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In re Stevenson

United States Court of Appeals, District of Columbia Circuit

June 16, 2015

IN RE: DEBRA M. STEVENSON, EUGENE SMITH AND DEBRA M. STEVENSON, APPELLANTS
v.
FIRST AMERICAN TITLE INSURANCE COMPANY, ET AL., APPELLEES

Argued: March 17, 2015.

Page 198

Appeals from the United States District Court for the District of Columbia. (No. 1:13-cv-00258). (No. 1:13-cv-00440).

Eugene Smith, Pro se, argued the cause for appellants. With him on the briefs was Debra M. Stevenson, pro se.

Michael S. Steadman argued the cause for appellees. With him on the brief was Michael N. Russo.

Before: GRIFFITH and KAVANAUGH, Circuit Judges, and SENTELLE, Senior Circuit Judge. OPINION filed by Circuit Judge KAVANAUGH.

OPINION

Page 199

Kavanaugh, Circuit Judge.

Debra Stevenson and her son Eugene Smith jointly own a house in Washington, D.C. When Stevenson and Smith bought the house, they took out a mortgage. In 2005, they decided to refinance the mortgage. They obtained a new $115,000 mortgage with a 6.5% interest rate from Wells Fargo Bank. In exchange for the new mortgage, Wells Fargo required Stevenson and Smith to sign a deed of trust. The deed of trust gave Wells Fargo certain rights to the house if Stevenson and Smith failed to repay the mortgage.

Later in 2005, Stevenson decided to refinance the mortgage a second time in order to obtain some cash. Stevenson refinanced with plaintiff HSBC Bank.[1] HSBC

Page 200

offered Stevenson a $135,000 mortgage with a 9.65% interest rate, with approximately $6,000 in cash provided up front to Stevenson. But there was a wrinkle: Only Stevenson signed the paperwork for the mortgage. Smith refused to sign the paperwork because he thought that the interest rate was too high.

Surprisingly, HSBC went ahead with the mortgage without Smith's signature. HSBC paid off the Wells Fargo mortgage in full, releasing Stevenson and Smith from the obligation to pay that mortgage. In exchange, Stevenson signed a deed of trust. That deed of trust gave HSBC certain rights to Stevenson's half-interest in the house if Stevenson failed to repay the mortgage. But Smith did not sign the deed of trust, and HSBC did not obtain any rights to Smith's half-interest in the house. As a result, without paying a cent, Smith ended up with a half-interest in the house free of both the Wells Fargo mortgage and the HSBC mortgage.

Soon thereafter, Stevenson declared bankruptcy and stopped making mortgage payments. But HSBC could not foreclose because Smith had not signed the HSBC deed of trust. HSBC filed this suit in Bankruptcy Court seeking equitable subrogation.[2] The doctrine of equitable subrogation permits courts to declare that the owner of a mortgage (HSBC) has the same rights as an earlier-in-time owner of another mortgage (Wells Fargo) on the same property, if certain conditions are met. The purpose of equitable subrogation is " to prevent forfeiture and unjust enrichment." Eastern Savings Bank, FSB v. Pappas, 829 A.2d 953, 957 (D.C. 2003) (internal quotation marks omitted).

Equitable subrogation would give HSBC the same rights to Stevenson and Smith's house that Wells Fargo obtained in the first refinancing. That would presumably make it easier for HSBC to initiate foreclosure ...


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