JPMorgan Chase Bank, N.A. v. Truist Bank

JP MORGAN CHASE BANK, N.A. v. TRUIST BANK, ET AL.

No. 1658

COURT OF SPECIAL APPEALS OF MARYLAND

September Term, 2019

December 17, 2020

Circuit Court for Frederick County

Case No. C-10-CV-19-000066

UNREPORTED

Fader, C.J., Nazarian, Shaw Geter, JJ.

Opinion by Fader, C.J.

*This is an unreported opinion, and it may not be cited in any paper, brief, motion, or other document filed in this Court or any other Maryland Court as either precedent within the rule of stare decisis or as persuasive authority. Md. Rule 1-104.

This appeal concerns the respective priority positions of (1) a lender who refinances a home mortgage loan secured by a first-priority deed of trust on the property, and (2) an intervening home equity lender whose line of credit is secured by a deed of trust on the same property.¹ Specifically, we consider whether the refinancing lender is equitably subrogated to the original home mortgage lender's senior priority position when, in a transaction contemporaneous with the refinancing, the intervening home equity lender's line of credit is paid down to zero but, unbeknownst to the refinancing lender, the line is not closed and the deed of trust is never released. We hold that in such circumstances the refinancing lender is equitably subrogated to the position of the original, first-priority lender if the intervening lender maintains its original priority position, is not otherwise prejudiced, and would be unjustly enriched in the absence of subrogation.

JP Morgan Chase Bank, N.A., the appellant and refinancing lender in our scenario, brought this action in the Circuit Court for Frederick County against Branch Banking and Trust Company ("BB&T"),² the appellee and intervening home equity lender. JP Morgan sought declarations that (1) it was equitably subrogated to the position of the lender whose loan it refinanced, and (2) BB&T's deed of trust is released. The circuit court enteredsummary judgment in favor of BB&T on both claims but did not enter a declaratory judgment. We agree with the circuit court's judgment regarding the release claim but must remand for entry of a proper declaratory judgment. We will reverse the entry of judgment regarding the equitable subrogation claim and remand for further proceedings, including reconsideration of JP Morgan's cross-motion for summary judgment in light of this opinion.

BACKGROUND³

The First Equity and BB&T Lines of Credit and Deeds of Trust

Denzil and Simone Waldron purchased their home in Adamstown (the "Property") on May 5, 2005 with the aid of a loan from First Equity Mortgage Inc. for $443,450.00 (the "First Equity Loan"), secured by a deed of trust (the "First Equity Deed of Trust"). The First Equity Deed of Trust was properly recorded on May 9, 2005 as the first-priority lien on the Property.

Also on May 5, 2005, the Waldrons obtained a home equity line of credit from BB&T in the amount of $83,000.00 (the "BB&T Line of Credit"), secured by a deed of trust (the "BB&T Deed of Trust"), which was also properly recorded on May 9, 2005, after the First Equity Deed of Trust, as the second-priority lien on the Property.

The terms of the BB&T Line of Credit permitted the Waldrons to borrow up to $83,000.00 for an initial five-year "draw period," subject to renewal for up to twoadditional five-year periods. BB&T was required to notify the Waldrons if it decided not to renew after either of the first two five-year draw periods. The Waldrons were required to pay only interest during the draw period(s), with the principal to be paid down thereafter. The Waldrons could terminate the agreement at any point by providing BB&T with written notice. BB&T, by contrast, could terminate the agreement in only three circumstances: (1) for fraud or misrepresentation by the Waldrons; (2) if the Waldrons failed to meet their repayment terms; and (3) if the Waldrons acted or failed to act in a way that adversely affected BB&T's security in the Property. BB&T could also freeze or reduce the credit limit of the account if, among other reasons, "the value of the property which secures [the credit] Agreement . . . declines significantly below its appraised value[.]"

The BB&T Deed of Trust states that it secures the line of credit debt up to $83,000.00 and that all "advances, readvances and future advances [made under the line of credit] shall become part of the indebtedness secured by this Deed of Trust with the same priority from the date of recordation of this Deed of Trust[.]" Moreover, in that instrument, BB&T and the Waldrons

expressly agreed that the outstanding principal balance of the indebtedness secured hereby may, from time to time, be reduced to a zero balance without such repayment operating to extinguish and release the lien and security interest created by this Deed of Trust. This Deed of Trust shall remain in full force and effect as to any subsequent future advances and readvances made after the zero balance without loss of priority until the indebtedness secured hereby is paid in full and satisfied, the Note and other Documents have been cancelled and this Deed of Trust released of record[.]

Refinancing

The following month, in June 2005, the Waldrons obtained two new loans from Wells Fargo Bank, N.A. First, Wells Fargo refinanced the First Equity Loan with a new home mortgage loan of $450,000.00, secured by a deed of trust, which was properly recorded on July 7, 2005. Out of the loan, $446,104.35 went to pay off the outstanding balance of the First Equity Loan, which included principal and accrued interest. With its loan extinguished, First Equity released its deed of trust. In August 2017, Wells Fargo assigned the loan and the deed of trust to JP Morgan. For simplicity, we will refer to: (1) the loan used to refinance the First Equity Loan as the "JP Morgan Loan"; (2) the corresponding deed of trust as the "JP Morgan Deed of Trust"; and (3) both JP Morgan and, only in its capacity as JP Morgan's predecessor-in-interest with respect to the JP Morgan Loan and the JP Morgan Deed of Trust, Wells Fargo, as "JP Morgan."

Second, Wells Fargo extended the Waldrons a line of credit with a maximum draw of $83,000.00 ("Wells Fargo Line of Credit"), secured by another new deed of trust in favor of Wells Fargo. The proceeds of the Wells Fargo Line of Credit were used to pay the balance of the BB&T Line of Credit down to zero.

The combined settlement statement for the JP Morgan Loan and the Wells Fargo Line of Credit identifies a "Release Prep/Procurement" fee of $85.00 and a "Release" charge of $60.00. The document does not identify whether these fees were attributable to both loans or just one. Apparently, the Waldrons did not submit the written request required by its agreement with BB&T to terminate that line of credit, BB&T therefore neither terminated the line of credit nor released its deed of trust, and JP Morgan did notcheck to verify that either of those actions had occurred. The Waldrons subsequently redrew on the still-open BB&T Line of Credit and ultimately defaulted on their payment obligations.

Procedural History

On October 12, 2018, BB&T docketed a foreclosure action and sent notice to JP Morgan of its intent to sell the Property at foreclosure. According to JP Morgan, it was only upon receipt of that notice that it became aware that BB&T's lien had never been released.

On January 22, 2019, JP Morgan filed a two-count complaint in the Circuit Court for Frederick County. In Count I, JP Morgan alleged that it intended to cause the release of the BB&T Deed of Trust when its funds were used to pay the line of credit down to zero, and it sought a declaration "that the BB&T Deed of Trust is released." In Count II, JP Morgan sought a declaration that it was equitably subrogated to the rights and priority lien position of First Equity when it paid off the First Equity Loan.

BB&T filed a motion to dismiss, which the court considered as a motion for summary judgment. JP Morgan filed a motion for partial summary judgment as to Count II (equitable subrogation) and, pursuant to Rule 2-501(d), sought the opportunity to engage in further discovery before responding to BB&T's motion regarding Count I (release). The circuit court issued an oral ruling granting summary judgment in favor of BB&T and against JP Morgan. The court, relying heavily on this Court's decision in Egeli v. Wachovia Bank, N.A., 184 Md. App. 253 (2009), made three broad points in support of its ruling. First, the court concluded that JP Morgan "was aware of the BB&T loan" and, as a"sophisticated borrower," had an obligation to investigate whether BB&T had released its deed of trust. Second, the court found that, like the line of credit lender in Egeli, BB&T lacked the ability to close the line of credit on its own because it was obligated by its line of credit agreement to make advances "until the borrower closes the account or BB&T, for some reason[] set forth in the agreement . . . terminates their contract."⁴ Third, although BB&T made its loan with the expectation that it would occupy a second-priority lien position relative to the First Equity Deed of Trust, the court believed that JP Morgan's delay in raising its equitable subrogation claim prejudiced BB&T in two ways: (1) the Waldrons redrew against the credit limit; and (2) the JP Morgan Loan was "a higher first priority mortgage" than the First Equity Loan.⁵

On September 25, 2019, the court entered an order that, without further explanation, denied JP Morgan's motion for summary judgment, granted BB&T's motion, deniedfurther discovery, and entered judgment in favor of BB&T on both counts of the complaint. The court did not issue a declaratory judgment. JP Morgan timely appealed.

DISCUSSION

A circuit court may grant a motion for summary judgment "in favor of or against the moving party if the motion and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of...