Opinion ID: 2366974
Heading Depth: 1
Heading Rank: 7

Heading: Equitable subrogation as an equitable remedy

Text: The district court refused to grant equitable subrogation because it determined that ASB did not act equitably by requesting to subrogate the ASB note that contained substantially different terms than the 2nd Steward note and to be subrogated to a senior priority lien position that had an inflated value above the original value of the lien. The district court reasoned that subrogation, under the circumstances, would be detrimental to a junior lienholder. We ultimately affirm the district court's conclusion but reject the district court's reasoning to the extent that it relies on the difference in interest rate and principal value of the notes. See Lamb Excavation v. Chase Manhattan Mortg., 208 Ariz. 478, 95 P.3d 542, 547 (Ariz. Ct.App.2004) (reasoning that the difference in interest rates does not preclude equitable subrogation); see also St. James Village, Inc. v. Cunningham, 125 Nev. ___, ___, 210 P.3d 190, 196 (2009) (affirming the district court's decision, although the court relied on different grounds in reaching its decision). We conclude that a material acceleration in the maturity date between the senior note and the paying note can accelerate default on the senior lien, resulting in injustice and prejudice to an intervening lienor. While it is practical to neutralize any prejudice resulting from a difference in interest rate and principal value, the prejudicial effect of a material acceleration in the maturity date cannot be accounted for by the same means. Additionally, at trial, ASB confirmed that it was receiving monthly payment obligations on the ASB note but only allocated those payments to the ASB deed of trust, a junior lien interest, while it also considered the 2nd Steward note and deed of trust to be in default and accruing additional interest, late fees, and costs. Because the 2nd Steward note was accruing interest and increasing in value, ASB did not limit its subrogation claim to the value paid for the discharged deed of trust, $519,092, but claimed that it was entitled to the additional interest, late fees, and costs totaling $685,217. ASB did not clarify that the district court should, as an alternative, limit subrogation to the value paid to satisfy the original 2nd Steward note, $519,092, until after the entry of judgment. Also, ASB failed to explain what the Borrowers or interested junior lienholders could have done in order to prevent the 2nd Steward note from accruing this additional interest. We agree that it is inequitable and prejudicial to inflate the value of a subrogated deed of trust to the detriment of all junior lienholders and then assert a claim for subrogation to that inflated position. Although arguments were presented about the allocation of the payments ASB received, we do not address at this time how payments on a subrogated note should be allocated when the note is secured by more than one deed of trust. However, because the material difference in the maturity date between the 2nd Steward note and the ASB note unavoidably prejudiced JMLV, and ASB acted inequitably by inflating the value of the subrogated deed of trust, we conclude that the district court did not abuse its discretion by refusing to apply the equitable subrogation doctrine in this case. [4] Accordingly, we affirm the district court's judgment. We concur: PARRAGUIRRE, C.J., DOUGLAS, CHERRY, SAITTA, GIBBONS, and PICKERING, JJ.