U.S. Bank, National Association as Trustee of the Cabana Series IV Trust v. Carrington Mortgage Services, LLC

FOURTH DIVISION
DILLARD, P. J.,
MERCIER and MARKLE, JJ.
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
https://www.gaappeals.us/rules
June 8, 2022
In the Court of Appeals of Georgia
A22A0035. U. S. BANK, NATIONAL ASSOCIATION AS
TRUSTEE OF THE CABANA SERIES IV TRUST v.
CARRINGTON MORTGAGE SERVICES, LLC.
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
1
The trial court also denied U. S. Bank’s cross-motion for summary judgment.
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 omitted.) LeCroy v. Bragg, 319 Ga. App. 884, 885 (1) (739 SE2d 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 Corp. (TBW) (“the second loan”). This second security deed
expressly identified the second loan as a “Secondary lien” and was noted in the
2
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.
2
A “silent second” is a second lien loan transaction in which the secondary
lender agrees to give up certain of its rights and become the second priority lien. See
Jo Ann J. Brighton, “Silent Second Lien Financings: Popular Lending Structure May
Give Rise to Enforcement Problems,” 24-FEB Am. Bankr. Inst. J. 22 (2005); see also
Mitchell v. West End Park Co., 171 Ga. 878 (156 SE 888) (1930) (senior lien holder
may waive his right to first priority lien).
3
The Normans signed a subordination agreement, but TBW did not sign it.
3
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
4
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.
5
174, 179 (1) (a) (850 SE2d 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 SE2d 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 SE2d 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, 891 (1) (156 SE 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
6
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 SE2d 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.
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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 Ga.
App. 556, 561–562 (2) (845 SE2d 298) (2020); see also OCGA §§ 23-2-25; 23-2-30.
“Reformation of written instruments may be had by the immediate parties thereto and
by those standing in privity with them, such as their successors.” (Citation and
punctuation omitted.) Ins. Agency of Glynn County v. Atlanta Cas. Co., 255 Ga. App.
323, 324 (1) (565 SE2d 547) (2002); see also West Lumber Co. v. Moore, 179 Ga.
302 (2) (175 SE 642) (1934) (equity permits reformation of a deed); OCGA § 23-2-23
(“A mistake of law by the draftsman or other agent, by which the contract, as
8
executed, does not fulfill or violates the manifest intention of the parties to the
agreement, may be relieved in equity.”).
Here, the evidence shows that the parties intended the Refi loan to hold first
priority. However, the trial court erred in concluding that the proper remedy was to
order reformation of the deed because nothing in the form of the conveyance was
inaccurate. Potter’s Properties v. VNS Corp., 306 Ga. App. 621, 623 (703 SE2d 79)
(2010) (“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.”) (emphasis supplied). Both deeds correctly
identified the proper parties and the property securing the debt, and they were duly
signed. Id.; see also JPMorgan Chase Bank, N. A. v. DelPiano, 356 Ga. App. 354,
356-357 (1) (847 SE2d 369) (2020) (deed missing attestation was facially defective
and could be reformed); Cronan, 355 Ga. App. at 561-562 (2) (reformation of deed
appropriate if there was a mutual mistake as to which property secured the debt).
Moreover, the secondary loan indicates on the face of the document that it was
intended to be the second priority. Thus, there is nothing on the form of the
9
conveyances that requires reformation.4 Compare West Lumber Co., 179 Ga. at 302(2) (trial court had authority to reform contract and deed to reflect that party agreed
to assume existing liens where contract and deed did not show this agreement).
Instead, the mistake in this case arose from the closing agent’s failure to follow
the closing instructions and record the deeds in the proper order to secure the first
priority lien for the Refi loan. Compare Black v. Nationstar Mtg., 344 Ga. App. 217,
221 (809 SE2d 487) (2018) (mutual mistake in deed existed where parties intended
to convey two pieces of property but, through a scrivener’s error, only one piece of
property was listed). Because reformation of the deed is not the proper equitable
4
Carrington cites to DeGolyer v. Green Tree Servicing, 291 Ga. App. 444, 447
(1) (662 SE2d 141) (2008), for the proposition that the trial court can reform the
security deed to make it first priority. But that case involved reformation of a deed
that lacked a legal description when it was recorded. Id. The trial court explained that
it could reform the deed to reflect the true intent of the parties as to the property
encumbered, and that the reformed deed would relate back to when it was originally
executed. Id. As such, the deed would maintain the first priority position, and the
plaintiff was entitled to a declaratory judgment to that effect. Id. The case did not hold
that a mistake in priority interests allows the trial court to reform the deed so as to
correct the recording error and priority lien position. Id.; see also DelPiano, 356 Ga.
App. at 359 (2) (b) (in a case involving request for equitable relief and a declaratory
judgment, explaining that “a trial court may equitably reform a recorded but defective
security deed and enter a declaration that the security deed has first priority.”)
(citation and punctuation omitted; emphasis supplied).
10
remedy to correct the order of the lien priority, the trial court erred in awarding such
relief.
(b) Specific performance.
The trial court also concluded that Carrington was entitled to specific
performance. Again, we conclude that the trial court erred in the remedy it ordered.
“Specific performance is an equitable remedy available when the damages
recoverable at law would not be an adequate compensation for nonperformance.”
(Citation and punctuation omitted.) Simpson v. Pendergast, 290 Ga. App. 293, 297
(2) (659 SE2d 716) (2008); see also Sexton v. Sewell, 351 Ga. App. 273, 279 (1) (830
SE2d 605) (2019) (“it was well established that monetary damages are not an
adequate legal remedy where the contract sought to be performed involved the sale
of unique real property[.]”) (citation and punctuation omitted); OCGA § 23-2-130.
We have found no case law – and the parties have not pointed to any – showing that
specific performance is an appropriate remedy here. In fact, there are obstacles to the
trial court’s application of specific performance in this case. Importantly, the trial
court did not order the parties to specifically perform any obligation. It did not order
U. S. Bank to sign a subrogation agreement. Rather, it ordered the property records
be corrected. As discussed above, however, there was nothing incorrect about the
11
deed, and thus, no basis on which to correct the records. As such, the remedy the trial
court ordered was improper. Cf. OCGA § 44-2-12 (providing for circumstances in
which a deed may be re-recorded).
(c) Equitable relief.
Equity allows for relief when there is no adequate remedy at law. OCGA § 23-
1-3; see also Wallace v. Wallace, 345 Ga. App. 764, 767-768 (1) (813 SE2d 428)
(2018). But as the Supreme Court of Georgia has explained:
[T]he first maxim of equity is that equity follows the law. Thus, a court
of equity has no more right than a court of law to act on its own notion
of what is right in a particular case. Where rights are defined and
established by existing legal principles, they may not be changed or
unsettled in equity. Although equity does seek to do complete justice, it
must do so within the parameters of the law.
(Citations and punctuation omitted.) Dolinger v. Driver, 269 Ga. 141, 143 (4) (498
SE2d 252) (1998); see also Northlake Manor Condo. Assn. v. Harvest Assets, 345 Ga.
App. 575, 581-582 (2) (812 SE2d 658) (2018) (although court has discretion to
fashion remedy under general principles of equity, that discretion is limited by
established legal principles). At this stage, Carrington has not shown that it has an
inadequate remedy at law that would permit the trial court to direct an equitable
12
remedy to correct the alleged error in the lien priority. See Sexton, 351 Ga. App. at
275-276 (1) (equitable relief not warranted where there was an adequate remedy at
law); see also McArthur Elec. v. Cobb County School Dist., 281 Ga. 773, 774-775
(642 SE2d 830) (2007); Colston v. Hutchinson, 208 Ga. 559, 560-561 (67 SE2d 763)
(1951). Accordingly, the trial court erred in the relief it ordered, and we must vacate
the trial court’s order and remand the case for further proceedings. Notably, in its
order granting Carrington’s motion for summary judgment, the trial court did not rule
on Carrington’s claims for declaratory judgment or equitable subrogation; nor did it
make any findings regarding any potential defenses U. S. Bank might assert. On
13
remand, the trial court should consider these claims.5 DelPiano, 356 Ga. App. at 359
(2) (c).
2. Finally, U. S. Bank argues that the trial court abused its discretion by
allowing hearsay evidence from non-party Selene Financing. We disagree.
Here, U. S. Bank admitted that the Selene records were authentic, but argued
that they were inadmissible hearsay. Pretermitting whether the documents from
Selene were inadmissible hearsay, there is no reversible error where the evidence is
cumulative. White Horse Partners v. Monroe County Bd. of Tax Assessors, 348 Ga.
App. 603, 608-609 (2) (824 SE2d 57) (2019) (“it is well established that admission
of hearsay is harmless when it is cumulative of legally admissible evidence showing
5
See Murray v. Chulak, 250 Ga. 765, 769 (3) (300 SE2d 493) (1983) (action
seeking declaratory judgment as to priority of liens); Hayes v. EMC Mtg. Corp., 296
Ga. App. 709 (675 SE2d 594) (2009) (same); GMAC Mtg. v. Pharis, 328 Ga. App.
56, 58 (1) (761 SE2d 480) (2014)(“[u]nder the doctrine of equitable subrogation,
where it was the intent of the parties to substitute a new creditor’s rights for the rights
of the creditor that is being paid off, the new creditor steps into the shoes of the old
creditor in terms of priority.”) (citations and punctuation omitted); see also Cross v.
Wilmington Trust Nat. Assn., 360 Ga. App. 747, 752-753 (2) (860 SE2d 212) (2021);
Kim v. First Intercontinental Bank, 326 Ga. App. 424, 426-427 (1) (a) (756 SE2d
655) (2014) (reforming deed to correct property description and applying equitable
subrogation to correct error in priority of deeds); Secured Equity Financial v.
Washington Mut. Bank, 293 Ga. App. 50 (666 SE2d 554) (2008) (equitable
subrogation claim where refinancing deed and second lien were filed in reverse order
and parties sought to correct lien priority); 59 CJS Mortgages § 299 (March 2022
Update).
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the same fact.”) (citation and punctuation omitted). Our review of the record confirms
that there was other properly admitted evidence showing the intent for the Refi loan
to hold the first priority. As such, any error in the admission of the Selene documents
is harmless.
For the reasons discussed above, we conclude that the trial court erred in the
relief it granted. We therefore vacate the trial court’s order granting summary
judgment to Carrington, and remand the case for further proceedings consistent with
this opinion.6
Judgment vacated and case remanded. Dillard, P. J., and Mercier, J., concur.
6
Because the trial court expressly declined to consider the claims of equitable
subordination and declaratory relief, we do not address the merits of U. S. Bank’s
argument that the trial court erred by denying its cross-motion for summary judgment
on those counts. See Sarrio v. Gwinnett County, 273 Ga. 404, 406 (2) (542 SE2d 485)
(2001); Tiffany and Tomato, Inc. v. Wells and McElwee, P. C., 358 Ga. App. 311, 316
(1), n. 6 (855 SE2d 55) (2021) (“issues which have not been ruled on by the trial court
may not be raised on appeal. . . .We are a court for the correction of errors and are not
authorized to issue an advisory opinion about a potential error a trial court may make
in the future.”) (citations and punctuation omitted).
15