U. S. Bank, Nat'l Ass'n v. Carrington Mortg. Servs., LLC.

364 Ga.App. 179

874 S.E.2d 372

U. S. BANK, NATIONAL ASSOCIATION AS TRUSTEE OF the CABANA SERIES IV TRUST

v.CARRINGTON MORTGAGE SERVICES, LLC.

A22A0035

Court of Appeals of Georgia.

June 8, 2022

Blum & Campbell, James P. Blum Jr., Atlanta, for Appellant.

The Gilroy Firm, Monica K. Gilroy, Matthew Franklin Totten, Alpharetta, for Appellee.

Markle, Judge.

This appeal involves the priority of property liens held by U. S. Bank National Association as Trustee of the Cabana Series IV Trust (‘‘U. S. Bank’’) and Carrington Mortgage Services, LLC. (‘‘Carrington’’). Carrington filed suit to establish its loan as holding the first lien position. After both parties moved for summary judgment, the trial court found that the parties intended Carrington's loan to have first priority. Accordingly, the trial court granted summary judgment to Carrington and ordered reformation of the deeds and specific performance to place Carrington's interest in first priority.¹ U. S. Bank now appeals, arguing that the trial court erred in awarding such remedy, and by improperly considering evidence from a non-party loan servicer. For the reasons that follow, we vacate the trial court's order and remand the case for further proceedings.

Summary judgment is appropriate when no genuine issues of material fact remain and the movant is entitled to judgment as a matter of law. On appeal, we review the grant or denial of summary judgment de novo, construing the evidence and all inferences in a light most favorable to the nonmoving party.

(Citation and punctuation omitted.) LeCroy v. Bragg , 319 Ga. App. 884, 885 (1), 739 S.E.2d 1 (2013).

The facts here are largely undisputed. In 2007, Wanda Norman obtained a loan in the amount of $119,130 (‘‘the Purchase loan’’) to purchase property in DeKalb County. The loan was secured by a security deed naming Mortgage Electronic Registration Systems, Inc. (‘‘MERS’’) as the nominee for Opteum. Two years later, Norman conveyed an interest in the property to her husband via a quitclaim deed. That same year, the Normans borrowed $24,500, which was secured on the same property by a second security deed, naming MERS as the nominee for Taylor, Bean & Whitaker Mortgage Corporation (‘‘TBW’’) ("the second loan"). This second security deed expressly identified the second loan as a "Secondary lien" and was noted in the records to be a "silent second."² Around the same time, the Normans refinanced the Purchase loan, again using the same property to secure the loan under a security deed, naming MERS as the nominee for TBW ("the Refi loan").

The HUD-1 settlement papers indicated that the Refi loan was to be subject to a second lien, and there was a line item charge for recording a subordination agreement. The closing instructions for both loans required the closing agent to obtain a subordination agreement from TBW to make the Refi loan first priority, and to record the agreement simultaneously with the Refi loan. Despite these instructions, however, the closing agent failed to obtain or record a subordination agreement signed by TBW.³ Instead, she included in the closing documents a note entitled "first position letter," confirming that the Refi loan had paid off the Purchase loan; therefore, the Refi loan held the first priority lien. The second loan was recorded in March 2009, but the Refi loan was not recorded until six months later.

The Refi loan was ultimately assigned to Carrington. The second loan was transferred to Selene Finance for servicing. In 2015, Norman discovered that the Refi loan incorrectly occupied the second priority lien position. She contacted Selene Finance, which acknowledged that it held the secondary lien position and that, through a recording error, it had bumped Carrington from the first priority lien position. However, when Carrington requested Selene Finance sign a subordination agreement, it declined. The second loan was ultimately assigned to U. S. Bank.

Carrington filed suit against U. S. Bank, seeking a declaratory judgment that it was entitled to a first priority interest. It also requested equitable relief; equitable subrogation; reformation of the deeds due to mutual mistake; and specific performance. In its answer and response to requests to admit, U. S. Bank admitted that Selene had conceded the second loan held the second priority lien position.

Both parties moved for summary judgment, and following a hearing, the trial court granted summary judgment to Carrington. The trial court found that Carrington was entitled to reformation of the deeds because there had been a mutual mistake when the closing agent failed to obtain a signed subrogation agreement and recorded the deeds in the wrong order. The trial court further found that Carrington was entitled to specific performance because U. S. Bank's own records showed that the Refi loan was intended to hold the first priority position. The trial court did not address the claims for declaratory judgment or equitable subrogation. In its order, the trial court instructed that the county property records be reformed to reflect the liens’ correct priority status. U. S. Bank now appeals.

1. U. S. Bank first argues that Carrington is not entitled to equitable relief, reformation, or specific performance because there was no mutual mistake given that TBW, as Carrington's predecessor, held both the Refi loan and the second loan at the time of closing and is solely responsible for the failure to obtain a signed subordination agreement. It asserts that TBW never paid off the debt secured by the second loan, thereby leaving U. S. Bank in the first priority position. It then argues that it was entitled to summary judgment on Carrington's claims for a declaratory judgment and equitable subrogation. Under the facts of this case, we are constrained to conclude that the trial court erred by granting summary judgment to Carrington on the claims for reformation and specific performance, and ordering that the county deed records be altered.

"A security deed containing a power of sale and a deed to secure debt are matters of contract, the provisions of which are controlling as to the rights of the parties, and will be enforced as written." Najarian Capital v. Milford , 357 Ga. App. 174, 179 (1) (a), 850 S.E.2d 236 (2020). Because Carrington and U. S. Bank are both assignees of the deeds from TBW, their rights are controlled by the deeds. Sparra v. Deutsche Bank Nat. Trust Co. , 336 Ga. App. 418, 422 (1) (e), 785 S.E.2d 78 (2016).

Generally, the priority of each deed or lien is determined by the date of its recording. See, e.g., OCGA § 44-2-1. Thus, a deed that was executed second, but filed first can take the first priority over the earlier mortgage. See OCGA §§ 44-2-2 (b) ; 44-2-6. Nevertheless, parties can agree to modify the order of lien priority. N. Ga. Sav. & Loan Assn. v. Corbeil , 177 Ga. App. 523, 524 (1), 339 S.E.2d 779 (1986).

[W]here facts apparent on the face of the mortgages show that it was the intention of the parties to give preference to one over the other, the lien so preferred will be enforced .... The parties may, as between themselves, make a valid agreement ... that one of two mortgages shall be prior to the other, and the order of record is then immaterial unless they are subsequently assigned to other persons who have no notice of the agreement.

Mitchell v. West End Park Co. , 171 Ga. 878, 884 (1), 156 S.E. 888 (1930).

Moreover, as we have explained,

[t]he legal order or priority as between mortgages and other liens or claims may be fixed, reversed, or modified by an agreement of the parties or by a waiver or release on the part of the senior lienholder. ... Furthermore, even absent a specific agreement, a lienholder may waive priority by implication; without any agreement there may be facts and circumstances which would indicate an intention to make one of two claims prior to the other.

(Citation and punctuation omitted.) F & W Agriservices v. UAP/Ga. Ag. Chem. , 250 Ga. App. 238, 240 (1), 549 S.E.2d 746 (2001).

In this case, Carrington argues that the original parties to the loans agreed that the Refi loan would have first priority. The record here is replete with evidence of this intent on the face of the loans, as well as in the records of the refinancing and subsequent servicing of the loans. At issue, however, is what relief was appropriate under the specific facts of this case.

Here, Carrington's claims sounded largely in equity. "Equity jurisdiction is established and allowed for the protection and relief of parties where, from any peculiar circumstances, the operation of the general rules of law would be deficient in protecting from anticipated wrong or relieving for injuries done." OCGA § 23-1-3. "Equity considers that done which ought to be done and directs its relief accordingly." OCGA § 23-1-8. With this in mind, we turn to Carrington's claims for relief.

(a) Reformation.

Reformation of a contract is authorized when there is a mutual mistake as to the content of a writing: Equity may intervene and reform a conveyance when the instrument fails to express accurately the intention of the parties. A petition for reformation of a written contract will lie where by mistake of the scrivener and by oversight of the parties, the writing does not embody or fully express the real contract of the parties. The cause of the defect is immaterial so long as the mistake is common to both parties to the transaction. And the negligence of the complaining party will not defeat his right to reformation if the other party has not been prejudiced. A mistake relievable in equity is some unintentional act, omission, or error arising from ignorance, surprise, imposition, or misplaced confidence, that results in a conveyance that is contrary to the intention of the parties in their contract. But for equity to intervene, the mistake must be shown to be the mistake of both parties.

(Citations and punctuation omitted.) JPMorgan Chase Bank, N. A. v. Cronan , 355...