Case Reviews

Wurdeman v. Wells Fargo Bank

Nebraska Court of Appeals

Case Citation: 2011 WL 6379279 (December 20, 2011)

Background: In 2004, the Wurdemans sold real property to the Osborns for approximately $286,750. The purchase agreement between the Osborns and the Wurdemans provided that the Osborns would borrow $125,000 from a bank and that the remaining $161,750 would be carried back by the Wurdemans. The Osborns obtained a loan for $125,000 from TierOne Bank (TierOne), which took a first lien on the property. The Wurdemans then obtained a second lien on the property.

In 2006 or 2007, the Osborns desired to refinance. The Osborns obtained a new loan with Security First Bank (Security First) in the amount of $175,000. The outstanding balance owed on the TierOne note, $120,010.43, was paid off. Wells Fargo eventually purchased the Security First note and became the assignee of the deed of trust between the Osborns and Security First.

The trial court found that the Wurdemans executed a deed of reconveyance, with the intent that the Osborns would secure the Security First loan, pay off the TierOne loan, and file the Security First lien as a first lien, and would then execute a new deed of trust to the Wurdemans and give the Wurdemans a second lien.

The Osborns subsequently defaulted on the notes held by Wells Fargo and the Wurdemans, and declared bankruptcy. The Wurdemans then commenced this action, seeking a declaration that their lien interest was first in priority because it was filed first. Wells Fargo answered and asserted a counterclaim for a declaration that it was entitled to be subrogated to the rights and the first lien originally held by TierOne, superior to the Wurdemans’ lien, under the doctrine of conventional subrogation.

Issue: Whether the district court erred in applying the doctrine of conventional subrogation in determining that Wells Fargo is subrogated to the first lien position and the Wurdemans hold a lien junior to Wells Fargo’s lien?

Analysis:  The Court found that the outcome in this case is controlled by the decision in American Nat. Bank v. Clark, 11 Neb. App. 722, 660 N.W.2d 530 (2003).  In that case, the Court held that the doctrine of conventional subrogation applies where one pays the debt of another under an agreement existing at the time of the payment, with either the debtor or the creditor, that the person paying shall be subrogated to the liens existing as security for the debt. The Court recognized that “one who pays or advances money to pay a mortgage debt with the understanding that he or she is to have the benefit of the mortgage becomes the holder of the lien by subrogation.” Id. at 727-28, 660 N.W.2d at 535.

Like American National Bank in American Nat. Bank v. Clark, supra, the Wurdemans held a lien on the property at the time of the refinancing and at the time a loan was obtained to pay off a lien that had priority over the Wurdemans’ lien.  Like First Union, Security First (whose interest is now owned by Wells Fargo) made its loan with the understanding and expectation that the proceeds would be used to pay off a certain existing lien and with the understanding and expectation that Security First would be substituted in the place of the creditor whose lien was being satisfied.  Like First Union, Security First (and now Wells Fargo) was entitled to be subrogated to the first lien priority, ahead of other lienholders who held interests junior to those of the creditor whose lien was satisfied.

In addition, the Wurdemans are in the same position as they would have been in if the refinancing had never occurred or if Security First had recorded its lien prior to the Wurdemans’ filing of their new lien. The district court limited the extent of Wells Fargo’s subrogation to the amount necessary to pay off the TierOne lien, leaving the Wurdemans as a junior lienholder in the same position as they were in before the efforts at refinancing occurred.

Judgment: Affirmed.  The district court properly applied the doctrine of conventional subrogation to the facts and circumstances of this case.

To see the Court's complete opinion, click here.