This сase involves a dispute as to the existence and priority of competing security interests held by Ellis Baxter and Bayview Loan Servicing, LLC (“Bayview”) in certain real property located on Peachtree Industrial Boulevard in DeKalb County (“the Property”). The trial court granted summary judgment against Baxter and in favor of Bayview on Baxter’s claims (1) that an agreement between Baxter and his ex-wife and his son granted Baxter a mortgage on the Property; and (2) that, because Bayview took its deed to secure debt on the Property with constructive notice of Baxter’s mortgage lien, Baxter’s security interest was superior to that of Bayview. Baxter now appeals from that order, as well the trial court’s order granting Bayview’s motion to release the surety bond Bayview had posted as a condition of cancelling Baxter’s notice of lis pendens against the Property.
For reasons explained below, we find that Baxter did hold a mortgage lien against the Property, and that a question of fact exists as to whether Bayview took its security deed with notice of that lien. We further find that, even if Bayview did have notice of Baxter’s security intеrest in the Property, it is nevertheless entitled to be subrogated to the rights of a senior lien holder, whose debt was satisfied by a portion of the loan Bayview made against the Property. Finally, we hold that the trial court abused its discretion in unconditionally granting Bayview’s motion for the return and release of its surety bond. Accordingly, we reverse the grant of summary judgment to Bayview and vacate and remand the order granting Bayview’s motion for the return and release of its surety bond.
On appeal from a grant of summary judgment, we conduct a de novo review of the evidence to determine if there exists a genuine issue of material fact and whether the undisputed facts, viewed in the light most favorable to the nonmoving party, entitle the movant to judgment as a matter of law.
(Punctuation omitted.) Bone v. The Children’s Place.
So viewed, the record shows that from approximately 1991 until approximately September 2005, Baxter, together with his son and his ex-wife, operated Duncan Loudspeakers, Inc., d/b/a Audio Forest (“Duncan”). In 1998, Baxter and his son formed Fielding Partners, GP (“Fielding”), a general partnership whose sole purpose was to purchase and hold real property on which Duncan could operate its business. Baxter owned an 85% interest in Fielding and his son owned the remaining 15%. After Fielding purchased the Property using a loan obtained from the Small Business Administration, Duncan began operating its business out of a commercial building located thereon.
After the signing of this agreement... it may be necеssary to sign additional papers to effect[uate] the intent of this document[. A] 11 parties agree to in a timely manner finish all paper work and or sign all documents necessary to effect the transfer and completion of this agreement.
The purchase price for Baxter’s interest in Fielding was based on the parties’ valuation of the Property, which represented Fielding’s sole asset. Although they never had the Property appraised, both Baxter and his ex-wife testified that they believed the Property was worth between $1.2 and $1.4 million. Additionally, although the October 5, 2005 writing did not reflect this fact, the parties believed that the ex-wife and son would be able to obtain a loan of approximately $950,000, secured by the Property. That loan amount would be used to pay off the existing mortgage on the Property and to pay Baxter the entire $265,000 owed him under the October 5 agreement.
In late October 2005, however, Baxter’s ex-wife contacted him and told him that she and their son had only been able to obtain a loan of $578,500 on the Property, and that this amount would not provide the necessary funds to pay Baxter the $265,000 owed him under the October 5 agreement. The loan was necessary, however, to keep the Property from being foreclosed upon, and because Baxter was still the controlling partner of record in Fielding, his signature was required on the loan closing documents. Baxter agreed to participate in the loan closing only if his ex-wife and son would execute an amended agreement, which changed the purchase price of Baxter’s share of Fielding to $275,000. The ex-wife and son acquiesced and on November 2, 2005 the parties executed two additional documents drаfted by Baxter. The first document, captioned “Security Agreement,” provided that Baxter was selling his interest in Fielding for $275,000; that the entire purchase price would be paid to Baxter no later than December 18, 2005;
The November 2 security agreement further provided:
As a further inducement for this loan . . . [Baxter’s ex-wife and son] agree to present [t]hemselves ... at a reasonable time and with reasonable notice to re[-]sign formal legal papers to comply with the terms and intent of the documents here in [sic] comprised, which intent is stated that ... at anytime if the first mortgage payment is not made . . . within 31 days of [its] due date the 85% interest in [F]ield-ing and the total interest in the [P]roperty (subject to the [refinancing] loan to Fielding) shall be transferred to Ellis Baxter. . . .
This security agreement was never recorded, apparently because it did not comply with
On November 2, 2005, Fielding Partners closed a loan for $587,500 from LIB Properties, Inc. (“the LIB Loan”). Baxter, his ex-wife, and son each signed the closing documents in their capacities as partners in Fielding. In the deed to secure debt executed in favor of LIB Properties, each of those individuals covenanted that Fielding “has the right to grant and convey the Property and that the Property is unencumbered, except for encumbrances of record.”
Baxter received $21,024.12 from the LIB Loan, which represented the amount of loan proceeds left after payment of the existing mortgage, closing costs, and other loan-related expenses.
Six days later, on February 27, 2006, Fielding, now composed solely of Baxter’s ex-wife and son, closed a new loan on the Property from Interbay Funding Company, LLC (“Interbay”). Of the $735,000 loan amount, $616,663.99 was used to satisfy the security deed held by LIB Properties, and Baxter’s ex-wife and son received $91,678.87. Prior to closing this loan, Interbay conducted a title search on the Property, but did not discover Baxter’s lis pendens. On August 28, 2006, Interbay assigned its deed to secure debt on the Property to Bayview, as Interbay’s successor in interest.
Several months after filing suit, Baxter discovered the existence of the Interbay deed to secure debt. Baxter’s counsel then contacted the attorneys who had conducted the Interbay loan closing, informing them of Baxter’s asserted interest in the Property. The closing attorneys forwarded this information to Interbay, who filed a motion to intervene in the lawsuit between Baxter and his ex-wife and son. Interbay thereafter filed a motion to substitute Bayview, as the real party in interest, as the intervenor. Over Baxter’s objection, the trial court granted both motions, and allowed Bayview to intervene as a defendant in the action.
While the motion to intervеne was pending, Bayview foreclosed on the Property. After being allowed to intervene, Bayview moved to cancel Baxter’s notice of lis pendens, to facilitate the sale of the Property to a third party for approximately $1 million. In exchange, Bayview agreed to post a surety bond in an amount sufficient to protect Baxter’s claimed interest in the Property. The trial court granted the motion to cancel
Bayview subsequently moved for summary judgment, arguing that (1) the series of documents constituting the agreement between Baxter and his ex-wife and son (“the Agreement”) did not grant Baxter a mortgage on the Property; (2) any security interest Baxter did have was subordinate to that of Bayview, as the successor in interest to Interbay; and (3) even if Bayview’s security deed did not otherwise have priority over Baxter’s interest in the Property, the doctrine of equitable subrogation entitled Bayview to a first priority lien for the amount of its loan that was used to satisfy the LIB Properties’ deed to secure debt. The trial court granted the motion for summary judgment, as well as Bayview’s subsequent motion for release and return of the surety bond it had posted. Baxter now appeals from both of those orders.
1. The trial court’s order granting Bayview’s motion for summary judgment contained no findings of fact or conclusions of law. On appeal, however, Baxter argues that the evidence cannot support a grant of summary judgment on any of the three grounds urged by Bayview. We agree.
(a) We first address whether the Agreement between Baxter and his ex-wife and son granted Baxter a mortgage on the Property.
Under Georgia law, a mortgage is created when а property owner uses that property as security for his debt to another. See Cherokee Ins. Co. v. Gravitt.
Bayview, however, argues that the language obligating Baxter’s ex-wife and son to execute any additional documents necessary to effectuate the intent of the Agreement demonstrates that the Agreement did not create a lien. Instead, Bayview insists that this language merely showed an intent to create a lien in the future, at the time the additional documents were executed. Because no additional documents were ever executed, no lien was created.
This argument fails, however, because it confuses that which is necessary to create а mortgage lien, effective between the parties to the agreement, with that which is necessary to place such a mortgage in a form capable of being recorded. As the foregoing discussion shows, while Georgia law requires that a mortgage be in a certain form to be recordable, it does not make the existence of a mortgage dependent upon whether it satisfies the legal requirements for recording. Whether a mortgage is in recordable form, therefore, is different from the question of whether a mortgage exists — i.e., whether a mortgаge was created by a particular writing.
Both the plain language of the Agreement and the parties’ testimony show that while the parties anticipated executing additional documents, the purpose of such documents was not to create a mortgage. Rather, their purpose was to evidence, in a legally recordable form, the mortgage created by the Agreement. Thus, “[ajlthough the instrument was not in a typical mortgage form,” the Agreement granted Baxter a mortgage on the Property because it “clearly indicate[d] . . . the creation of a liеn, and specifie[d] the debt for which it [was] given, and the property upon which it [was] to take effect.” Ray v. Atkins.
(b) Having found that the Agreement granted Baxter a mortgage on the Property, we next address whether his security interest was superior to that of Bayview. Given that Baxter’s mortgage was never recorded, his interest can be considered superior only if Bayview took its deed to secure debt with notice of Baxter’s claim against the Property. See OCGA § 44-2-2 (b) (mortgages and other liens against property are effective against third parties who take without notice of such liens “only from the time they are filed for record in the clerk’s office”); Douglass v. McCrackin
“[T]he phrase ‘lis pendens’ means, literally, pending suit. Its purpose is one of notice, that is, the aim is to inform prospective purchasers that real property is directly involved in a pending lawsuit, in which lawsuit there is some relief sought in regard to that particular property.” (Citation and punctuation omitted; emphasis supplied.) Boca Petroco v. Petroleum Realty II.
Bayview attemрts to avoid this conclusion by arguing that, under Georgia law, a notice of lis pendens cannot serve as constructive notice of a prior, unrecorded mortgage on real property. The cases which Bayview relies on to support this argument, however, were decided over a century ago, under the common law, and well before the 1939 enactment of Georgia’s lis pendens statute. See Moody v. Millen;
[A] purchaser of real property is not only chаrged with notice of every fact shown by the records in the chain of title, but is also “presumed to know every other fact which the [title] examination suggested.” (Citations and punctuation omitted.) Deljoo v. SunTrust Mtg.21 Thus, when information appears in the county’s records or occurs during the sale of real property that would excite a reasonable purchaser’s attention regarding the existence of a lien or other issue affecting the title to the property, the purchaser has a duty to make a further inquiry. OCGA § 23-1-17. The notice which is sufficient to create this duty to inquire is also construсtive notice of “everything to which it is afterwards found that such inquiry might have led.” Id. It follows that, once the duty to inquire arises, a purchaser’s ignorance of a fact, such as a lien or other issue affecting the title to the property, due to his or her negligence in failing to make the additional inquiry will be the equivalent of the purchaser’s constructive knowledge of that fact. Id.
(Punctuation omitted.) Gallagher v. The Buckhead Community Bank.
Bayview, however, argues that it had no constructive notice of Baxter’s asserted security interest in the Property because a title search conducted prior to the February 27, 2006 loan closing did not reveal the lis pendens. Although the results of this title search are contained in a title insurance commitment dated the same day as the loan closing, the record does not contain a copy of the actual title search and thus contains no evidence of the date on which that search was performed. Nor is there any other evidence indicating whether the failure to discover the lis pendens resulted from negligence or a lack of due diligence on the part of either Bayview or its agents. Based upon the current evidence, therefore, it appears that there exists a factual question as to whether Bayview had constructive notice of Baxter’s security interest.
Because the filing and recording of the notice of lis pendens constitute a prima facie showing that Bayview had constructive notice of Baxter’s mortgage lien, on remand Bayview will need to come forward with evidence showing thаt it lacked such notice. Such evidence would include: (i) the date on which the title search was actually conducted; (ii) if it occurred prior to February 17, whether a subsequent, “updated” title search was performed in advance of the loan closing (see Kennedy, supra,
(c) As noted above, $616,663.99 оf the Bayview loan was used to satisfy the deed to secure debt held by LIB Properties. Moreover, Baxter has specifically acknowledged — in the parties’ Agreement, in his complaint filed below, and at his deposition — that his mortgage on the Property was subservient to the LIB Loan. In light of these facts, Bayview argues that, even if its deed to secure debt is otherwise subordinate to Baxter’s mortgage, it is entitled to be subrogated to the senior lien of LIB Properties in the amount of $616,663.99. We agree.
The principle of equitable subrogation has long been recognized in this State. See Merchants & Mechanics Bank v. Tillman.26 In substance, the principle provides that in certain circumstances, a lender who pays off the lien of a senior creditor may step into the shoes of the senior creditor as to the priority of the senior creditor’s lien. As explained at length by our Supreme Court in Davis v. Johnson:27 Where one advances money to pay off an encumbrance on realty either at the instance of the owner of the property or the holder of the encumbrance, either upon the express understanding or under circumstances under which an understanding will be implied that the advance made is to be secured by the senior lien on the property, in the event the new security is for any reason not a first lien on the property, the holder of the security, if not chargeable with culpable or inexcusable neglect, will be subrogated to the rights of the prior encumbrancer under the security held by him, unless the superior or equal equity of others would be prejudiced thereby. . . .
(Punctuation omitted.) Greer v. Provident Bank.
“Here, [Bayview], as assignee of [Interbay], meets the requirement of the rule set forth in Davis\, supra,
[Kjnowledge of the existence of an intervening encumbrance will not alone prevent the person advancing the money to pay off the senior encumbrance from claiming the right of subrogation where the exercise of such right will not in any substantial way prejudice the rights of the intervening encumbrancer.
(Punctuation omitted; emphasis supplied.) Greer, supra,
“We cannot say that [Bayview’s] exercise of the right of subro-gation would prejudice [Baxter’s] rights where[,] as here[,] he remains second in order of priority,” after the amount secured by the LIB Loan. Hayes, supra,
2. Baxter further asserts that the trial court erred in granting Bayview’s motion for the unconditional release and return of the surety bond it had posted as a condition of obtaining a cancellation of Baxter’s lis pendens.
As a general rule, the question of whether to require the giving of security is within the discretion of the trial court. See Berry v. City of East Point;
We recognize, however, that the appropriate amount of the surety bond required might be impaсted by our holding in Division 1 (c), that Bayview has a first priority security interest in the Property in the amount of $616,663.99. For that reason, we vacate the trial court’s order releasing and returning Bayview’s surety bond, and remand for a determination as to what bond amount is necessary to protect Baxter’s interest. Upon making that determination, the trial court shall require Bayview to post a surety bond.
For the reasons set forth above, we reverse the trial court’s order granting summary judgment to Bayview, and we vacate and remand the trial court’s order granting the release and return of Bayview’s surеty bond.
Judgment reversed in part and vacated and remanded in part.
Notes
The cancellation of the lis pendens was necessary to facilitate Bayview’s sale of the Property to a third party.
Bone v. The Children’s Place,
According to Baxter, the $275,000 purchase price was to be due on December 18, 2005, because the parties all viewed the November 2, 2005 loan as a “bridge loan” - i.e., a loan to be used to prevent foreclosure on the Property while Baxter’s ex-wife and son worked to obtain a larger loan on the same.
Under OCGA § 44-14-33, “[i]n order to admit a mortgage to record, it must be attested by or acknowledged before an officer as prescribed for the attestation or acknowledgment of deeds of bargain and sale; and, in the case of real property, a mortgage must also be attested or acknowledged by one additional witness.”
Thus, it appears that part of the relief Baxter sought in this lawsuit was a judgment granting him a recordable mortgage.
On November 7, 2005 a quitclaim deed, dated November 4, 2005, was recorded in DeKalb County, which deed recited that “Fielding Partners . . . comprised of Ellis F. Baxter and Andrew F. Baxter” transferred its interest in the Property to “Fielding Partners . . . now comprised of Andrew F. Baxtеr and Jo A. Baxter.” The copy of the quitclaim deed appearing in the record, however, contains no signatures.
This amount represented 1.5 times Baxter’s claimed security interest of $253,975.08.
After Bayview received summary judgment in its favor, Baxter’s claims against his ex-wife and son proceeded to a bench trial, with the trial court finding in favor of Baxter. Although the ex-wife and son originally appealed from the trial court’s judgment, that appeal was dismissed after they failed to file a brief and enumeration of errors. See Court of Appeals Rule 23 (a).
Cherokee Ins. Co. v. Gravitt,
Hawes v. Glover,
Jackson v. Bank One,
Ray v. Atkins,
Daniel v. State,
Douglass v. McCrackin,
Because Bayview took an assignment of the deed to secure debt received by Interbay at the February 27, 2006 loan closing, it stands in the shoes of Interbay for purposes of determining the priority of security interests in the Property. See, e.g., Rossville Bank v. Bankers First Sav. Bank,
Boca Petroco v. Petroleum Realty II,
Vance v. Lomas Mtg. USA,
Wilson v. Blake Perry Realty Co.,
Kennedy v. W. M. Sheppard Lumber Co.,
Moody v. Millen,
Deljoo v. SunTrust Mtg.,
Gallagher v. The Buckhead Community Bank,
Mabra v. Deutsche Bank &c.,
Byers v. McGuire Properties,
Hayes v. EMC Mtg. Corp.,
Merchants & Mechanics Bank v. Tillman,
Davis v. Johnson,
Greer v. Provident Bank,
Berry v. City of East Point,
Reid v. Reid,
Ebon Foundation v. Oatman,
Although the trial court’s order releasing the bond was premised on the fact that Baxter had not filed an appeal as to its summary judgment order, this reasoning ignored the fact that Baxter was entitled to delay his appeal from that order until after the trial of his claims against his ex-wife and son. “Where a summary judgment is granted in a case as to one or more but fewer than all the claims or parties, the losing party may without certification directly appeal within 30 days of the judgment or he may appeal after rendition of final judgment in the case.” (Citations and punctuation omitted.) Newton v. K. B. Property Mgmt. of Ga.,