Washington Appellate Court Equitably Subrogates Lender to Priority Position

The Washington Court of Appeals recently granted a refinancing lender a priority lien over a mortgage secured by a revolving line of credit under the equitable subrogation doctrine.  See America’s Credit Union v. Countrywide Home Loans Inc., 188 Wash. App. 1063 (2015).  In the case, the borrowers executed a deed of trust to secure a $98,000 loan in 1994.  In 2000, the borrowers opened a home equity line of credit that was secured by a mortgage on the same property.  In 2002, the borrowers refinanced, with the refinancing lender paying off the first loan and the balance of the line of credit.  The refinancing lender did not, however, have the line of credit closed and the borrowers continued to draw on it.  In 2012, the borrowers defaulted on the line of credit and the line of credit lender initiated a foreclosure action in which it also sought an order that its mortgage was the first lien on the property.  The refinancing lender also claimed first-priority status and the parties filed cross-motions for summary judgment seeking priority.  The trial court granted the line of credit lender priority and the refinancing lender appealed.  The appellate court reversed the decision, finding that the refinancing lender was entitled to equitable subrogation.  The court, citing to the Restatement, found that the refinancing lender had intended to have the priority lien on the property when it paid off the borrowers’ obligation, and that the line of credit lender would not be prejudiced by remaining in its original secondary position.  It further rejected the line of credit lender’s argument that it would not be unjustly enriched by taking the first-priority position because the sale of the property would likely satisfy both liens, finding instead that the line of credit lender’s promotion from a second-priority position to a first-priority position itself would be unjust enrichment. For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.