First In Time, First In Right…uh oh, the preliminary title report didn’t catch something…Equitable Subrogation To The Rescue.

A husband and wife borrowed $3.2 million from Chase Bank to refinance their home and pay off two existing deeds of trust. The escrow instructions expressly stated the loan was to pay off the existing first and second deeds of trust, that the loan was not to close unless secured by a new first deed of trust and that any second mortgage on the property must be subordinate to Chase’s deed of trust.  Apparently unbeknownst to Chase, the husband, at about the same time, sought another loan for over $2 million from Banc of America Practice Solutions to finance his medical practice. That loan was also guaranteed by a deed of trust on the couple’s home, but Banc of America was aware the property was already encumbered by two existing deeds of trust, and expected to be in third place. Well, things didn’t work out as expected. The preliminary title report obtained for the Chase loan did not reflect the loan from Banc of America, and Banc of America unexpectedly ended up in first place.  The husband’s professional corporation defaulted on Banc’s loan with $2.3 million owing. Banc instituted foreclosure proceedings, and Chase cross-complained seeking an equitable lien on the property. The trial court granted Chase’s motion for summary adjudication and entered judgment in Chase’s favor. Noting that equitable subrogation looks to the intentions of the parties, the appellate court affirmed. J.P. Morgan Chase Bank v. Banc of America Practice Solutions (Cal. App. Fourth Dist., Div. 3;  September 27, 2012) 209 Cal.App.4th 855.