The Greatest Theft of Housing Is Executed by the Judicial Branch Acting Maliciously and Corruptly

AMICUS BRIEF OF THE TEXAS PROPERTY TAX LIENHOLDERS ASSOCIATION

NOV 4, 2022 | REPUBLISHED BY LIT: DEC 4, 2023

INTEREST OF THE AMICUS

The Texas Property Tax Lienholders Association (the “TPTLA”) is a trade group of lenders which make loans pursuant to Section 32.06 of the Texas Tax Code.

The TPTLA represents lenders which have originated of more than $400 million in currently-outstanding loans secured by real property, all within the State of Texas.

Many members also make real estate-backed loans outside of the property tax lending context.

Under existing case law, the transactions governed by Section 32.06 of the Texas Tax Code are subject to the equitable subrogation doctrine, meaning that TPTLA members often assert equitable subrogation to enforce their security interests in property.

This is especially true when property tax lenders pay the loans of other property tax lenders without receiving a written assignment, as is frequently the case when a borrower seeks multiple tax loans from different lenders.

Because of the TPTLA’s frequent interaction with equitable subrogation, the TPTLA has been monitoring this case since this Court’s decision in Howard II.1

When the TPTLA determined that this Court had granted review in this matter, the TPTLA believed that it was vital that the TPTLA comment on PNC’s briefing, and advise the Court of the TPTLA’s fervent disagreement with PNC’s position. The TPTLA believes that the Court of Appeals for the Fifth District of Texas at Dallas

1 PNC Mortg. v. Howard (“Howard II”), 616 S.W.3d 581 (Tex. 2021).

(“Fifth District Court of Appeals”) in Howard III2 is correct, and that if it were reversed, it would detrimentally impact the TPTLA’s members and the refinancing market in general, and recreate a split between the federal courts and state courts that no longer exists.

ARGUMENTS AND AUTHORITIES

A.               Background of Equitable Subrogation

The remedy of equitable subrogation is well established in Texas.

This Court has explained the benefits of equitable subrogation in the context of real estate lending to include facilitating the ability of property owners “to renew, rearrange, and readjust [an] encumbering obligation to prevent a loss” through foreclosure.

Benchmark Bank v. Crowder, 919 S.W.2d 657, 661 (Tex. 1996).

LaSalle Bank Nat. Ass’n v. White, 246 S.W.3d 616, 620 (Tex. 2007)

(stating that “without equitable subrogation, lenders would be hesitant to refinance property due to increased risk that they might be forced to forfeit their liens”);

see also

Diversified Mortgage Investors v. Lloyd D. Blaylock Gen. Contractor Inc., 576 S.W.2d 794, 807 (Tex. 1978)

(recognizing importance of equitable subrogation to lenders in Texas because doctrine “serves to protect a lienholder from intervening liens, at least to the amount of the initial lien, when the lienholder has discharged a

2 PNC Mortg. v. Howard (“Howard III”), 651 S.W.3d 154 (Tex. App. 2021 – Dallas, pet. granted)

prior superior lien”).

In short, equitable subrogation is a “safety net” which insulates lenders from certain risks, reducing risks attendant to inadvertent errors, thus making loans available at a lower cost.

Fed. Home Loan Mortg. Corp. v. Zepeda, 601 S.W.3d 763, 768 (Tex. 2020).

B.                Any Conflict Between State and Federal Courts Has Been Resolved

As PNC3 notes, existing case law has contained a conflict between some federal and state court cases as to Texas law on the issue presented in the case at bar.

The seminal state court cases – Hays v. Spangenburg4 and Kone v. Harper5 as well as the first known federal case in Texas to address the issue – Gillespie v.Ocwen Loan Servicing,6 completely reject PNC’s position.

To illustrate, Hays’ holding was as follows:

Nor do we think limitation began to run against Spangenberg’s [the subrogee’s] rights until the due date of the note executed to [the subrogee].. The lien to which [the subrogee] was…… subrogated was not barred when the Slaughter [i.e. the subrogor] note would have been barred. Though that lien [i.e. the lien of the subrogor] was not kept alive by contract, it inured to the

3 As used herein, PNC refers to the Petitioner and all of Petitioner’s contractual (as opposed to equitable) predecessors in interest (i.e. entities which were parties to the 2005 loan with the Respondents).

It does not include any entity which PNC claims to assert the rights of solely through equitable subrogation.

4 94 S.W.2d 899 (Tex. Civ. App. 1936).

5 297 S.W. 294 (Tex. Civ. App.—Waco 1927) aff’d sub nom. Ward-Harrison Co. v. Kone, 1 S.W.2d 857 (Tex. Comm’n App. 1928).

6 2015 U.S. Dist. LEXIS 181719, 2015 WL 12582796.

benefit of Spangenberg to the extent of the Slaughter debt paid by him, by virtue of equitable subrogation, and should in justice continue until the new note [i.e. the subrogee’s note] executed by Hays and wife, to that extent, was paid or became barred by limitation.7

The Kone Court’s holding regarding the accrual of limitations is consistent with the holding of the Hays Court – limitations starts running upon the accrual date of the cause of action based on the subrogee’s debt and has nothing to do with the subrogor’s debt, a position contrary to that urged by PNC.8

Likewise, the first federal case – Gillespie – correctly noted that “there is no specific statute of limitations for subrogation actions. Instead, these actions generally are subject to the same statute which would apply had the action been brought by the subrogee.”

Gillespie at *10-11 (citing Guillot v. Hix, 838 S.W.2d 230, 233 (Tex. 1992)).

That premise resulted in the Gillespie court holding that the accrual date of the subrogee’s claims on the subrogated portion of the outstanding debt remains unchanged from the accrual date of the subrogee’s own debt.9

7 Hays, 94 S.W.2d at 902 (emphasis added).

8 Kone, 297 S.W.2d at 299-300.

9 “The promissory note that Daryl Gillespie failed to sign was executed on or about July 27, 2009. Here, the maturity date of the note in question is August 1, 2039.

Doc. #36 at 3.

Because the claim for equitable subrogation only accrues upon the maturity date of the note, it is not now barred by the statute of limitations.”

A review of the document cited in the foregoing reveals that the Court was referring to the subrogee’s own loan documents, not those of the prior, paid off lender.

2015 U.S. Dist. LEXIS 181719 at *10.

Unfortunately, at least two federal cases subsequent to Gillespie appear to have conflated the meaning of “subrogor” and “subrogee.”

Both Priester v. Long Beach Mortg. Co.10 and De La Cruz v. Bank of New York11 purported to follow Gillespie but, in fact, handed down a ruling diametrically opposite to that of Gillespie.

Both these courts held that the accrual date of the cause of action for equitable subrogation depends on the accrual date under the previous lender’s (i.e. the subrogor’s) instruments.12

The discrepancy between Gillespie and the two successor cases from the Western District of Texas and Eastern District of Texas has now been rectified by the Fifth Circuit’s recent holding in U.S. Bank Nat’l Ass’n v. Lamell, U.S. App. LEXIS 15251, 2022 WL 1800860 (5th Cir. 2022)

– LIT – After removing the first contrary opinion from existence, rather than amend…

to confirm that a subrogee’s use of equitable subrogation does not change the accrual date of the subrogee’s cause of action; the subrogee’s own debt instruments determine the accrual date without reference to any accrual date of the subrogor.

Lamell, U.S. App. LEXIS 15251 at *17-18.

Thus, there is no currently-existing

10 2018 U.S. Dist. LEXIS 31954, 2018 WL 1081248 (E.D. Tex. 2018).

11 2018 U.S. Dist. LEXIS 101005, 2018 WL 3018179 (W.D. Tex. 2018).

12 Priester, 2018 U.S. Dist. LEXIS 31954 at *11; 2018 WL 1081248 at *4 (E.D. Tex. 2018)

(“A cause of action for equitable subrogation does not accrue until the maturity date of a secured note, and the prior . . . lien paid off . . . has not yet matured.” Id. at *11.);

De La Cruz, 2018 U.S. Dist. LEXIS 101005 at *16; 2018 WL 3018179 at *6 (W.D. Tex. 2018)

(“Limitations on equitable subrogation do not begin to run until the maturity date of the previous note, a date that has not yet passed.”).

conflict between federal and state holdings and the TPTLA respectfully suggests that PNC should not be permitted to revive one.

C.                Summary of PNC’s Position

PNC espouses a position contrary to the holding adopted in Lamell and Howard III by attempting to avail itself of the statute of limitations which would have applied to First Franklin Financial Corporation’s (“First Franklin”) original indebtedness, as if that indebtedness were still outstanding today.

To do this, the Court must adopt PNC’s novel theory that the indebtedness owed to PNC has two independent components which still exist based on two different loan documents – the amount owed under PNC’s promissory note and another, but largely overlapping, amount owed under First Franklin’s loan documents.

This Court must then make the further leap that each of these two components are independent claims for independent debts with independent accrual dates for statute of limitations purposes.

In other words, faced with the fact that it can no longer enforce its own loan documents, PNC now takes the position that because First Franklin may never have accelerated its debt and that debt may have not yet matured13 (even though it has been paid off and PNC has a final judgement on that debt), it is able to make claims under First Franklin’s loan documents.14

13 As discussed below, no promissory note payable to First Franklin appears in the record. Nor does a deed of trust securing such a note. The TPTLA, nevertheless,

D.               The TPTLA’s Analysis of PNC’s Position

PNC’s argument works in this specific case to achieve a result PNC wants – a second chance to foreclose on the Howards’ property – but it could just as easily lead to a result which is completely at odds with a lender’s interest.

As discussed below, under PNC’s theory, subrogee15 lenders will lose control of the ability to predict the accrual date attendant to claims for repayment of whatever amount of debt is secured by the equitable subrogation lien.

Thus, subrogee PNC’s position creates more, not less, uncertainty for lenders.

Finally, it is equally likely that PNC’s view will reduce, rather than expand, the doctrine of equitable subrogation in the State of Texas, a result completely at odds with the policies of this Court as articulated in prior cases.

understands PNC to be asserting that these are the operative documents which would support reversal of the Fifth District Court of Appeals’ decision, despite the fact the PNC apparently chose not to, or was not able to, submit these documents to the trial court in response to the Respondents’ affirmative defense of limitations.

14 Petitioner’s Brief on the Merits, pp. 12-15.

15 It is useful, at this point, to ensure that the parties’ use of the terms “subrogor” and “subrogee” are consistent with the use of these terms under existing case law.

PNC, the Howards and the TPTLA concur that PNC is the “subrogee” in this case while First Franklin is the “subrogor.”

The TPTLA has found certain instances where these terms seem to have been conflated in federal court opinions, and believes that this is one of the sources of the error made by the Priester and De La Cruz Courts discussed supra at p. 5.

Consider this simple hypothetical:

In 2013, Lender A makes a 5-year loan secured by a deed of trust to Borrower.

Borrower defaults on Lender A’s debt in 2016 and Lender A accelerates that year.

The Lender A note is now (in 2016) matured (due to acceleration), so Lender A’s cause of action under the note accrues and the statute of limitations starts running on Lender A’s note.

Assuming the note is non-negotiable, a foreclosure on that debt must occur by 2020.

Unable to cure this default, Borrower enlists Lender B to refinance Lender A’s debt in 2016 under a new 10-year loan.

PNC’s position inextricably leads to the conclusion that Lender B could not utilize the Lender A loan as basis for equitable subrogation after 2020 (because, assuming the note was non-negotiable, the statute of limitations to enforce Lender A’s debt expired 4 years after Lender A’s 2016 acceleration).

In the event of default by Borrower after 2020, Lender B would have no equitable subrogation rights at all under PNC’s analysis.

Put another way, following the origination of the refinancing loan, Lender B’s equitable subrogation rights are evaporating by the day until they expire in 2020.

By way of example, in the present case, had there been a default and acceleration of First Franklin’s note in December 2003, PNC would have had no equitable subrogation rights after December 2007 – months prior to the Howards alleged first default to PNC.

Similarly, if First Franklin’s note had a maturity date any time prior to 2005, PNC would have had no equitable subrogation rights when the underlying suit was first brought in 2010.

It is thus entirely possible that under PNC’s construct, a lender’s equitable subrogation right will expire well before the Lender’s right to enforce its own debt.

PNC admits as much.16

This problem is amplified in the loans made by TPTLA members.

TPTLA members originate loans which involve the transfer of a taxing jurisdiction’s property tax liens to the member.

The loans made by members routinely contain maturities of as much as 15 years.

Under applicable law, however, the cause of action to collect a tax debt may accrue on the first date that the tax is due to the taxing jurisdiction – October 1 of the tax accrual year – and may expire four years later.

If a tax lender originates a tax loan two years after the taxes become due (e.g., a 2018 loan for 2016 taxes), PNC’s proposed rule would arguably provide the tax lender with the safety net of equitable subrogation for a scant two years, or that right would be lost forever.

A similar issue arises when a pre-existing tax lender pays off the loans of another, subsequent, tax lender without receiving an assignment of the lien and loan documents. Such payments are frequently made, for example, because the borrower has breached its obligations to the initial lender by not ensuring that the real property securing the loan remains clear of competing liens. PNC’s position makes the equitable subrogation rights of the initial lender completely dependent

16 Petitioner’s Brief on the Merits, pp. 17-20.

on actions taken by the subsequent lender. For example, if the subsequent lender accelerated its loan prior to receiving payment from the initial lender, the initial lender (unbeknownst to it) will only have four years or less remaining to claim equitable subrogation to the subsequent lender’s liens. However, the initial lender’s need to utilize equitable subrogation might not arise for 10 years or longer.

E.                The TPTLA’s Position

The TPTLA believes that the more appropriate result would permit a subrogee lender’s lien to survive independent of the accrual date for any claims by the subrogor, for so long as the subrogee or any subsequent subrogee lender needs it, subject only to the limitation rules applicable to the then-existing subrogee’s own debt.

That is, the subrogee can enforce the subrogor’s liens as long as the subrogee can enforce its own rights. The limitations on the original subrogor’s debt would not factor into the analysis at all, because the subrogee does not need to enforce the subrogor’s debt, just the subrogor’s lien.

This holding eliminates the risk to subrogees that their equitable subrogation rights are cut off by factors outside their control, such as an acceleration by the subrogor or the contractual maturity of the subrogor’s debt.

F.                 Points and Authorities

1.     Subrogating Lenders Are Not Required to Enforce the Debt Instruments of Prior Lienholders.

Texas law is clear that “where a debt is ‘secured by a note, which is, in turn, secured by a lien, the lien and the note constitute separate obligations.’”

Martins v. BAC Home Loans Serv., L.P., 722 F.3d 249, 255 (5th Cir. 2013)

(quoting Aguero v. Ramirez, 70 S.W.3d 372, 374 (Tex. App.—Corpus Christi 2002, pet. denied).

For that reason, a lender seeking to foreclose under a claim of equitable subrogation can do so merely by proving its right of subrogation to the lien created by the subrogor’s security agreement, and need not possess or abide by the terms of the subrogor’s promissory note.

By contrast, to recover on a debt evidenced by a promissory note, a party must, inter alia, establish that it is the legal holder of the instrument.

Henning v. OneWest Bank FSB, 405 S.W.3d 950, 958 (Tex. App.—Dallas 2013, no pet.).

PNC’s posits the existence of two separate accrual dates for purposes of the statute of limitation.

That presupposes that PNC is attempting to enforce an indebtedness also distinct from PNC’s own debt; in this case, the debt owed to First Franklin.

However, PNC is not the holder of First Franklin’s note, and thus cannot meet the elements needed to enforce that instrument under Texas law.

Indeed, subrogating lenders often cannot show that they hold the original indebtedness. Nor would they want to, since they need only the lien rights of the subrogor to foreclose.

Were this Court to adopt PNC’s position, subrogation claimants would then face the issue of whether the subrogor’s indebtedness instrument (e.g., the promissory note) apply to the subrogee’s claims.

If the subrogor’s note contains an arbitration provision, does the subrogee now have to arbitrate with the borrower?

If the prior note did not provide for the waiver of presentment, notice of intent to accelerate, and acceleration,17 does the subrogee now have to take these steps to enforce its equitable subrogation rights, even if the new lender’s own documents dispense with such formalities?

What venue would be appropriate if the subrogor’s note and the subrogee’s note contain different choice of venue provisions?

What would the subrogee be required to do if the notice provisions in the two documents are different or incompatible?

If a subrogee lender has discharged federal tax liabilities, is the borrower entitled to insist that the subrogee comply with the procedural requirements applicable to the IRS when enforcing that portion of the secured indebtedness?

Can the borrower interpose the defenses found in Article 3 of the UCC to the subrogor’s note even if they do not apply to the subrogee’s loan documents?

These are just examples of the complexities and

17 Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 892 (Tex. 1991); Ogden v. Gibraltar Sav Ass’n, 640 S.W.2d 232, 233 (Tex. 1982);

Allen Sales & Servicenter v. Ryan, 525 S.W.2d 863, 865 (Tex. 1975)

risks attendant to incorporation of the preexisting lender’s loan documents, instead of simply vesting in the subrogee the preexisting lender’s lien rights.

As the law sits currently, subrogee lenders deal with none of these issues because they are only utilizing the subrogor’s lien to secure the indebtedness under the subrogee’s own loan documents.

PNC’s position threatens to upend the protections afforded to subrogating lenders by applying a wholly new set of loan documents (e.g., those which created the subrogor’s indebtedness) to the subrogee’s enforcement efforts.

2.     PNC’s “Duel Debt” Theory is Contrary to This Court’s Precedent Because the Subrogee is Always Enforcing Its Own Debt

PNC’s construct that it is enforcing the subrogor’s “original debt” rather than the “refinance debt”18 suggests there are two debts.

There is but one.19

The “original debt” – that owed to First Franklin – has been paid off, no longer exists, and no longer has a maturity date.

The one remaining debt owed to PNC is represented by its note, and some part of that debt may be subject to enforcement through equitable subrogation utilizing the First Franklin lien.

18 Petitioner’s Brief on the Merits, p. 9.

19 This was also the view of Fifth District Court of Appeals, when it rejected PNC’s “dual debt” position.

Howard III, 651 S.W.3d at 159.

In Smart v. Tower Land & Inv. Co., 597 S.W.2d 333 (Tex. 1980), and in the context of a mortgagee’s claim of equitable subrogation to a taxing authority for taxes paid pursuant to a deed of trust, this Court held:

[I]f the mortgagor fails to pay the taxes, the mortgagee may pay them and the amount paid for taxes is considered to be a part of the mortgage debt. Both the mortgagor’s obligation to pay the amount due on the purchase price and his obligation to pay taxes are secured by the mortgage.

Smart 597 S.W.2d at 336.

This Court did not conceptualize the paid-off tax debt as still extant, but rather as part of the subrogee’s own mortgage indebtedness.

See also, Zimmerman v. Littlejohn, 2002 Tex. App. LEXIS 6003, at *26, 2002 WL 2005514 (Tex. App. Aug. 20, 2002) (Tex. App. 2002, no pet) (“Interfederal argues it became “owner and holder” of the Note “either by assignment or subrogation.” .

. . Interfederal cites no authority for the proposition that the doctrine of equitable subrogation would create a contract between Interfederal and Littlejohn.

Rather, the absence of a contract provides the basis for equitable relief.”) (emphasis added).

This conclusion is buttressed by this Court’s analysis of another related issue in the Smart case:

In Smart, the subrogee also asserted that it was entitled to an in personam judgment against the property owner for the taxes paid, even though the lender’s own loan documents were non-recourse as to the property owner.

The subrogee lender advanced the argument that it was enforcing a “tax debt” for which the property owner bore personal liability to the taxing authority.

Once that debt was paid by the subrogee, the subrogee contended that the in personam character of the satisfied tax debt rendered the property owner personally liable to the lender through equitable subrogation.

This Court disagreed, holding that the taxing authorities’ right to pursue personal liability against the property owner did not pass through to the lender, despite the fact that the lender was subrogated to the taxing authority’s lien rights.

Smart, 597 S.W.2d at 339.

This holding confirms that attributes of the original debt are irrelevant to the subrogee’s rights; only the fact that the subrogee has discharged a valid lien and the amount thereof remain germane to the equitable subrogation analysis.20

The amounts subject to subrogation are simply incorporated into a subrogee’s own debt, and thus are subject to the same limitations accrual date.

3.     PNC’s Own Documents Are Inconsistent with its “Dual Debt” Theory.

The TPTLA does not have access to most of First Franklin’s loan documents – particularly any note allegedly payable to First Franklin or any deed of trust under which First Franklin was the beneficiary – because they were apparently

20 Zepeda, 601 S.W.3d at 767

(“None of our subsequent § 50 decisions [on equitable subrogation] has considered any factor other than the lender’s discharge of a prior, valid lien. To the contrary, in this context, we have said that a lender’s right to subrogation is “fixed” when the prior, valid lien is discharged.”).

never placed in the record by PNC.

Evaluating PNC’s right to accelerate or otherwise enforce First Franklin’s note, or even the First Franklin security agreement (deed of trust), is thus problematic at best.

That said, the documents that are present in the record suggest that the component of PNC’s debt which is entitled to equitable subrogation debt cannot be unbundled from PNC’s overall indebtedness.

Specifically, PNC’s acceleration notices confirm that whatever debt existed was accelerated by PNC all at once.

The June 19, 2009 and March 12, 2010 acceleration letters state that “Mortgagee elected to ACCELERATE the maturity of the Debt.”

“Debt” is, in turn, defined as the Howards’ “real estate loan.”21

The letters do not say that only some portion of the Howard’s debt was accelerated, or even reference the existence of a separate indebtedness apart from the then-existing “real estate loan.”

By PNC’s own admission, there was but one debt and it had but one maturity following acceleration.

4.     Existing Case Law Concerning Equitable Subrogation Speaks to Liens, Not Debts.

The TPTLA has examined well over 100 cases from Texas and even across the United States involving equitable subrogation in the context of real estate lending.

To date, TPTLA’s counsel has uncovered not a single case which holds

21 Record at p. 103, 109

that a subsequent lender is subrogated to the debt instrument of a prior lienholder.

Cases routinely employ the equitable subrogation doctrine in the context of liens, rather than as a method of enforcing a previously-discharged debt obligation (such as a promissory note), as this Court did in LaSalle:

Texas has long recognized a lienholder’s common law right to equitable subrogation. [citations omitted]

The doctrine allows a third party who discharges a lien upon the property of another to step into the original lienholder’s shoes and assume the lienholder’s right to the security interest against the debtor. [citations omitted]

The doctrine of equitable subrogation has been repeatedly applied to preserve lien rights on homestead property. [citations omitted]

If applied in this case, LaSalle’s payment of the balance of the purchase-money mortgage and the accrued taxes on White’s property would entitle it to assume those lienholders’ security interests in the homestead.

LaSalle 246 S.W.3d at 618-19 (emphasis added).

See also Dietrich Indus. v. United States, 988 F.2d 568, 571 (5th Cir. 1993)

(“In these [equitable subrogation] cases, courts consider the purchaser/payor an equitable assignee of the lienholder (or mortgagee), and permit the purchaser/payor to keep the lien alive and enforce the lien for her own benefit; (citations omitted) (emphasis added);

Chase Manhattan Bank USA, N.A. v. Taxel (In re Deuel), 594 F.3d 1073, 1079 (9th Cir.2010)

(“Equitable subrogation traditionally enables ‘one who pays, otherwise than as a volunteer, an obligation for which another is primarily liable,’ to be ‘given by equity the protection of any lien or other security for the payment of the debt to the creditor,’” and to “enforce such security against the principal debtor or collect the obligation from him.” (emphasis added));

Harmon v. Lighthouse Capital Funding, Inc. (In re Harmon), 2011 Bankr. LEXIS 1443, at *18, 2011 WL 1457236 (Bankr. S.D. Tex. 2011)

(“[O]ne who pays the mortgage of another and takes a new mortgage as security will be subrogated to the rights of the first mortgage.”).

When equitable subrogation applies, the subrogee is “entitled to a lien in the same amount as the previous lien plus . . . interest beginning at the time of the payoff of the previous lien.” (citations omitted) (emphasis added).

Bonfiglio v. Hoey (In re Hoey), 364 B.R. 427, 432 (Bankr. S.D. Fla. 2005) (citing Fortenberry v. Mandell, 271 So. 2d 170 (Fla. 4th DCA 1972))

(“Equitable subrogation arises by operation of law where one pays a debt owed by another under circumstances in which he is in equity entitled to the security held by the creditor whom he has paid.” (emphasis added)).

See also 26 U.S.C. § 6323(i)

(“where, under local law, one person is subrogated to the rights of another with respect to a lien or interest, such person shall be subrogated to such rights for purposes of any lien imposed by section 6321 or 6324.”).

Not one of the foregoing cases or statutes refer to the subrogee needing, or being entitled, to enforce the discharged indebtedness of the subrogor.

Conceptually, PNC’s argument lacks any basis in existing Texas case law other than the cases overruled by the Fifth Circuit’s Court of Appeals’ recent decision in Lamell.

5.                 Practical Concerns Militate Against PNC’s Position.

Equitable subrogation can be invoked in the context of multiple refinancings over decades.

Even if the subrogee is attempting to subrogate to a deed of trust released long ago, the amount paid by the subrogee can be determined from the subrogee’s own records, and the security agreements held by preexisting lenders remain recorded in the official real property records of a county in perpetuity.

By contrast, the other loan documents (e.g., the loan agreement, the promissory note, notices of acceleration, etc.) of a preexisting lender are not public records, nor do they make up the standard documents needed at the time of a refinancing.

Unrecorded documents associated with satisfied loans are often preserved for as little as three (3) years.

12 CFR § 1026.25.

Liens which encumber existing collateral (e.g., ad valorem tax debts, IRS liens, mechanics’ liens) are often not evidenced by a promissory note at all, or the borrower may be unwilling to provide them.

Indeed, this case is apparently a perfect example of the difficulties presented by PNC’s proposed rule.

The record does not contain First Franklin’s loan documents, either because PNC never introduced them as a basis for its equitable subrogation claims, or because in the 17 years which have elapsed since the refinancing with PNC, PNC can no longer obtain them.

Tying a subrogee’s enforcement rights to the accrual date associated with the preexisting lender’s contract rights – especially when those contract rights are unknown, potentially difficult (or impossible) to determine, and not within the subrogee’s control – jeopardizes a new lender’s ability to use equitable subrogation as it was intended unless the new lender obtains, preserves, and reviews the entirety of the preexisting lender’s loan file, for events which might have triggered the accrual of claims under the preexisting lender’s loan documents.

And, even those steps would likely prove insufficient if the subrogee seeks to subrogate to any lender other than its immediate predecessor.

The final practical concern relates to when equitable subrogation comes into play. As described supra, equitable subrogation is often described as a safety net which used to cure a defect in a loan document that may become apparent years many after the subrogee has originated its loan.

See, e.g., Zepeda, 601 S.W.3d at 765 (constitutional defect discovered 4 years after closing).

A lender often has no reason to suspect that it needs to resort to equitable subrogation until its own loan winds up in litigation with a borrower, and infirmities in the lender’s loan documents are brought to light.

Implementing PNC’s construct would open the door to the expiration of a lender’s equitable subrogation rights during a period when the lender is completely unaware that it will need to rely on equitable subrogation at all.

CONCLUSION

PNC has seized upon this Court’s expressed willingness to “extend” the doctrine of equitable subrogation.22

But the issue in this case is not between deciding whether to extend or narrow that doctrine.

Rather, whatever decision the Court makes will result in a diminished use of equitable subrogation for certain lenders, but an expanded use for others.

Here, a ruling for the Howards would preclude PNC’s use of equitable subrogation in this case largely because of PNC’s own negligence.

But it would preserve its use in countless other cases where the subrogating lender has not yet needed to enforce its own loan documents.

By contrast, a holding for PNC might23 provide PNC a new bite at the foreclosure apple in this case, but it would preclude the use of equitable subrogation in many cases where the subrogor’s debt has matured, through acceleration or contractual maturity.

Moreover, PNC’s proposed rule would open up subrogee lenders to other defenses available under the subrogor’s loan documents, and potentially

22 Faires v. Cockrill, 88 Tex. 428, 437, 31 S.W. 190, 194 (1895) (stating that “[p]erhaps the courts of no state have gone further in applying the doctrine of subrogation than has the court of this state” and that “

23 It is by no means certain that PNC could accelerate First Franklin’s note (assuming that PNC has it or can locate it) since PNC is not the holder of that note. PNC might have to await its contractual maturity in order to enforce it.

require subrogee lenders to comply with the terms of the pre-existing lender’s loan instead of the loan that the subrogee has negotiated.

This has the potential to add procedural and substantive layers of complexity that would not exist if the subrogee is enforcing its own debt and only needs to enforce the subrogor’s lien to do so.

In short, the TPTLA believes that the Fifth Circuit Court of Appeals and the Fifth District Court of Appeals’ decisions in Lamell and Howard III, respectively, are correct.

PNC’s suggested cure for its own failure to timely enforce its loan documents is worse than the disease.

Overruling Lamell and Howard III will negatively impact more lenders, more frequently, thus making the use of equitable subrogation more difficult and less common.

PNC’s desired outcome will no doubt aid PNC in this specific instance, but the holding PNC desires will undermine the use of equitable subrogation far more frequently in the future.

Accordingly, the Court should resolve this conflict in favor of allowing equitable subrogation to be invoked without reference to the nature of the prior indebtedness;

the availability of potentially old, and often unrecorded, documents;

the ability to determine when the subrogor’s rights accrued;

or any defenses to the subrogor’s indebtedness,

and hold that a lender/subrogee’s cause of action under an equitable subrogation theory does not accrue until the time that the subrogee’s cause of action to enforce its own debt accrues.

The TPTLA hopes that this Amicus Brief from a trade association representing lenders which have a material interest in the equitable subrogation issues raised in this case will assist this Court in weighing the serious and detrimental ramifications of PNC’s arguments to lenders other than PNC in a single case.

Respectfully submitted,

/s/ Sarah M. Cox

Sarah M. Cox
Texas State Bar No. 24119316

Law Office of Sarah M Cox, PLLC
12770 Coit Rd., Suite 850
Dallas, Texas 75251
(214) 310-1321 (direct/mobile)
(214) 237-3380 (fax)
sarah@sarahcoxlaw.com

ATTORNEY FOR TEXAS PROPERTY TAX LIENHOLDERS ASSOCIATION

HOMEOWNER’S VICTORIOUS AFTER FIGHTING @PNCBank‘s WRONGFUL FORECLOSURE SINCE 2009 (14 YRS): Legal Landscape Remains Unruffled as Lawyers Shun Citations and Firms Dodge Discussion on Groundbreaking PNC Mort. Ruling as Media is silenced by Wall Street owners. https://t.co/lMuKKzWPPK pic.twitter.com/3l4hEWCFt7

— lawsinusa (@lawsinusa) December 2, 2023