Title Insurance Client Alert - Virginia Federal District Court Rejects Equitable Subrogation Claim

On July 31, 2013, the United States District Court for the Eastern District of Virginia issued a Memorandum Opinion denying Deutsche Bank National Trust Company’s equitable subrogation claim. Deutsche Bank Nat’l Trust Co. v. United States of America, 2013 U.S. Dist. LEXIS 107423 (E.D. Va. 2013). In February 2001, Mr. and Mrs. Gaines obtained a purchase money loan from IndyMac Bank, F.S.B. secured by a deed of trust. On April 2, 2002, the United States Justice Department filed a Notice of Lien for Fine and/or Restitution Pursuant to the Anti-Terrorism and Effective Death Penalty Act of 1996 against Mr. Gaines in the amount of $689,216.86. In June 2003, the Gaines’ obtained a refinance loan from IndyMac. The proceeds of the IndyMac refinance loan paid off the purchase money loan and a number of creditors. The Gaines’ received $14,359.12 in cash. The closing file for the refinance loan contained a note regarding the restitution lien, however it was not paid off. In September 2003, the IRS filed a notice of tax lien against Mr. Gaines.

In 2011 a title search performed in connection with the foreclosure of the refinance loan by Deutsche Bank disclosed the restitution lien recorded in 2002. Deutsche Bank then filed a lawsuit requesting that the refinance deed of trust be equitably subrogated to the purchase money deed of trust. In addressing equitable subrogation, Judge Hilton first noted that “in order to seek equitable subrogation the person must have paid a debt, and have paid it under necessity to save himself from loss which might give rise or accrue to him by the enforcement of the debt in the hands of the original creditor.” Id.*6 (citing Aetna Life Ins. Co. v. Town of Middleport, 124 U.S. 534, 547-48 (1888)). The Court went on to note that “one who volunteers to pay a debt may not then attempt to invoke equitable subrogation.” Id. (citing Burton v. Mill, 78 Va. 468 (1884)). Finding that the intervening equities of the United States and the individuals entitled to restitution would be prejudiced and that the IndyMac refinance loan was not necessary to protect IndyMac’s own interests, the Court held that Deutsche Bank was not entitled to equitable subrogation.

Although we were not counsel in Deutsche Bank, we routinely handle equitable subrogation claims in Virginia and would be happy to discuss any equitable subrogation issues you may have. You can reach me at (757) 873-6308 or jlwindsor@kaufcan.com, or my law partner, Chris Papile, at (757) 873-6315 or crpapile@kaufcan.com if you have any question or we can be of assistance in any way.

James L. Windsor is the managing partner of the firm's Virginia Beach office and is the Chairman of the firm’s Title Insurance Practice Group. He is AV® Preeminent rated by Martindale Hubbell and was selected as a '2013 Top Rated Lawyer' in Insurance Law by American Lawyer Media and Martindale Hubbell. Jim’s practice includes a broad range of civil litigation, with an emphasis on title insurance, real estate, construction, malpractice, creditor’s rights and banking.

Christopher R. Papile is a member in the firm’s Newport News office where his practice includes a broad range of commercial litigation, with an emphasis on lending and banking disputes, title and real estate disputes and construction disputes.

The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances.


The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2017.

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