JP Morgan Chase etc. v. Banc of America Practice etc. 9/27/12 CA4/3

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State: California

Court: California Eastern District Court

Docket No: G045943

Case Date: 09/27/2012

Plaintiff: JP Morgan Chase etc.

Defendant: Banc of America Practice etc. 9/27/12 CA4/3

Preview:Filed 9/27/12

CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE

JP MORGAN CHASE BANK, N.A., Cross-Complainant and Respondent, v. BANC OF AMERICA PRACTICE SOLUTIONS, INC., Cross-defendant and Appellant. G045943 (Super. Ct. No. 30-2010-00355561) OPINION

Appeal from a judgment of the Superior Court of Orange County, B. Tam Nomoto Schumann, Judge. Affirmed. Law Offices of Marlene Leiva, Marlene Leiva; Carroll, Burdick & McDonough, Vicki L. Freimann and Nathaniel K. Fisher for Cross-defendant and Appellant. Law Offices of Mary Jean Pedneau, Mary Jean Pedneau, William R. Larr and Susan S. Vignale for Cross-complainant and Respondent. * * *

This case involves the application of equitable subrogation. JP Morgan Chase Bank, N.A. (Chase) made a loan to Jon and Julie Siems to pay off their first and second deeds of trust on their residence. Chase intended its loan to be secured by a new first deed of trust. Indeed, its escrow instructions specifically forbade disbursement of the funds if its deed of trust would not be in the primary position. Unbeknownst to Chase, Jon Siems also sought a business loan from Sky Bank, Banc of America Practice Solutions, Inc.s (Banc) predecessor in interest, about the same time.1 While that loan was primarily secured by the personal property assets of Jon Siemss medical practice, it was also to be secured by a deed of trust on the Siemses real property, as the Siemses guaranteed the business loan. Banc, knowing the real property was already secured by first and second deeds of trust that were in place before the Siemses applied for the Chase loan and the medical corporation applied for the Banc loan, anticipated its loan would be secured by a third deed of trust on the property. When the Chase and Banc loans were funded, Banc obtained and filed a deed of trust before Chase. Chase sought and obtained an order in the superior court placing its deed of trust in a position of primacy over Bancs under equitable subrogation. Banc appealed. We affirm. This is an appropriate case for invocation of equitable subrogation. Chase sought to pay off the first and second deeds of trust and substitute its deed of trust in a position of primacy. Banc sought to secure its loan with a deed of trust subordinate to the two other deeds subsequently paid off by Chase. Application of equitable subrogation in this matter does not prejudice Banc. In fact, equitable subrogation provides both parties with exactly what each anticipated in making their respective loans.

In discussing this loan we refer to Banc rather than Sky Bank, as Banc succeeded Sky Banks interest. 2

1

I FACTS The facts underlying this matter are undisputed. Jon Siems and Julie Siems owned the residence at 116 Kings Place in Newport Beach (the property), subject to first and second deeds of trust. The first deed of trust secured a loan of more than $2 million from Chevy Chase Bank (Chevy Chase) and the second deed trust more than $1 million from Bay Area Financial Corporation (Bay Area). In 2006, the Siemses sought to refinance and pay off the two deeds of trust on the property, replacing them with a new first deed of trust. For that purpose, Chase loaned the Siemses over $3.2 million and the escrow company, First American Title Companys sub-escrow department, disbursed the loan proceeds, paying off the holders of the first and second deeds of trust, Chevy Chase and Bay Area, respectively, on October 25, 2006. Chase filed its deed of trust that same day. Funding of the Chase loan was made after First American Title Company issued a preliminary title report showing the Chevy Chase and Bay Area deeds of trust. The preliminary title report stated it was accurate as of August 16, 2006, at 7:30 a.m. Chases instructions to the escrow company expressly stated the loan was to pay off the existing first and second deeds of trust, the loan was not to close unless secured by a new first deed of trust, and any second mortgage on the property must be subordinate to Chases deed of trust and approved by Chase prior to closing. Apparently unbeknownst to Chase, Jon Siems also sought another loan during 2006, this one for over $2 million. The loan was to be used to finance his medical practice. The application for the loan was made by the "Jon L. Siems, M.D., Professional Corporation," with the Siemses guaranteeing the loan. As collateral, the professional corporation pledged the personal property of the medical practice. The Siemses guaranteed the loan and gave Banc a deed of trust on the property. Banc was aware the property was encumbered by the Chevy Chase and Bay Area deeds of trust. Bancs loan 3

closed in August 2006, and the deed of trust securing the loan was filed on August 24, 2006, eight days after the date referred to in Chases preliminary title report. When Chase made its loan to the Siemses, it had no actual knowledge of Bancs deed of trust. Neither the preliminary title report nor the title insurance issued to Chase contained any references to Bancs deed of trust. Jon Siemss professional corporation defaulted on Bancs loan on December 20, 2009, with $2.3 million owing. Banc instituted judicial foreclosure proceedings the following March. Chase subsequently filed a cross-complaint seeking an equitable lien on the property and declaratory relief. The superior court granted Chases motion for summary adjudication, and entered judgment in favor of Chase, establishing two equitable liens in favor of Chase. The first was in the principal amount of $2,197,233.63 plus interest, the amount paid off on the Chevy Chase first deed of trust. The second was in the amount of $1,003,042.52 plus interest, the amount paid off on the Bay Area second deed of trust. II DISCUSSION A court must grant a partys motion for summary judgment or summary adjudication when the papers submitted demonstrate there is no triable issue as to any material fact and the moving party is entitled to the judgment or adjudication as a matter of law. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) We review de novo an order granting summary judgment where there are no disputed facts. (Beckett v. MasterCraft Boat Co. (2005) 126 Cal.App.4th 1045, 1048.) The facts in this matter are not in dispute. The Siemses refinanced the loan on their property. As a result, Chase paid off the then-existing first and second deeds of trust on the property to Chevy Chase and Bay Area, respectively. In making the loan, Chase anticipated it would receive a first deed of trust on the property to assure payment on its loan. In fact, the escrow 4

instructions forbade disbursement of the loan proceeds if it were determined there was an intervening deed of trust and Chases deed of trust would not be in the primary position. Escrow closed and the loan proceeds paid off the loans secured by the first and second deeds of trust. Unbeknownst to Chase, Jon Siems was in the process of obtaining a loan from Banc at the time he was arranging a loan from Chase. Neither is there any reason to believe Banc knew Jon Siems was seeking a loan from Chase. However, before Banc made its loan and accepted a deed of trust as secondary collateral to secure its loan, Banc knew of the preexisting deeds of trust in favor of Chevy Chase and Bay Area. In other words, Banc anticipated its deed of trust would be in a junior position to the deeds of trust to Chevy Chase and Bay Area which, at the time of its filing, it was. The loan from Banc closed first and a deed of trust in favor of Banc was filed prior to the closing of the loan from Chase and the filing of Chases deed of trust. Banc is correct in its assertion that "California follows the ,,first in time, first in right system of lien priorities. ([Civ. Code,]

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