on the property as collateral; Banc anticipated a junior position to Chase and Bay Area’s liens.
- Banc filed its deed of trust prior to Chase’s filing, and Chase had no actual knowledge of Banc’s lien when making its loan.
- Chase sought equitable subrogation to be treated as having priority over Banc for the amounts used to pay off the Chevy Chase and Bay Area liens; Banc defended by invoking the first-in-time rule.
- The trial court granted Chase equitable subrogation; on appeal, the court affirmed, adopting the equitable-subrogation framework to align priorities as the parties anticipated.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether equitable subrogation applies to give Chase priority over Banc. | Chase seeks subrogation to its paid-off first lien. | Banc argues the first-in-time rule governs. | Yes; equitable subrogation applies, giving Chase priority. |
| Whether Chase’s lack of actual knowledge and reliance on a preliminary title report defeats subrogation. | Reliance on a title report does not bar subrogation when actual knowledge is absent. | Constructive notice or failure to search records undermines subrogation. | No; lack of actual knowledge and reliance on a preliminary report do not defeat subrogation. |
| Whether Banc's equities are equal to or greater than Chase's. | Banc knew of the preexisting liens and expected a junior position. | Chase’s payment and expectation of priority justify subrogation. | No; Chase’s equities outweigh Banc’s, supporting subrogation. |
| What is the effect of the borrowers' default and market downturn on the equities? | Drops in market risk do not diminish Chase’s preserved priority. | Not material to defeat subrogation; equities favor Chase. |
Key Cases Cited
- Simon Newman Co. v. Fink, 206 Cal. 143 (Cal. 1928) (equitable subrogation when new security is not a first lien)
- Katsivalis v. Serrano Reconveyance Co., 70 Cal.App.3d 200 (Cal. App. 1977) (equitable subrogation to give effect to parties' intentions)
- Thaler v. Household Finance Corp., 80 Cal.App.4th 1093 (Cal. App. 2000) (first-in-time rule; exceptions for equities)
- Smith v. State Savings & Loan Assn., 175 Cal.App.3d 1092 (Cal. App. 1985) (constructive notice does not preclude equitable subrogation)
- Lawyers Title Ins. Corp. v. Feldsher, 42 Cal.App.4th 41 (Cal. App. 1996) (failure to find recorded lien does not preclude equitable lien)