Since at least 1890, Texas has recognized the common-law doctrine of equitable subrogation. Texas Land & Loan Co. v. Blalock, 76 Tex. 85, 13 S.W. 12, 13–14 (1890). In the context of mortgage lending, the doctrine of equitable subrogation provides that a “subsequent lender will succeed to the rights of prior lenders and become entitled to ‘all rights of the prior creditors in relation to the debt.’” Vogel v. Veneman, 276 F.3d 729, 735 (5th Cir. 2002). This means that even if a refinance lender’s lien is defective, the refinance lender still has a valid lien under equitable subrogation to the extent its refinance loan satisfied prior debt secured by the property. Texas courts have acknowledged that equitable subrogation benefits both lenders and homeowners. “Without equitable subrogation, lenders would be hesitant to refinance homestead property due to increased risk that they might be forced to forfeit their liens.” LaSalle Bank Nat. Ass’n v. White, 246 S.W.3d 616, 620 (Tex. 2007). Even in instances where the requirements of the Texas Constitution are not met, Texas courts have allowed lenders to invoke the doctrine of equitable subrogation to obtain partial repayment of the loan. See, e.g., Benchmark Bank v. Crowder, 919 S.W.2d 657, 662 (Tex. 1996). And in 2020, the Supreme Court of Texas held that even a lender that failed to correct a curable constitutional defect under Tex. Const. art. XVI, § 50(a)(6) is entitled to equitable subrogation. See Federal Home Loan Mortgage Corporation v. Zepeda, 2020 WL 1975169 (Tex. Apr. 24, 2020). Our prior memoranda discussing Zepeda can be viewed at here and here .
Full Memorandum
