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Jp Morgan Chase Bank, N.A v. Banc of America Practice Solutions

September 27, 2012

JP MORGAN CHASE BANK, N.A., CROSS-COMPLAINANT AND RESPONDENT,
v.
BANC OF AMERICA PRACTICE SOLUTIONS, INC., CROSS-DEFENDANT AND APPELLANT.



Appeal from a judgment of the Superior Court of Orange County, B. Tam Nomoto Schumann, Judge. (Super. Ct. No. 30-2010-00355561)

The opinion of the court was delivered by: Moore, J.

CERTIFIED FOR PUBLICATION

OPINION

Affirmed.

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.*fn1 While that loan was primarily secured by the personal property assets of Jon Siems's 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 Banc's 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.

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 Company's 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. Chase's 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 Chase's 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. Banc's loan 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 Chase's preliminary title report.

When Chase made its loan to the Siemses, it had no actual knowledge of Banc's deed of trust. Neither the preliminary title report nor the title insurance issued to Chase contained any references to Banc's deed of trust.

Jon Siems's professional corporation defaulted on Banc's loan on December 20, 2009, with $2.3 million owing. Banc instituted judicial foreclosure proceedings the following March. Chase subsequently filed a cross-complaint ...


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