Legal Definitions - equitable subrogation

Equitable subrogation is a legal term that refers to the substitution of one party for another whose debt the party pays. This entitles the paying party to rights, remedies, or securities that would otherwise belong to the debtor. For example, if a surety pays a debt, they are entitled to any security for the debt held by the creditor and the benefit of any judgment the creditor has against the debtor. They may also proceed against the debtor as the creditor would.

Equitable subrogation can arise by contract or by an express act of the parties, which is called conventional subrogation. It can also arise by operation of law or by implication in equity to prevent fraud or injustice, which is called legal subrogation. Legal subrogation usually arises when the paying party has a liability, claim, or fiduciary relationship with the debtor, pays to fulfill a legal duty or because of public policy, is a secondary debtor, is a surety, or pays to protect its own rights or property.

For example, if a homeowner pays off the mortgage on their property and then discovers that there was a lien on the property that was not satisfied, they may be entitled to equitable subrogation. This would allow them to step into the shoes of the lienholder and assert their rights against the debtor. Another example is when an insurance company pays a claim on behalf of their insured and then seeks to recover the amount from a third party who caused the loss. The insurance company would be entitled to the rights and remedies of their insured through equitable subrogation.