Texas Supreme Court allows lender to sue premature foreclosure under fair subrogation
The Texas Supreme Court recently ruled that a lender can still foreclose on a mortgage under the doctrine of equitable subrogation, even if it forecloses after the statute of limitations expires. See PNC Mortg. vs. Howard, 2021 WL 297579 (Tex. 29 January 2021). In 2003, the defendants bought a house with loans secured by two mortgages. In 2005, they refinanced those mortgages with a new loan secured by a new mortgage, and that 2005 mortgage was assigned to a new lender. The defendants defaulted on the loan in 2008. The assignor of the 2005 mortgage then sued for foreclosure, and the defendants objected on the grounds that the assignor was no longer the owner of the mortgage. The defendants also added the assignee lender as a party. The assignee lender sought both foreclosure and, alternatively, sought to foreclose by equitable subrogation. The trial court dismissed the assigning lender because it no longer held the mortgage and allowed claims to continue between the assignee lender and the defendants. The trial court subsequently granted the defendants summary judgment, ruling that the note and mortgage were unenforceable because the limitation period had expired and any equitable claim was barred by the negligence of the assignee lender to fail to enforce. not sue for foreclosure immediately after being named by the defendants in the lawsuit. The Court of Appeal stated that “to the extent that PNC held a privilege in equity, it became inapplicable when PNC lost its own privilege by failing to seize it in due time”.
On appeal, the Texas Supreme Court overturned and remanded. Citing a 2020 decision in which it held that a mortgage was enforceable by subrogation in equity despite “a constitutional defect”, the Court held here that the alleged negligence of a lender in bringing an action does not affect its right. foreclosure under an equitable subrogation. See Fed. Mortgage real estate loan Corp. vs. Zepeda, 601 SW3d 763 (Tex. 2020). Applying this decision to the present case, he found that “the rights of equitable subrogation become fixed the moment the proceeds of a subsequent loan are used to discharge a prior lien. Failure by a lender to preserve its rights under its own lien therefore does not deprive the lender of its equity rights to assert a prior lien that was released using the proceeds of the subsequent loan.