IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

US BANK, N.A., Plaintiff/Appellee,

v.

JPMORGAN CHASE BANK, N.A., Defendant/Appellant.

No. 1 CA-CV 16-0253

Appeal from the Superior Court in Maricopa County

No. CV2013-016656

The Honorable Arthur T. Anderson, Judge

AFFIRMED IN PART; VACATED IN PART; REMANDED

COUNSEL

Jaburg & Wilk, PC, Phoenix

By David L. Allen, Nichole H. Wilk

Counsel for Plaintiff/Appellee

Maynard, Cronin, Erickson, Curran & Reiter, PLC, Phoenix

By Douglas C. Erickson

Counsel for Defendant/Appellant

OPINION

Judge Diane M. Johnsen delivered the opinion of the Court, in which 

Presiding Judge Samuel A. Thumma and Judge Patricia K. Norris joined.
US BANK v. JPMORGAN

Opinion of the Court

2

J O H N S E N, Judge:

¶1 In this dispute between two lenders, we address the doctrines 

of "replacement" and equitable subrogation as they apply to respective lien 

rights. We affirm the superior court's application of the replacement 

doctrine to a claim by US Bank, N.A. for declaratory relief. We vacate the 

court's application of equitable subrogation and remand for entry of 

judgment in favor of JPMorgan Chase Bank, N.A. ("Chase") on US Bank's 

second claim for declaratory relief. We also remand for consideration of US 

Bank's remaining claims.

FACTS AND PROCEDURAL BACKGROUND

¶2 In 1997, Dietrich and Susanne Loeper obtained a $200,000

home equity line of credit ("HELOC") from Chase's predecessor in interest, 

Bank One, Arizona, N.A. ("Bank One"). The HELOC was secured by a deed 

of trust on the Loepers' home ("HELOC Deed of Trust"). In 2001, the 

HELOC was modified to increase the available credit to $250,000.

¶3 In 2004, the Loepers executed a note and deed of trust in favor 

of US Bank's predecessor in interest, First Magnus Financial Corporation 

("FMF") for $387,000 ("2004 FMF Note" and "2004 FMF Deed of Trust"). At 

that time, Bank One executed and recorded a subordination agreement 

waiving the HELOC Deed of Trust's priority in favor of the 2004 FMF Deed 

of Trust.

¶4 In 2005, the Loepers executed a new note and deed of trust in 

favor of FMF for $682,000 ("2005 FMF Note" and "2005 FMF Deed of Trust"), 

and used $384,040.34 from the loan proceeds to pay off the 2004 FMF Note. 

The 2004 FMF Deed of Trust was released. The closing statement also 

allocated $211,148.30 from the proceeds of the new loan to pay off the 

HELOC. According to Chase, which by then owned the HELOC, it received 

and deposited this sum but did not close the HELOC or release the HELOC 

Deed of Trust because the payment "was $3,452.13 short of what was 

required to pay off the Loan." Chase advised the title company of the 

shortfall, but no action was taken to correct it.1 Thereafter, the Loepers 

 

1 In the statement of facts it filed on summary judgment, Chase 

explained that:
US BANK v. JPMORGAN

Opinion of the Court

3

continued to take advances on the HELOC, resulting in an unpaid balance 

of more than $203,000 by 2013.

¶5 Meanwhile, the Loepers defaulted on the 2005 FMF Note, and 

the trustee began non-judicial foreclosure proceedings. The trustee 

obtained a trustee sale guaranty report, which showed the HELOC Deed of 

Trust as superior to the 2005 FMF Deed of Trust. Thereafter, the trustee 

under the HELOC Deed of Trust also began foreclosure proceedings.

¶6 US Bank, now holder of the 2005 FMF Note and Deed of Trust, 

then filed a four-count complaint in superior court for (1) declaratory relief 

– lien priority pursuant to the replacement doctrine, (2) declaratory relief –

lien priority pursuant to equitable subrogation, (3) unjust enrichment, and 

(4) estoppel. The parties agreed to postpone any trustee's sale until the 

superior court's final ruling on the lien priorities.

¶7 Following discovery, US Bank moved for summary judgment 

on counts one and two of the complaint, and Chase cross-moved for 

summary judgment on all four counts. Following oral argument, the 

superior court granted US Bank's motion and denied Chase's cross-motion. 

Applying both the replacement doctrine and equitable subrogation, the 

court concluded that "equity favors subordinating Chase's lien to US Bank's 

lien." The court then entered judgment pursuant to Arizona Rule of Civil 

Procedure 54(b), awarding US Bank its attorney's fees. Chase timely 

appealed, and we have jurisdiction pursuant to Article 6, Section 9, of the 

Arizona Constitution and Arizona Revised Statutes ("A.R.S.") section 12-

2101(A)(1) (2017).

2

 

A check in the amount of $211,148.30 was received by Chase 

on or about September 16, 2005, which was insufficient to pay 

off the [HELOC]. Guaranty Title Agency was advised that the 

payment was $3,452.13 short of what was required to pay off 

the [HELOC], on or about September 18, 2005. The [HELOC]

was not paid in full and the line of credit remained open.

US Bank did not controvert that statement. Chase has named the title 

company as a non-party at fault.

2 Absent material revision after the relevant date, we cite a statute's 

current version.
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Opinion of the Court

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DISCUSSION

A. General Principles.

¶8 Previously recorded deeds of trust normally take priority 

over later deeds of trust. See BAC Home Loans Servicing, LP v. Semper Invs.

L.L.C., 230 Ariz. 587, 590, ¶ 6 (App. 2012).

3 Two equitable doctrines, 

replacement and subrogation, however, may permit a later-recorded deed 

of trust to assume priority over an earlier deed of trust. See Markham 

Contracting Co. v. Fed. Deposit Ins. Co., 240 Ariz. 360, 363, ¶ 15 (App. 2016). 

Although replacement and subrogation are similar doctrines, they apply in 

different situations. Subrogation applies when there are two different 

lenders "because, by definition, one cannot be subrogated to one's own 

previous deed of trust." Cont'l Lighting & Contracting, Inc. v. Premier Grading 

& Utils., LLC, 227 Ariz. 382, 385, ¶ 10 (App. 2011). Conversely, replacement 

applies to a refinancing by the same lender. See Markham, 240 Ariz. at 363, 

¶ 15.

¶9 The superior court applied both doctrines in this case. We 

review de novo the application of these equitable doctrines. See Brimet II, 

LLC v. Destiny Homes Mktg., LLC, 231 Ariz. 457, 459, ¶ 10 (App. 2013). In 

considering their application, we "examine the totality of the equities." 

Markham, 240 Ariz. at 364, ¶ 18.

4

B. Replacement.

¶10 Chase argues the HELOC Deed of Trust is superior to the 2005 

FMF Deed of Trust "under the rule of first in time, first in right." 

 

3 In this opinion, we use the terms "mortgage," "deed of trust" and 

"lien" interchangeably. See Weitz Co. v. Heth, 235 Ariz. 405, 409, ¶ 12, n.2

(2014).

4 We review de novo the superior court's grant of summary judgment. 

See Weitz, 235 Ariz. at 409, ¶ 11. Summary judgment is appropriate if there 

is no genuine issue of material fact and "the moving party is entitled to 

judgment as a matter of law." Ariz. R. Civ. P. 56(a); see also Orme Sch. v. 

Reeves, 166 Ariz. 301, 305 (1990). We view the facts in the light most 

favorable to the party against which judgment was entered. See Cont'l 

Lighting & Contracting, Inc. v. Premier Grading & Utils., LLC, 227 Ariz. 382, 

384, ¶ 2 (App. 2011).
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Opinion of the Court

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¶11 Arizona expressly has adopted the replacement doctrine as 

defined by the Restatement (Third) of Property: Mortgages ("Restatement")

§ 7.3 (1997):

If a senior mortgage is released of record and, as part of the 

same transaction, is replaced with a new mortgage, the latter 

mortgage retains the same priority as its predecessor, except

. . . to the extent that any change in the terms of the mortgage 

or the obligation it secures is materially prejudicial to the 

holder of a junior interest in the real estate . . . .

Cont'l Lighting, 227 Ariz. at 388, ¶ 22 (citing Restatement § 7.3).5 The 

rationale behind the replacement doctrine is that "the intervening 

lienholder suffers no prejudice because its lien maintains the same position 

it occupied before the subsequent lender satisfied the pre-existing 

obligation." Lamb Excavation, Inc. v. Chase Manhattan Mortg. Corp., 208 Ariz. 

478, 481, ¶ 11 (App. 2004).

¶12 Applying Restatement § 7.3 in Continental Lighting, this court

held that:

where a senior lien is released of record and, as part of the 

same transaction, is replaced with a new lien, the latter retains 

the same priority as its predecessor, except to the extent that 

any change in the terms of the security document or the 

underlying debt it secures is materially prejudicial to a junior 

lienholder's interest in the real property.

227 Ariz. at 388, ¶ 22. In Continental Lighting, the amount of the new loan 

exceeded the balance on the original loan; therefore, the new deed of trust 

assumed the priority of the original deed of trust to the extent of the balance 

on the original loan paid off by the new loan. Id. at 388-89, ¶ 23.

¶13 Here, the Loepers used the 2005 FMF Note proceeds to satisfy 

and replace the 2004 FMF Note and the 2004 FMF Deed of Trust. Therefore, 

application of the replacement doctrine is appropriate. Pursuant to the 

 

5 Restatement § 7.3 applies both to the replacement and modification 

of mortgages. See Restatement § 7.3. This case involves replacement, which 

occurs when "a lender releases its original lien of record, discharging it with 

the proceeds of the second loan secured by a new mortgage that is recorded 

either immediately or shortly after releasing the initial loan as part of the 

same replacement loan transaction." Cont'l Lighting, 227 Ariz. at 387, ¶ 16, 

n.3 (citing Restatement § 7.3 cmt. a).
US BANK v. JPMORGAN

Opinion of the Court

6

subordination agreement, the 2004 FMF Deed of Trust had priority over the 

HELOC Deed of Trust. Therefore, applying the replacement doctrine, the 

2005 FMF Deed of Trust, which replaced the 2004 FMF Deed of Trust,

retained priority over the HELOC Deed of Trust to the extent of $384,040.34, 

the amount paid on the 2004 FMF Note from the proceeds of the 2005 FMF 

Loan. Chase suffers no prejudice from application of the replacement 

doctrine because the HELOC Deed of Trust maintains the same position it 

occupied before the 2005 Deed of Trust replaced the 2004 Deed of Trust.

¶14 Accordingly, we affirm the superior court's application of the 

replacement doctrine and conclude that the 2005 FMF Deed of Trust takes 

priority over the HELOC Deed of Trust to the extent of $384,040.34.

C. Equitable Subrogation.

¶15 Chase next argues that, even if the replacement doctrine 

applies, equitable subrogation does not apply because US Bank's 

predecessor, FMF, "was aware of Chase's lien and failed to take proper steps 

to ensure that it was satisfied and released." 

¶16 As with replacement, Arizona has adopted the definition of 

subrogation set forth in Restatement § 7.6: "One who fully performs an 

obligation of another, secured by a mortgage, becomes by subrogation the 

owner of the obligation and the mortgage to the extent necessary to prevent 

unjust enrichment." (Emphasis added); Sourcecorp, Inc. v. Norcutt, 229 Ariz. 

270, 273, ¶¶ 10, 12 (2012) (adopting Restatement § 7.6). This court has held 

that "the doctrine of equitable subrogation allows a subsequent lender who 

applies funds to a primary and superior encumbrance to be substituted in 

the priority position of the primary lienholder." BAC Home Loans, 230 Ariz. 

at 590, ¶ 6; see also Mosher v. Conway, 45 Ariz. 463, 472 (1935) ("The general 

rule is that a person having an interest in property who pays off an 

encumbrance in order to protect his interest is subrogated to the rights and 

limitations of the person paid.").

¶17 As our supreme court has explained, however, "[e]quitable 

subrogation is generally permitted only when a person fully discharges a 

debt secured by a mortgage." Weitz Co. v. Heth, 235 Ariz. 405, 411, ¶ 20 

(2014) (emphasis added). In announcing this general rule, the court relied 

on Restatement § 7.6 comment a, which states:

Where subrogation to a mortgage is sought, the entire 

obligation secured by the mortgage must be discharged. 

Partial subrogation to a mortgage is not permitted. The reason is 

that partial subrogation would have the effect of dividing the 
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Opinion of the Court

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security between the original obligee and the subrogee, 

imposing unexpected burdens and potential complexities of 

division of the security and marshaling upon the original 

mortgagee. However, if the payor can negotiate a full 

settlement of the obligation for less than its face value, 

subrogation will be recognized.

(Emphasis added.)

¶18 Weitz involved a construction loan secured by a deed of trust 

on a high-rise condominium project. 235 Ariz. at 408, ¶ 3. As the individual 

condominium units were sold, the purchase monies were applied to the 

construction loan and the lender released the sold units from the deed of 

trust. Id. at ¶ 5. After the majority of units were sold, the general contractor

recorded a mechanics' lien against the project. Id. at ¶ 6. Our supreme court 

held that the condominium purchasers and their lenders could be equitably 

subrogated to the lender's deed of trust because they fully discharged that 

portion of the construction loan allocated to their properties and obtained 

releases from the lender. See id. at 411, 412, ¶¶ 22, 26.

¶19 Here, FMF did not fully discharge the obligation secured by 

the HELOC Deed of Trust, negotiate a full settlement of the HELOC for less 

than face value or obtain a release from Chase. Accordingly, the doctrine 

of equitable subrogation does not apply and the HELOC Deed of Trust 

retains priority over the 2005 FMF Deed of Trust for any amount above and 

beyond $384,040.34. See Weitz, 235 Ariz. at 411, ¶ 20; Restatement § 7.6 cmt.

a.6

¶20 Accordingly, we vacate that part of the superior court's order 

applying the doctrine of equitable subrogation and direct entry of judgment

in favor of Chase on US Bank's second claim for declaratory relief.

 

6 US Bank also argues that "Arizona case law is clear that an additional 

advance which may be made under loan documents loses its priority to the 

interests of a subsequent creditor after the mortgagee has actual notice of 

the subsequently acquired interest in the property." Under Arizona case 

law, however, this rule applies only if the advance is optional. La Cholla 

Grp., Inc. v. Timm, 173 Ariz. 490, 492 (App. 1992). "The general rule appears 

to be that, as to obligatory advances where the existence of the mortgagee's 

obligation to advance funds is of record, the advances have priority over 

any intervening liens." Id. Because advances under the HELOC Deed of 

Trust were obligatory and not optional, US Bank's argument fails.
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Opinion of the Court

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D. Attorney's Fees.

¶21 After granting summary judgment in favor of US Bank, the 

superior court awarded US Bank $41,912 in attorney's fees. On appeal, 

Chase argues the award was improper because the claims for declaratory 

relief do not arise out of contract as required by A.R.S. § 12-341.01 (2017). 

¶22 Section 12-341.01(A) authorizes an award of attorney's fees to 

the successful party "[i]n any contested action arising out of a contract." 

"[T]his court will look to the nature of the action and the surrounding 

circumstances to determine whether the claim is one 'arising out of a 

contract.'" Marcus v. Fox, 150 Ariz. 333, 335 (1986) ("[A]ttorney's fees are not 

appropriate based on the mere existence of a contract somewhere in the 

transaction."). The application of A.R.S. § 12-341.01 is a question of 

statutory interpretation, which we review de novo. See Ramsey Air Meds, 

L.L.C. v. Cutter Aviation, Inc., 198 Ariz. 10, 13, ¶ 12 (App. 2000).

¶23 Although the underlying loans were the product of contracts 

between the Loepers and their respective lenders, US Bank's claims for 

declaratory relief, which request application of the equitable doctrines of 

replacement and subrogation, do not arise out of contract. See Brimet II, 231 

Ariz. at 461, ¶ 22 ("This was a statutory quiet title action that turned on the 

application of the equitable doctrines of replacement and subrogation; it 

did not arise out of contract."); see also Caruthers v. Underhill, 230 Ariz. 513, 

526, ¶ 57 (App. 2012) ("The contract must be the essential basis of the action 

and not merely a factual predicate."). For this reason, and because we 

vacate the superior court's ruling on US Bank's second claim for declaratory

relief, we also vacate the superior court's award of attorney's fees and costs.

CONCLUSION

¶24 For the foregoing reasons, we affirm the entry of summary 

judgment on US Bank's claim for declaratory relief under the replacement 

doctrine. We vacate the entry of summary judgment on US Bank's claim 

seeking declaratory relief under the doctrine of equitable subrogation. On 

remand, the superior court is directed to enter summary judgment in favor 

of Chase on the equitable subrogation claim. We also vacate the superior 

court's award of attorney's fees and costs.
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Opinion of the Court

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¶25 For the reasons set forth above, we deny US Bank's request 

for an award of fees on appeal pursuant to A.R.S. § 12-341.01. Chase is 

entitled to costs on appeal upon compliance with Arizona Rule of Civil 

Appellate Procedure 21. See Henry v. Cook, 189 Ariz. 42, 43 (App. 1996) ("[A]

party who succeeds on less than all claims is sufficiently successful to 

recover costs under the statute.").