US Bank, N.A. v. JPMorgan Chase Bank, N.A.
242 Ariz. 502
| Ariz. Ct. App. | 2017Background
- In 1997 the Loepers took a HELOC from Bank One (later Chase) secured by a deed of trust; it was later modified to increase the limit.
- In 2004 FMF (now US Bank) took a $387,000 loan secured by a deed of trust; Bank One executed a subordination agreement giving FMF priority over the HELOC.
- In 2005 the Loepers refinanced with FMF for $682,000; $384,040.34 of the proceeds paid off the 2004 FMF loan and the 2004 deed of trust was released; $211,148.30 was paid toward the HELOC but Chase says that payment was $3,452.13 short and it did not release the HELOC, and the HELOC remained open and later had advances.
- Loepers defaulted on the 2005 FMF loan; competing foreclosure steps followed and priority disputes arose between US Bank and Chase.
- US Bank sued for declaratory relief (replacement doctrine and equitable subrogation) plus unjust enrichment and estoppel; the superior court granted summary judgment to US Bank on both equitable doctrines and awarded attorney’s fees; Chase appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2005 FMF deed of trust inherits the priority of the 2004 FMF deed (replacement doctrine) | US Bank: 2005 loan replaced the 2004 loan in the same transaction, so replacement doctrine preserves prior priority to the extent of funds used to pay off 2004 loan | Chase: HELOC is first in time and retains priority; replacement should not cut off HELOC | Court: Affirmed replacement applies; 2005 deed takes priority over HELOC to the extent of $384,040.34 (amount used to pay 2004 loan) |
| Whether equitable subrogation applies to give FMF/US Bank priority over the HELOC for amounts beyond $384,040.34 | US Bank: FMF applied proceeds to extinguish senior encumbrance and should be subrogated to senior lien position | Chase: FMF knew of Chase’s lien and did not ensure the HELOC was fully satisfied/released; subrogation requires full discharge | Court: Vacated subrogation; subrogation unavailable because the HELOC was not fully discharged, so HELOC retains priority for amounts above $384,040.34 |
| Whether attorney’s fees awarded under A.R.S. § 12-341.01 were proper | US Bank: prevailing on declaratory claims supports fee award | Chase: declaratory/equitable claims do not "arise out of a contract" for § 12-341.01 | Court: Vacated fee award; declaratory relief based on equitable doctrines does not arise out of contract and fee award improper |
Key Cases Cited
- Cont'l Lighting & Contracting, Inc. v. Premier Grading & Utils., LLC, 227 Ariz. 382 (App. 2011) (adopts Restatement §7.3 replacement rule and explains replacement mechanics)
- Markham Contracting Co. v. Fed. Deposit Ins. Co., 240 Ariz. 360 (App. 2016) (distinguishes replacement and subrogation contexts)
- Weitz Co. v. Heth, 235 Ariz. 405 (2014) (equitable subrogation generally requires full discharge of the senior obligation)
- BAC Home Loans Servicing, LP v. Semper Invs. L.L.C., 230 Ariz. 587 (App. 2012) (discusses priority and subrogation principles)
- Lamb Excavation, Inc. v. Chase Manhattan Mortg. Corp., 208 Ariz. 478 (App. 2004) (explains rationale for replacement doctrine)