News + updates + recent press
The Supreme Court of Texas, in PNC Mortgage v. Howard, recently held that the holder of a deed of trust was entitled to foreclose through equitable subrogation, even after the four-year foreclosure statute of limitations had lapsed. Click here to read the opinion.
In 2003, the borrowers purchased a home with loans secured by two purchase-money liens on their property. Two years later, the borrowers refinanced the mortgages with a new loan and paid off the purchase-money mortgages. The note and deed of trust securing the loan were subsequently assigned to and acquired by a new lending entity (“mortgagee”).
In January 2009, the mortgagee notified the borrowers of their default and intent to accelerate the loan, and five months later, accelerated the note. Concurrently, the original lender initiated foreclosure proceedings against the borrowers despite having assigned the loan to the mortgagee, which resulted in a sale of the property.
The borrowers filed suit against the original lender seeking to set aside the foreclosure sale on this basis, while adding the mortgagee as an interested party defendant. After the trial court declared the foreclosure void as to the original lender, in 2015 the mortgagee asserted counterclaims against the borrowers seeking to foreclose the deed of trust lien, or alternatively, judgment declaring its right to foreclose through equitable subrogation should the trial court determine that the four years statute of limitations to foreclose after acceleration had lapsed. The trial court entered judgment against the mortgagee, declaring the loan’s note and deed of trust lien unenforceable. The mortgagee subsequently appealed.
Ultimately the mortgagee argued that because the borrowers had used the loan’s proceeds to discharge the two pre-existing purchase-money mortgages, it held an equitable lien on the borrowers’ property. The Supreme Court of Texas agreed that the mortgagee’s failure to timely foreclose under the deed of trust lien did not bar its subrogation rights, reasoning that subrogation operates as a hedge against the risk of refinancing the outstanding amount of an existing loan, permitting a lender to assert rights under a lien its loan has satisfied when the lender’s own lien is infirm.
PLG BLOG DISCLAIMER
The information contained on this blog shall not constitute legal advice or a legal opinion. The existence of or review and/or use of this blog or any information hereon does not and is not intended to create an attorney-client relationship. Further, no information on this blog should be construed as investment advice. Independent legal and financial advice should be sought before using any information obtained from this blog. It is important to note that the cases are subject to change with future court decisions or other changes in the law. For the most up-to-date information, please contact Padgett Law Group (“PLG”). PLG shall have no liability whatsoever to any user of this blog or any information contained hereon, for any claim(s) related in any way to the use of this blog. Users hereby release and hold harmless PLG of and from any and all liability for any claim(s), whether based in contract or in tort, including, but not limited to, claims for lost profits or consequential, exemplary, incidental, indirect, special, or punitive damages arising from or related to their use of the information contained on this blog or their inability to use this blog. This Blog is provided on an "as is" basis without warranties of any kind, either express or implied, including, but not limited to, warranties of title or implied warranties of merchantability or fitness for a particular purpose.