The Court of Appeals of Texas recently affirmed a lower court’s decision granting summary judgment to a title insurance company, among others, holding that the insured lender’s deed of trust had been equitably subrogated to a first lien position and, accordingly, the insured had not suffered any damages as a result of an intervening lien. See First Bank Texas, SSB v. W. D. Welch, P.C., 2017 WL 2443132 (Tex. App. June 5, 2017). In the case, the lender issued a loan in connection with the purchase of a property, however, the deed of trust securing the loan was not recorded for six months. In the interim—before the insured lender’s deed of trust was recorded and before the existing deed of trust on the property was discharged—the State of Texas recorded a tax lien. Nonetheless, the insured lender’s deed of trust expressly stated that the lender was to be “subrogated to all of the rights, liens, and remedies of the holders of the indebtedness so paid” if its proceeds paid off any prior liens, which they did. The title insurance company then issued a policy that listed the tax lien as an exception to coverage. The insured lender filed an action against the title insurance company, among others, for fraud, negligence, breach of contract, and other causes of action, arguing that it was harmed because it did not hold the first lien on the property. While that lawsuit was pending, the property’s purchaser filed for bankruptcy, and the lender paid $100,000 to the State of Texas to subordinate the tax lien to the lender’s deed of trust.
The title insurance company and other defendants moved for summary judgment, and the trial court granted their motion. On appeal, the appellate court affirmed. First, it held that the lender could not prove any injury or damages because it “actually enjoyed first lien status under the doctrine of subrogation” because the proceeds from its loan had paid off the prior loan on the property. The Court dismissed the lender’s claim that it had suffered at least $100,000 in damages in the bankruptcy action because the State never argued it had a first lien position ahead of the lender. Second, the Court held that the title insurance company was not estopped from arguing subrogation based on the fact that the title insurance policy listed the tax lien as an exception. “[T]he issuance of a title policy generally does not create a representation regarding the status of the property’s title. . . . [and the defendants’] other actions merely acknowledged the tax lien was recorded before [the lender’s] deed of trust and not necessarily the status or priority between the various liens.” Accordingly, the title insurance company not estopped from making the subrogation argument and was entitled to prevail.