CHIEF JUSTICE HECHT delivered the opinion of the Court. This case is before us for a second time. It is undisputed that PNC Mortgage, whose predecessor refinanced the Howards’ original mortgage loans, did not initiate foreclosure proceedings until the statute of limitations had expired on a claim to enforce its own lien. The issue in the first round of appeals was whether the common-law doctrine of equitable subrogation provided PNC with an alternative means of foreclosure. The court of appeals “balance[d] the equities”, including PNC’s negligence, and held that the trial court did not err by denying PNC’s claim for equitable relief and rendering judgment for the Howards.[1] While PNC’s first petition for review was pending before this Court, we answered the Fifth Circuit’s certified question in Federal Home Loan Mortgage Corp. v. Zepeda.[2] That case involved the ability of a home-equity lender to foreclose through equitable subrogation when its own lien was invalid under Article XVI, Section 50 of the Texas Constitution.[3] Relying on a line of cases dating back to 1890, we explained that in the mortgage-lending context specifically, a refinance lender’s negligence in preserving its own lien plays no part in its entitlement to enforce an earlier lien through equitable subrogation.[4] Because the court of appeals’ equity-balancing analysis in the first appeal of this case conflicted with our analysis in Zepeda, without hearing oral argument, we reversed the court of appeals’ judgment and remanded with an instruction to address the Howards’ claim that PNC’s equitable-subrogation claim is time-barred.[5] On remand, the court of appeals concluded that any equitable-subrogation claim that PNC could have asserted would have accrued when PNC accelerated the Howards’ note and that, therefore, this claim is time-barred too.[6] We agree and affirm. I John and Amy Howard took out two mortgages with First Franklin Financial Corporation to purchase a home in 2003. Two years later, they refinanced those loans with the Bank of Indiana, using the proceeds of that loan to pay off their initial mortgages. The Bank of Indiana later assigned its note and deed of trust to PNC. The Howards stopped paying in 2008. PNC accelerated the note in 2009, but then Amy Howard filed for bankruptcy. In early 2010, the bankruptcy court entered a consent order memorializing a new repayment schedule, but the Howards remained delinquent on the amended note. Shortly thereafter, in the spring of 2010, the Bank of Indiana, despite having assigned its note to PNC, sent the Howards a notice of acceleration. In short order, the Bank appointed a substitute trustee to conduct a nonjudicial foreclosure sale of the Howards’ property, where the property was purchased by the Bank. The Howards immediately sued to set aside the foreclosure sale, naming both the Bank and PNC as defendants. But then the litigation stalled. Four years later, in 2014, the trial court granted the Howards’ motion for partial summary judgment against the Bank and rendered a judgment declaring the foreclosure sale void. Only then—in January 2015—did PNC make any claim based on the Howards’ failure to pay the note that PNC held. By then the four-year statute of limitations[7] had expired on PNC’s claim to foreclose on its own lien. So, in both a counterclaim to the Howards’ wrongful-foreclosure suit and affirmatively in a separate lawsuit, PNC asserted a claim for foreclosure on the lien held by the Howards’ original lender, First Franklin, which was transferred to PNC’s predecessor, the Bank, in the refinance transaction through the doctrine of equitable subrogation. The trial court consolidated the two suits, held a bench trial on facts stipulated by the parties, and rendered a judgment for the Howards that PNC take nothing. A ping pong of appellate proceedings followed. The question in this most recent round is when any claim by PNC to enforce the lien acquired through subrogation would have accrued. The answer turns on how subrogation operates in the mortgage-lending context. II “Subrogation simply means substitution of one person for another; that is, one person is allowed to stand in the shoes of another and assert that person’s rights against the defendant.”[8] The right of substitution arises “because, for some justifiable reason, the subrogation plaintiff has paid a debt owed by the defendant.”[9] We see subrogation most often in an insurance context, but it “applies ‘in every instance in which one person . . . has paid a debt for which another was primarily liable’”.[10] Sometimes the right of substitution “arises by contract”,[11] sometimes it is provided for by statute,[12] and sometimes it “arises by operation of law or by implication in equity”.[13] In the third case, equitable factors such as negligence or knowledge are sometimes relevant to a party’s entitlement to a remedy through subrogation.[14] Yet sometimes equitable factors play no role at all in the application of the doctrine we call equitable subrogation.[15] Because subrogation is something of a shapeshifter, courts and litigants should use caution before relying on language about subrogation that appears in a different kind of case.[16] A What the substituted party obtains through subrogation depends on the context.[17] Subrogation can give an insurance carrier or another party standing to assert a damages claim that initially belonged to a tort victim.[18] By contrast, in the mortgage-lending context, what subrogation gives a refinance lender is merely a back-up lien.[19] This distinction has consequences for when a claim acquired through subrogation accrues. Take, for example, an insurer’s statutory right of subrogation under the Workers’ Compensation Act. Under the Act, an insurance carrier who pays benefits to an injured employee becomes “subrogated to the rights of the injured employee and may enforce the liability of the third party” by asserting the claim the injured worker could have brought.[20] In this context, “[t]here is but one cause of action against the third party tortfeasor”—the claim belonging to the employee, which is transferred to the carrier under the Act.[21] We have thus held that “because the [insurer's] subrogation claim is derivative of the employee’s rights, . . . it accrues at the same time the employee’s action against the third party accrues.”[22] PNC urges us to apply a similar rule here. It argues that limitations on a refinance lender’s subrogation claim should not begin to run until the maturity date of the note on the original debt that was later refinanced. This idea is supported by a few federal district court decisions.[23] The accrual rule urged by PNC is incompatible with “the dual nature of a note and deed of trust” under Texas law, however.[24] In the refinance transaction, the original note is paid. That note then ceases to exist; it no longer has a maturity date; and a new note between the borrower and the refinance lender is executed. What equitable subrogation actually transfers to a refinance lender is the original creditor’s security interest, so the refinance lender has an alternative lien if its own lien is later determined to be invalid.[25] This transfer occurs automatically, by operation of law, when the refinance lender’s money is used to pay off the original creditor’s loan and discharge its lien.[26] In Zepeda, we explained the public-policy reason for this transfer and how it ultimately “protect[s]homestead property.”[27] B The transfer or substitution that occurs through subrogation puts the party receiving the interest on par with the party from whom the interest was transferred. Subrogation does not put the party receiving the interest in a better position than the party from whom it was transferred.[28] This is another reason why the accrual rule urged by PNC is wrong and why the rule applied by the court of appeals is correct.[29] A claim to foreclose on a real property lien accrues when the underlying note is accelerated.[30] If the Howards’ original lender had accelerated their notes due to nonpayment, that lender would have had four years from the date of acceleration to initiate foreclosure proceedings.[31] If that lender had accelerated but then waited to foreclose until the final due date of the note, perhaps some thirty years later, its foreclosure claim would have been lost. But PNC’s proposed rule could give a refinance lender—just by virtue of being the second lender in time—not only four years from the date of acceleration to foreclose on its own lien but then an additional period, perhaps decades, to foreclose on the lien it acquired through subrogation.[32] Like the original lender, a refinance lender has only one foreclosure claim, which accrues when the note made in the refinancing transaction is accelerated. If the lien created by the refinance transaction turns out to be invalid, then equitable subrogation substitutes the remedy of foreclosing on the original creditor’s lien instead.[33] Subrogation provides the refinance lender with an alternative remedy, not an additional claim.[34] The court of appeals thus correctly held that any claim PNC would have had through subrogation to foreclose on the original lender’s lien would have accrued in June 2009, when the Howards’ refinanced loan was accelerated.[35] Because PNC did not initiate foreclosure within four years of that date,[36] its claim is time-barred.[37] * * * * * We affirm the judgment of the court of appeals. Nathan L. Hecht Chief Justice OPINION DELIVERED: May 12, 2023
