PNC Mortgage, a Division of PNC Bank, N.A. Succesor to National City Bank and National City Mortgage, a Division of National City Bank of Indiana v. John Howard and Amy Howard

AFFIRMED and Opinion Filed September 17, 2021

S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-17-01484-CV

PNC MORTGAGE, A DIVISION OF PNC BANK, N.A. SUCCESSOR TO
NATIONAL CITY BANK AND NATIONAL CITY MORTGAGE, A
DIVISION OF NATIONAL CITY BANK OF INDIANA, Appellants
V.
JOHN HOWARD AND AMY HOWARD, Appellees

On Appeal from the 199th Judicial District Court
Collin County, Texas
Trial Court Cause No. 199-01559-2010

OPINION ON REMAND
Before Justices Molberg, Reichek, and Garcia
Opinion by Justice Reichek
On remand, the Texas Supreme Court has directed us to consider two issues:

(1) whether the equitable subrogation lien claim asserted in this case is time-barred

and (2) whether language in the deed of trust precludes assertion of the subrogation

claim. See PNC Mortg. v. Howard (“Howard II”), 616 S.W.3d 581, 585 (Tex. 2021)

(per curiam). Because we conclude the subrogation lien claim brought by PNC

Mortgage, a division of PNC Bank, N.A. (“PNC”), is barred by the applicable statute

of limitations, we affirm the trial court’s judgment declaring any lien or power of
sale held by PNC on the subject property void and unenforceable. Based on our

resolution of the first issue, it is unnecessary for us to address the second issue.1

The relevant, undisputed facts are as follows. John and Amy Howard

purchased a home in 2003 with two purchase-money mortgages. Two years later,

the Howards refinanced these mortgages and executed a new note and deed of trust

on the property. Using nearly all the proceeds from the refinancing loan, the

Howards paid off the two existing mortgages. The new note and deed of trust were

later assigned to National City Bank.

In 2008, the Howards stopped making payments on the note. In January 2009,

National City Bank notified the Howards they were in default and, unless they cured

the default, the maturity date of the loan would be accelerated. The note was then

accelerated on June 19, 2009. Shortly thereafter, National City Bank merged with

PNC.

All parties agree the acceleration of the note was proper and there is no

allegation that the acceleration was abandoned. PNC does not dispute that National

City Bank’s acceleration is binding on it as the successor in interest on the note and

deed of trust. PNC did not initiate foreclosure proceedings against the Howards until

more than five years after the note was accelerated. In response to PNC’s claim for

1
We note the Howards have stated in their supplemental briefing that “the Supreme Court
opinion [in Howard II], at least by implication, renders the Howards’ argument regarding the
language of the deed of trust as having eliminated PNC’s ability to seek enforcement of the lien
non-viable.”
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foreclosure, the Howards asserted various affirmative defenses including the statute

of limitations.

Under section 16.035 of the Texas Civil Practice and Remedies Code, a suit

for foreclosure of a real property lien must be brought within four years after the

cause of action accrues. See TEX. CIV. PRAC. & REM. CODE ANN. § 16.035. A cause

of action to foreclose on a real property lien accrues when the loan is accelerated.

Khan v. GBAK Props., Inc., 371 S.W.3d 347, 353 (Tex. App.—Houston [1st Dist.]

2012, no pet.); see also GMAC v. Uresti, 553 S.W.2d 660, 663 (Tex. App.—Tyler

1977, writ ref’d n.r.e.) (“acceleration” is the change of maturity of a note from future

to present). Because PNC did not seek foreclosure until more than five years after

the debt was accelerated, PNC’s ability to foreclose its deed of trust lien was barred

by the statute of limitations. Id. PNC does not challenge this result. See PNC Mortg.

v. Howard (“Howard I”), 618 S.W.3d 75, 83–84 (Tex. App.—Dallas 2019), rev’d

on other grounds, 616 S.W.3d at 585 (Tex. 2021).

Instead, PNC asserts it is entitled to foreclose on the Howards’ property based

on the doctrine of equitable subrogation. Equitable subrogation allows a third-party

who discharges a lien on the property of another to step into the original lienholder’s

shoes and assume that lienholder’s security interest on the property. LaSalle Bank

Nat’l Ass’n v. White, 246 S.W.3d 616, 619 (Tex. 2007) (per curiam). Under this

doctrine, if the contractual lien created as part of the refinancing is infirm for some

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reason, the lender can assert whatever lien rights were held by the previous lender

whose loan was paid off. Howard II, 616 S.W.3d at 585.

Recently, in Federal Home Loan Mortgage Corp. v. Zepeda, 601 S.W.3d 763,

769 (Tex. 2020), the supreme court answered a certified question from the Fifth

Circuit Court of Appeals and held that a refinancing lender’s negligence in

preserving its contractual rights does not deprive it of its right to enforce an equitable

subrogation lien. This is because the lender’s equitable rights arise and become fixed

at the time the proceeds from the refinancing loan are used to discharge the earlier

debt and are not affected by the new lender’s subsequent conduct. Id. But the

conduct at issue in Zepeda was the lender’s failure to resolve a curable defect in the

loan documents signed at closing, an infirmity not present in the loan to which the

lender became subrogated. In contrast, the “infirmity” in PNC’s deed of trust lien –

the expiration of the limitations period – is, as explained below, as much a problem

for the subrogation lien as it is for the deed of trust lien. While subrogation may

permit a new lender to assume the prior lender’s lien position, the rights assumed by

the new lender are limited to only those that could have been asserted by the prior

lien holder. Howard II, 616 S.W.3d at 584–85; see also Mid-Continent Ins. Co. v.

Liberty Mut. Ins. Co., 236 S.W.3d 765, 774 (Tex. 2007).

PNC correctly asserts there is no specific statute of limitations for subrogation

actions. Brown v. Zimmerman, 160 S.W.3d 695, 700 (Tex. App.—Dallas 2005, no

pet.). Instead, the action is subject to the same statute that would apply had the action

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been brought by the subrogee. Guillot v. Hix, 838 S.W.2d 230, 233 (Tex. 1992). In

this case, if the original lender had brought a suit to enforce its real property lien, the

suit would be governed by the four-year limitations period found in section 16.035.

Zimmerman, 160 S.W.3d at 701. Accordingly, the same statute governs PNC’s

subrogation action seeking that relief. Id.

The more difficult issue is determining when PNC’s cause of action to enforce

its subrogation lien accrued. A claim to foreclose a real property lien must be based

on the borrower’s failure to pay a secured debt that has either matured under its own

terms or had its maturity properly accelerated. See Wilmington Tr. Nat’l Ass’n. v.

Rob, 891 F.3d 174, 177–78 (5th Cir. 2018); Famous Koko, Inc. v. Member 1300

Oak, LLC, No. 05-17-00906-CV, 2018 WL 6065256, at *3 (Tex. App.—Dallas Nov.

20, 2018, no pet.) (mem. op.). Limitations on the lien claim begins to run on the

date of maturity. Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566

(Tex. 2001). Because a refinancing lender steps into the shoes of the original lender

in a subrogation claim, the question arises as to whether the maturity date of the

original loan or of the refinancing loan controls. Unfortunately, Texas case law gives

conflicting answers to this question.

The issue was first addressed nearly one hundred years ago in Kone v. Harper,

297 S.W. 294 (Tex. Civ. App. – Waco 1927), aff’d, 1 S.W.2d 857 (Tex. Comm’n

App. 1928). In Kone, the debtor asserted that limitations barred the refinancing

lender’s subrogation claim because the debt that had been paid off had a maturity

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date of more than four years before the foreclosure suit was brought. Id. at 299. The

debtor contended that, because the refinancing lender steps into the shoes of the

original lender for purposes of subrogation, the maturity date of the original loan

should control for limitations purposes. The Waco court disagreed, stating that the

refinancing acted in the same way as if the original debt had been renewed and

extended and, therefore, the relevant maturity date was the one for the new loan. Id.

at 299-300. Ten years later, in Hays v. Spangenberg, 94 S.W.2d 899 (Tex. Civ. App.

– Austin 1936, no writ), the Austin court followed Kone and held that limitations

begins to run on a subrogation claim on the “due date” of the refinancing loan, rather

than the date the paid-off loan would have become due. Id. at 902.

In 2005, this Court addressed a debtor’s assertion of limitations as a defense

to a subrogation lien claim in Brown v. Zimmerman, 160 S.W.3d at 701. Although

we did not directly address the lien claim’s accrual date, two opinions out of the

United States District Court for the Southern District of Texas, Gillespie v. Ocwen

Loan Servicing, LLC and Zepeda v. Federal Home Loan Mortgage Ass’n, have read

Zimmerman to hold that an equitable subrogation lien claim accrues at the time the

original loan is paid off. See Gillespie v. Ocwen Loan Servicing, LLC, No. 4:14-

CV-00279, 2015 WL 12582796, at *4 n.5 (S.D. Tex. Oct. 28, 2015); Zepeda v. Fed.

Home Loan Mortg. Ass’n., No. 4:16-cv-3121, 2018 WL 781666, at *5 (S.D. Tex.

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Feb. 8, 2018), rev’d, 967 F.3d 456 (5th Cir. 2020).2 We do not agree with this

reading of our opinion.

The facts in Zimmerman were unusual. The case began as a divorce action.

Zimmerman, 160 S.W.3d at 699. Husband was the founder and president of a bank

that refinanced a home loan debt owed by Wife. Id. at 698–99. Husband and Wife

then signed a separate contract in which they agreed to pay off the refinancing note

with proceeds from their life insurance policies. Id. at 699. Shortly thereafter, the

parties divorced and the separate agreement to pay off the loan was nullified by the

trial court. Id. Although the real property made the subject of the loan was awarded

to Wife, the divorce decree did not address the parties’ liability on the refinancing

note, and Husband’s bank placed a lien on the property. Id. Based on these facts,

and the unique loan repayment plan, it was unclear when the maturity date of the

refinancing loan would have been. But, because the bank’s subrogation lien claim

was brought less than four years after the refinancing occurred, there was no possible

maturity date for the new loan that would have been outside the limitations period.

Accordingly, our reference to the date of the refinancing was not to suggest that this

was when the claim accrued, but to show that the bank’s subrogation action was

necessarily brought timely because the note could not have matured more than four

years before suit was filed.

2
This is the same Zepeda case that was the subject of the certified question in Federal Home
Loan Mortgage Corp. v. Zepeda, 601 S.W.3d 763 (Tex. 2020).
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 In addition, both Gillespie and Zepeda cite Kone and Hays for the proposition

that a claim for equitable subrogation accrues on the maturity date of the underlying

debt secured by the prior lien. Gillespie, 2015 WL 12582796, at *4; Zepeda, 2018

WL 781666, at *5. As shown above, we read Kone and Hays as reaching the

opposite conclusion. See Kone, 297 S.W. at 299; Hays, 94 S.W.2d at 902. Two

other Texas federal courts have since followed Gillespie and Zepeda to conclude that

the limitations period on an equitable subrogation lien claim begins to run on the

maturity date of the note paid off in the refinancing. See Priester v. Long Beach

Mortg. Co., No. 4:16-cv-00449, 2018 WL 1081248, at *4 (E.D. Tex. Feb 28, 2018);

De La Cruz v. Bank of New York, No. A-17-CV-00163-SS, 2018 WL 3018179, at

*6 (W.D. Tex. June 15, 2018). All four federal opinions also appear to hold that a

subrogation claim could accrue long after the maturity date of the refinancing loan,

and De La Cruz seems to suggest that acceleration of the refinancing debt may not

similarly accelerate the maturity of the original debt. See De La Cruz, 2018 WL

3018179, at *6. We view the potential problems created by these holdings as

manifold.

Tying the accrual date of the subrogation action to the maturity of the

underlying debt recreates the issue resolved in Kone and Hays. Under the federal

cases, if a borrower defaults on a refinancing loan more than four years after the

maturity date of the original loan, the refinancing lender no longer has a viable

subrogation lien claim. This would severely limit the purpose of equitable

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subrogation. As the court said in Hays, “[t]he same equitable doctrine which grants

the lien should preserve it as security for the debt evidenced by the new note until

that note becomes barred.” Hays, 94 S.W.2d 899.

The reverse scenario is equally problematic. If the maturity date of the

original debt is well beyond the maturity date of the refinancing loan, the borrower

could arguably be subjected to a subrogation claim many years after the loan became

due. Such a result would render the limitations period practically meaningless. It

would also potentially force the refinancing bank to wait for an extended period of

time after the maturity date of its loan before being able to enforce the subrogation

lien.

PNC attempts to resolve this dilemma by arguing that, even though the

subrogation lien claim is triggered by the due date of the original loan, the time

within which to bring the lien claim is limited to the period in which the refinancing

note is “collectable,” which is six years after the note matures or its maturity is

accelerated. See TEX. BUS. & COM. CODE ANN. § 3.118(a). But PNC fails to explain

how its subrogation lien claim is enforceable if it has not yet accrued. PNC also fails

to explain how the debt can have matured for purposes of its note claim, but not for

purposes of its lien claim.

Furthermore, neither PNC nor the federal cases address why acceleration of

the refinancing debt would not similarly accelerate the maturity of the original debt.

Although the legal fiction of the original debt continues for subrogation purposes,

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there is still only one debt. Once accelerated, that one debt is mature. See Uresti,

553 S.W.2d at 663. And once mature, any claim to enforce a lien securing that debt

accrues. Khan, 371 S.W.3d at 353.

We conclude the correct result is the one first reached by Kone in 1927. The

lender’s cause of action to enforce its subrogation lien rights accrues on the date the

refinancing loan matures. Kone, 297 S.W. at 299. If the maturity of the refinancing

loan is accelerated, the debt is mature for purposes of both the lender’s contractual

rights and its subrogation rights. In this case, that date was June 19, 2009, when the

Howards’ refinancing loan was accelerated.

Relying on Kone and Hays, PNC argues that, even if its lien claim accrued

when the loan was accelerated, its “equitable lien” should not be subject to the same

limitations period as a contractual lien. PNC contends that a lien obtained through

equity should be valid for as long as the bank can recover on the note secured by the

lien. Although Kone and Hays contain language that the right to enforce a

subrogation lien should extend for as long as the right to collect on the refinancing

note, both cases were decided decades before the legislature enacted section 16.035

of the civil practice and remedies code which created a four-year limitations period

for lien claims separate from the four-year limitations period for suits on a debt. See

TEX. CIV. PRAC. & REM. CODE ANN. §§16.035, 16.004 (effective September 1,

1985). When the legislature later created a longer six-year limitations period for

suits on negotiable instruments, it did not similarly extend the time within which a

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party must bring a claim to enforce a lien securing a negotiable instrument. See id.

§ 16.035; TEX. BUS. & COM. CODE ANN. § 3.118(a) (effective January 1, 1996).

Accordingly, the legislature has determined that limitations on lien rights need not

be commensurate with limitations on collection rights. “[T]he right to collect and

the right to seek a forced sale are two quite different things.” Benchmark Bank v.

Crowder, 919 S.W.2d 657, 663 (Tex. 1996) (quoting U.S. v. Rodgers, 41 U.S. 677,

691 (1983)).

What PNC has is an equitable right of subrogation to the previous lender’s

contractual lien. All suits for the recovery of real property under a real property lien

or for the foreclosure of a real property lien are subject to the four year limitations

period. See TEX. CIV. PRAC. & REM. CODE ANN. § 16.035. PNC cannot, in the name

of equity, have more rights than the party to which it is subrogated, and those rights

are subject to the same defenses the borrower would have had against the original

lender. See Mid-Continent, 236 S.W.3d at 774. If this claim had been brought by

the original lender, it would have to have been filed within four years after the debt

matured. Zimmerman, 160 S.W.3d at 700. Because PNC did not file its subrogation

lien claim within four years after the date the debt was accelerated, it is time-barred.

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 We affirm the trial court’s judgment declaring any lien or power of sale held

by PNC on the Howards’ property void and unenforceable.

/Amanda L. Reichek/
AMANDA L. REICHEK
JUSTICE

171484F.P05

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 S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT

PNC MORTGAGE, A DIVISION On Appeal from the 199th Judicial
OF PNC BANK, N.A. SUCCESOR District Court, Collin County, Texas
TO NATIONAL CITY BANK AND Trial Court Cause No. 199-01559-
NATIONAL CITY MORTGAGE, A 2010.
DIVISION OF NATIONAL CITY Opinion delivered by Justice
BANK OF INDIANA, Appellants Reichek. Justices Molberg and
Garcia participating.
No. 05-17-01484-CV V.

JOHN HOWARD AND AMY
HOWARD, Appellees

In accordance with this Court’s opinion of this date, the judgment of the trial
court declaring any lien or power of sale held by PNC MORTGAGE, A DIVISION
OF PNC BANK, N.A. SUCCESOR TO NATIONAL CITY BANK on the
property of JOHN HOWARD AND AMY HOWARD void and unenforceable is
AFFIRMED.

It is ORDERED that appellees JOHN HOWARD AND AMY HOWARD
recover their costs of this appeal from appellant PNC MORTGAGE, A DIVISION
OF PNC BANK, N.A. SUCCESOR TO NATIONAL CITY BANK AND
NATIONAL CITY MORTGAGE, A DIVISION OF NATIONAL CITY BANK
OF INDIANA.

Judgment entered September 17, 2021

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