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72 In an enormous victory for lenders and servicers, on January 29, 2021, the Texas Supreme Court affirmed the voiding of a lender's lien due to the expiration of the statute of limitations does not preclude the lender from foreclosing on a pre-existing lien under the doctrine of equitable subrogation. [PNC Mortg. v. Howard, ___ S.W.3d ___, 2021 WL 297579, at *1 (Tex. 2021) (per curiam).] Consistent with their rationale in Federal Home Loan Mortgage Corporation v. Zepeda, 601 S.W.3d 763 (Tex. 2020), this holding further strengthens the power of the equitable subrogation defense and solidifies this as an alternative to lender's counsel when faced with allegations of a potentially unenforceable lien. e Howards purchased a home in 2003 with two purchase-money mortgages. Two years later, the Howards refinanced these mortgages with the Bank of Indiana. Primarily using the proceeds from the Bank of Indiana loan, the Howards paid off the two existing mortgages on their property. e Bank of Indiana later assigned the note and deed of trust to National City Mortgage Company, a subsidiary of National City Bank. National City Bank later merged with PNC Mortgage. In 2008, the Howards stopped making payments on the note. In January 2009, National City Bank notified the borrowers of their default and of its intent to accelerate the loan if they did not cure it. Months later, National City Bank sent notices of acceleration of the debt. e Howards challenged the foreclosure on the basis that the original lender no longer held the mortgage and added PNC as a defendant. PNC counterclaimed, seeking a foreclosure of its lien. Concerned that the limitations period had already passed, counsel for PNC sought a judgment declaring its right to foreclose on the purchase-money liens through equitable subrogation in the alternative. e trial court declared that PNC's lien and note were unenforceable, and it rendered judgment that PNC take nothing on its claims against the Howards. PNC appealed. It's pertinent to note that PNC argued the Howards had used the proceeds from the PNC refinancing loan to discharge the existing mortgages, and as a result, PNC had an equitable lien against the property. e appellate court held that, to the extent PNC held equitably subrogated liens, those liens became unenforceable when PNC forfeited its own lien by failing to foreclose within the requisite limitations period. Just a couple months after the court of appeals' opinion, the lender in the Zepeda case appealed to the United States Court of Appeals for the Fifth Circuit, which in turn certified the following question to the Texas Supreme Court: "Is a lender entitled to equitable subrogation, where it failed to correct a curable constitutional defect in the loan documents under § 50 of the Texas Constitution?" [Zepeda v. Fed. Home Loan Mortg. Corp., 935 F.3d 296, 301 (5th Cir. 2019)]. e Supreme Court answered yes. [Fed. Home Loan Mortg. Corp. v. Zepeda, 601 S.W.3d 763, 764 (Tex. 2020). e court further elaborated that equitable subrogation "allows a lender who discharges a valid lien on the property to step into the prior lienholder's shoes and assume that lienholder's security interest in the property, even though the lender cannot foreclose on its own lien." [Zepeda at 766.] TEXAS SUPREME COURT THROWS THE INDUSTRY A LIFELINE This holding strengthens an alternative to lender's counsel when faced with allegations of a potentially unenforceable lien. Quick Take By: Robert D. Forster, II

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