Appeals court applies doctrine of equitable subrogation to uphold foreclosure judgment

By Joe Forward, Legal Writer, State Bar of Wisconsin

March 17, 2011 – After the brother defaulted on a separate mortgage loan, the District I Wisconsin Court of Appeals recently applied the doctrine of equitable subrogation to uphold a foreclosure judgment against his sister’s interest in a home they both owned.

Nora Dallas and Fredie Rogers, brother and sister, obtained a quit-claim deed to their mother’s home. In 2003, both executed a mortgage and mortgage note on the acquired home with Fair Finance Corporation (Fair Finance) so Rogers could buy a different house.

In 2004, Rogers refinanced with Wachovia Mortgage (Wachovia), formerly known as World Savings Bank. This loan, secured by a mortgage on the home Rogers owned with Dallas, discharged the Fair Finance mortgage. Dallas was not a party to the new loan.

Then Rogers defaulted on the Wachovia mortgage, and Wachovia brought a foreclosure action against Dallas’s interest. The circuit court granted summary judgment to Wachovia. Dallas appealed, arguing foreclosure was not warranted because she did not sign the Wachovia loan.

In Wachovia Mortgage v. Dallas, 2010AP1359 (March 15, 2011), the appeals court affirmed the circuit court based on the doctrine of equitable subrogation, ruling that “Wachovia is entitled to foreclose on Dallas’s interest in the house because the encumbrance on that interest was discharged by the [Wachovia] loan.”

Noting that subrogation is an equitable doctrine invoked to avoid unjust enrichment, Judge Ralph Fine explained that Wachovia “paid the debt for which Dallas was liable.”

“Indeed, if Dallas were able to retain her interest in the property she and Rogers mortgaged as security for the Fair Finance loan despite the fact that the Fair Finance mortgage was satisfied by the [Wachovia] loan, she would be unjustly enriched at Wachovia’s expense,” Judge Fine wrote. “Wachovia steps into Fair Finance’s shoes, and there is nothing unfair about this result.”

Fine explained that equitable subrogation does not require a contractual relationship, so it was immaterial that Dallas did not sign the Wachovia mortgage or note.