Court Opinion

ID: 9642825
Source: CourtListenerOpinion
Date Created: 2023-08-22 18:09:59.82202+00
Date Added: 2024-06-11T18:10:52.921918
License: Public Domain

Concurring and dissenting opinion by
SANDEE BRYAN MARION, Justice, joined by REBECCA SIMMONS, Justice.
I agree with the majority’s conclusion that because Lorae White’s land was designated for agricultural use, the Texas Constitution prohibited it from being used as security for a home equity loan. However, I disagree with the majority’s conclusion that equitable subrogation does not trump the constitutionally-mandated penalty of forfeiture. On that issue, I would hold that LaSalle Bank is entitled to equitable subrogation for the amount paid to satisfy the first lien on the property and the property taxes. Therefore, I respectfully dissent.
EQUITABLE SUBROGATION AND FORFEITURE
Article XVI, Section 50(e) of the Texas Constitution sets forth the terms and conditions that a contractual home equity loan must meet in order to create a valid lien against a homestead. However, I do not believe Article XVI, Section 50(e) prohibits a court from applying well-established equitable principles to avoid an inequitable windfall to a homeowner.
Equitable subrogation arises by operation of law or by implication in equity to prevent injustice. Harris v. American Protection Ins. Co., 158 S.W.3d 614, 622 (Tex.App.-Fort Worth 2005, no pet.). Under the doctrine of equitable subrogation, a third party who pays a debt at the request of the debtor, may under certain circumstances, be subrogated to the creditor’s security interest for the debt that has been discharged. First Nat’l Bank of Kerrville v. O’Dell, 856 S.W.2d 410, 415 (Tex.1993); see also Langston v. GMAC Mortg. Corp., 183 S.W.3d 479, 481 (Tex.App.-Eastland 2005, no pet.) (applying equitable subrogation to enforce home equity lien). The purpose of the doctrine is to prevent the unjust enrichment of the debt- or who owed the debt that is paid. O’Dell, 856 S.W.2d at 415. “Application of the *580doctrine is said to be ‘the purest of equities,’ and the courts of Texas are said to be particularly hospitable to it.” ir.1954)).
I believe the majority erroneously concludes that the Texas Supreme Court’s decision in Benchmark Bank v. Crowder, 919 S.W.2d 657 (Tex.1996) “provides no support for the proposition that an equitable doctrine can provide relief to a lender who violates the express provision of the Texas Constitution.” In Crowder, Mr. and Mrs. Crowder borrowed money from a bank to pay federal taxes. They signed a note and gave the bank a deed of trust purporting to create a lien against their homestead. After the Crowders defaulted on the note and the bank foreclosed, the Crowders sued the bank claiming the lien against the homestead was invalid. The bank argued it was subrogated to a valid lien against the homestead, even though federal tax liens were- not within those specifically identified as valid in the then existing version of Article XVT, Section 50 of the Constitution. The trial court granted summary judgment in favor of the bank; the court of appeals reversed concluding “that the Bank’s attempt to obtain or enforce the IRS’s tax lien was precluded by the homestead protection afforded under the Texas Constitution”; and the Supreme Court reversed holding that the bank was both contractually and equitably subrogated to the federal government’s tax lien against the Crowders’ homestead.
The Supreme Court first noted the passage of the constitutional amendment permitting an encumbrance against a homestead for the refinance of a lien against a homestead, including a federal tax lien. Crowder, 919 S.W.2d at 660. However, the Court determined the amendment permitting a lien for federal taxes had no bearing on its disposition of the case because the tax lien and the Bank’s subrogation rights were fixed before the amendment’s adoption. Id. Therefore, the Court proceeded to “determine whether, in the absence of the amendment to Article XVI, Section 50, the Bank obtained through subrogation a valid and enforceable lien against the Crowders’ homestead.” Id. In concluding the Bank was contractually and equitably subrogated to the federal government’s tax lien against the Crowders’ homestead, the Court reasoned as follows:
We have previously held that a third party who refinances a debt secured by a valid mechanic’s lien against a homestead may be subrogated to the lien. We see no difference between the refinancing of debt secured by a mechanic’s lien and the refinancing of debt secured by a federal tax lien. Once valid, the lien does not become invalid against the homestead simply because the original debt has been refinanced. To hold otherwise, in fact, would defeat the very purpose of the homestead protection. Homestead owners must have the ability to renew, rearrange, and readjust the encumbering obligation to prevent a loss of the homestead through foreclosure.
Id. at 661 (citations omitted).
Thus, the Crowder Court applied equitable subrogation to validate a lien that was otherwise not valid under Article XVT, Section 50. I believe Crowder supports the continued application of equitable sub-rogation in appropriate circumstances, such as those presented here. White ben-efitted from the loan made to her by La-Salle Bank because she used the loan proceeds to “renew, rearrange [or] readjust the encumbering obligation[s]” on her homestead. See id. Of the $260,000.00 White borrowed, $185,010.51 was paid to *581Joe Di Sebastiano to satisfy the purchase money lien on the property and $9,410.96 was paid to satisfy outstanding taxes on the property. The remaining amount, $57,518.50 was paid directly to White. I believe LaSalle Bank is entitled to equitable subrogation for the amount paid to Di Sebastiano and for the taxes. To hold otherwise would defeat the very purpose of the doctrine of equitable subrogation, which is “to prevent the unjust enrichment of the debtor who owed the debt that is paid.” See O’Dell, 856 S.W.2d at 415. In my opinion, to “prevent injustice,” the windfall to White demands application of the doctrine of equitable subrogation. See Harris, 158 S.W.3d at 622. Accordingly, I believe the forfeiture provisions of Article XVI, section 50(e) do not apply here.