ABN AMRO Mortgage Group, Inc. v. Southern Security Federal Credit Union

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
October 26, 2011 Session
ABN AMRO MORTGAGE GROUP, INC. v. SOUTHERN SECURITY
FEDERAL CREDIT UNION
Direct Appeal from the Chancery Court for Shelby County
No. CH-06-0802 Walter L. Evans, Chancellor
No. W2011-00693-COA-R3-CV - Filed November 17, 2011
Appellant, the second mortgage holder on the subject property, appeals the trial
court’s determination that Appellee held a valid first mortgage on the property, when
Appellee’s mortgage was taken under a deed of trust that contained a scrivener’s error that
incorrectly identified the property’s lot number. The trial court held that: (1) the scrivener’s
error was not fatal to Appellant’s deed of trust as the instrument otherwise clearly identified
the property; (2) Appellant’s mortgage was superior to Appellee’s; and (3) Appellee’s bid
at Appellant’s foreclosure sale created a valid contract, under which Appellee owed
Appellant the purchase price. Finding no error, we affirm.
Tenn. R. App. P. 3. Appeal as of Right; Judgment of the Chancery Court Affirmed
J. S TEVEN S TAFFORD, J., delivered the opinion of the Court, in which A LAN E. H IGHERS, P.J.,
W.S., and D AVID R. F ARMER, J., joined.
Harold D. Mangrum, Memphis, Tennessee, for the appellant, Southern Security Federal
Credit Union.
T. Tarry Beasley, II, Memphis, Tennessee, for the appellee, ABN AMRO Mortgage Group,
Inc.
OPINION
On or about March 29, 2002, Charles A. Giacosa and his wife, Pamela Giacosa (the
“Giacosas”) obtained a first mortgage from First Residential Mortgage-Louisville on
property known as 8320 Bon Lin Drive, Bartlett, Tennessee (the “Property”) and more
particularly described as:
Lot 10, Rolling Woods Subdivision, as shown on plat of record
in Plat Book 38, Page 8, in the Register’s Office of Shelby
County, Tennessee, to which plat reference is hereby given for
a more particular description of said property.
This being the same property as conveyed to Charles Giacosa
and wife, Pamela Giacosa from Roland J. Holeczko and
Candace D. Holeczko, husband and wife by Warranty Deed
dated May 23, 2001, recorded June 29, 2001, in Book LD, Page
1101 in the Register’s Office of Shelby County, Tennessee.
Parcel ID #B01-58-00277.
To secure the first mortgage, which was in the amount of $165,600.00, the Giacosas
executed and delivered a Deed of Trust (the “First Deed of Trust”) to First Residential
Mortgage-Louisville, with Transcontinental Title as trustee. The First Deed of Trust was
recorded on or about April 12, 2002, in the office of the Shelby County Register of Deeds,
as Instrument No. 02-063717. At the time the First Deed of Trust was prepared, the lot
number was erroneously listed as Lot 16, rather than Lot 10, which is the correct lot number.
According to the subsequent foreclosure sale notification, ABN AMRO Mortgage Group,
Inc. (“ABN”) is the transferee/assignee of the First Deed of Trust.
On or about May 16, 2002, the Giacosas obtained a second mortgage on the Property
(the “HELOC”) from Southern Security Federal Credit Union (“Southern Security,” or
“Appellant”). The HELOC, which had a maximum principal amount of 41,400.00, was
secured by a Deed of Trust (the “Second Deed of Trust”) that was executed by the Giacosas
in favor of Southern Security. The Second Deed of Trust was recorded on or about May 22,
2002, in the Office of the Register of Shelby County, as Instrument No. 02-086888. The
legal description contained in the Second Deed of Trust correctly identified the Property as
Lot 10.
It appears from the record, and particularly from the Affidavit of Jeri Keith, a loan
officer for Southern Security, that Southern Security was aware, at the time of the execution
of the Second Deed of Trust, that ABN held a first mortgage on the Property. According to
Jeri Keith’s Affidavit, the HELOC paperwork submitted by the Giacosas clearly indicated
that ABN held the first mortgage on the property. Furthermore, Southern Security’s own title
search revealed the First Deed of Trust.
The Giacosas ultimately defaulted on the first mortgage held by ABN. Thereafter,
ABN began foreclosure proceedings, including advertising the foreclosure sale of the
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Property as “Lot 10.” ABN appointed Priority Trustee Services of Tennessee, L.L.C.
(together with ABN, “Appellees”) as its Substitute Trustee. On April 13, 2006, Priority
Trustee Services, on behalf of ABN, held a foreclosure sale as advertised and in accordance
with the Bid Instruction Sheet and Tennessee law. Southern Security appeared at the sale,
bidding $197,165.00 for the Property. As the successful bidder, Southern Security then
tendered payment by cashier’s check. Thereafter, by letter of April 17, 2006, Southern
Security, by and through its Senior Vice President Joseph Reed, advised ABN that it had
issued a stop payment order on the cashier’s check. As grounds for the stop payment, Mr.
Reed asserted Southern Security’s belief that ABN did not hold a valid first mortgage on the
Property, and that Southern Security was actually the first mortgage holder. On April 20,
2006, Southern Security held a foreclosure sale of the Property, claiming that ABN was a
“subordinate lienholder.” 1
On April 21, 2006, ABN filed suit against Southern Security, its Substitute Trustee
Harold Mangrum, and the Giacosas, seeking reformation of the First Deed of Trust to correct
the scrivener’s error, which erroneously identified the Property as Lot 16, rather than Lot 10.2
By its complaint, ABN also asked the court to establish it as the first mortgage holder on the
Property. Furthermore, ABN sought to enjoin Southern Security and Harold Mangrum from
conducting any sale of the Property.
A hearing on the request for injunctive relief was held on May 2, 2006. By Order of
May 5, 2006, the trial court found that ABN’s request for an injunction was moot because
the foreclosure sale had already occurred on April 20, 2006. On September 20, 2006, ABN
was granted leave to file an amended complaint, which removed the request for injunctive
relief and requested that Southern Security’s foreclosure sale be set aside as it was based
upon Southern Security’s mistaken belief that it was the first mortgage holder.
Additional litigation followed, including the denial of ABN’s motion for summary
judgment. These proceedings are not relevant to the instant appeal and we will not tax the
length of this opinion to recite that history herein. Suffice to say, a final hearing was held
on February 3 and 17, 2011. By Order of February 25, 2011, the trial court found, in relevant
1
At the Southern Security sale, the Property was purchased by William and Rita Trigg. The Triggs
moved the court for permission to intervene and for leave to file a third-party complaint to clear title on the
Property, which motion was granted by order of August 11, 2006. Ultimately, the Triggs were granted
summary judgment, which upheld their possession of the Property. The Triggs are not a party to this appeal.
2
ABN entered a voluntary non-suit as to the Giacosas. Mr. Mangrum was dismissed from the
lawsuit because the foreclosure sale was completed prior to the filing of the original complaint.
Consequently, Mr. Mangrum was no longer a necessary party. Neither the Giacosas, nor Mr. Mangrum are
parties to this appeal.
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part, as follows:
3. Joseph Reed, on behalf of . . . Southern Security. . . attended
the foreclosure sale [i.e., the first foreclosure sale held by ABN]
and bid $197,165.00 for the purchase of [ABN’s] interest in the
subject real property. Said bid having been accepted by Richard
Fulton [acting as Substitute Trustee for ABN], the sale was
completed and memorialization of said sale was given by Joseph
Reed’s tendering of Southern Security’s check in the amount of
$197,165.00 to Richard Fulton. The tendering of funds by
Southern Security. . . confirmed the contract entered into by the
parties pursuant to the published Notice of Foreclosure.
4. Southern Security . . . asserted an issue with the title on the
real property known as 8320 Bon Lin . . . due to a scrivener’s
error in the lot number reflected on the original Trust Deed;
however, the address of the property, the parcel number, the
derivation clause, and other information contained on the face
of said original Trust Deed clarifies the specific property
purchased by [Southern Security] from [ABN] at foreclosure.
5. [ABN] has a duty to transmit a defendable Trustee’s Deed to
[Southern Security].
* * *
7. [ABN] has a right to specific performance of the contract
from [Southern Security] pursuant to the foreclosure sale held
by [ABN].
Based upon these findings, the court ordered ABN to issue a substitute deed of trust
in favor of Southern Security in order to correct the scrivener’s error. The trial court further
ordered Southern Security to issue payment in the amount of $197,165.00 to ABN; however,
ABN’s request for interest and attorney’s fees was denied.
Southern Security appeals and raises one issue for review as stated in its brief:
Did the Chancery Court err in finding a binding contract
between the parties and giving the remedy of specific
performance to [ABN] when [ABN] knowingly foreclosed on a
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deed of trust, which was filed against the wrong property and
failed to correct it before the foreclosure?
Because this case was tried by the court, sitting without a jury, this Court conducts a
de novo review of the trial court's decision with a presumption of correctness as to the trial
court's findings of fact, unless the evidence preponderates against those findings. Wood v.
Starko, 197 S.W.3d 255, 257 (Tenn. Ct. App. 2006). For the evidence to preponderate
against a trial court's finding of fact, it must support another finding of fact with greater
convincing effect. Walker v. Sidney Gilreath & Assocs., 40 S.W.3d 66, 71 (Tenn. Ct. App.
2000); The Realty Shop, Inc. v. R.R. Westminster Holding, Inc., 7 S.W.3d 581, 596 (Tenn.
Ct. App. 1999).
A determination of the priority of rights among the holders of liens and mortgages is
solely a question of law when the parties do not dispute the facts. Bankers Trust Co. v.
Collins, 124 S.W.3d 576, 578 (Tenn. Ct. App. 2003); ATS, Inc. v. Kent, 27 S.W.3d 923, 924
(Tenn. Ct. App. 1998) (citing Lucius v. City of Memphis, 925 S.W.2d 522, 522 (Tenn.
1996)). When addressing questions of law, we review the trial court's ruling de novo upon
the record and afford to it no presumption of correctness. ATS, Inc., 27 S.W.3d at 924.
From our reading of its appellate brief, Southern Security makes four arguments,
namely: (1) that ABN was without standing to foreclose on the property, or to bring suit
against Southern Security; (2) that ABN violated several maxims and principles of equity
when it attempted to foreclose on an incorrect deed of trust because it was not the first
lienholder on the Property; (3) that no contract existed between the parties because ABN
could not provide clear title to the Property; and (4) that ABN has shown no damages, which
would require specific performance. We will address each of these assignments of error in
turn.
Standing
As noted above, the First Deed of Trust was executed in favor of First Residential
Mortgage-Louisville, with Transcontinental Title as trustee. ABN is the company that
attempted to foreclose on the First Deed of Trust. According to the sale advertisements and
letters informing Southern Security of the foreclosure, ABN was the transferee or assignee
of the First Deed of Trust. On appeal, Southern Security argues that ABN’s status as
assignee/transferee was never established in the lower court. Specifically, Southern Security
contends that “no corporate representative or employee of [ABN or First Residential]
testified at trial, nor were there any recorded or unrecorded documents introduced. . . at trial
which would evidence that such transfer or assignment had taken place.” Consequently,
Southern Security asserts that ABN has no standing to either foreclose on the First Deed of
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Trust, or to file the instant lawsuit.
We have reviewed the record and have determined that the standing argument was not
raised in the trial court and appears, for the first time, in Southern Security’s appellate brief.
Because Southern Security did not raise the issue of standing in the trial court, it has waived
the argument on appeal. Waters v. Farr, 291 S.W.3d 873, 918 (Tenn.2009) (stating that
issues not raised in the trial court are waived on appeal); Tenn. R. App. P. 36(a) (“Nothing
in this rule shall be construed as requiring relief be granted to a party responsible for an error
who failed to take whatever action was reasonably available to prevent or nullify the harmful
effect of an error.”). However, even if we were to address the substance of this issue, there
is uncontested evidence in the record, specifically the notices and letters that were exchanged
during the course of this litigation, to indicate that ABN is the rightful transferee/assignee
of the First Deed of Trust. Southern Security has offered no proof to contradict this
assertion. Consequently, the evidence preponderates in favor of a finding that ABN is, in
fact, the correct party with standing to foreclose and/or file suit for disputes arising under the
First Deed of Trust.
Whether ABN Held a Valid First Lien on the Property
The gravamen here is whether the fact that the description in the First Deed of Trust
incorrectly described the Property as Lot 16 should negate ABN’s status as first mortgage
holder. Tennessee law requires that instruments conveying an interest in property include
a description of the property. Tenn. Code Ann. § 66–5–103. The question, then, is whether
a description and, in this case, a description that contains an error is sufficient to satisfy this
requirement. We begin our inquiry with the discussion contained in 26A C.J.S. Deeds § 51
(2011), which provides, in relevant part, as follows:
Generally, any description in a conveyance of the
property is sufficient if it identifies the property, or if it affords
the means of identification, as by extrinsic evidence.
Courts are reluctant to declare instruments void for an
uncertain description and will look to attendant facts to make
them certain. The sufficiency of a description in a deed is not to
be measured by any inflexible rule or sets of rules. While it has
been held that the function of a description of the property in
conveyances is to identify the land covered by the conveyance,
it has also been stated that the office of a description is not to
identify the land, but to afford a means of identification.
Generally, therefore, any description is sufficient by
which the identity of the premises can be established, or which
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furnishes the means of identification, of the property covered by
the deed or which it was intended to convey thereby with
reasonable certainty, and without the exercise of arbitrary
discretion. A conveyance is also good, if the description can be
made certain within the terms of the instrument. A description
from which a surveyor can locate the land and by means of
which the surveyor is able to establish its boundaries, or by
which a party familiar with the locality is enabled to identify the
premises intended to be conveyed with reasonable certainty, is
sufficient. A deed will not be held void for uncertainty of
description if by any reasonable construction it can be made
available. A court will declare a deed void for uncertainty of
description only where, after resorting to oral proof or after
relying upon other extrinsic or external proof or evidence, that
which was intended by the instrument remains a mere matter of
conjecture, or where the description cannot be made applicable
to but one definite tract.
The description of property need not be determined by
reference to the deed alone. Extrinsic facts pointed out in the
description may be resorted to in order to ascertain the land
conveyed, and the property may be identified by extrinsic
evidence. Although such extrinsic evidence must be sufficient
to establish the identity of the land sought to be conveyed, it
must not add to, enlarge, or in any way change the description
contained in the conveyance, and the writing itself must furnish
the hinge or hook on which to hang the aid thus afforded,
without resorting to any secret or undisclosed intention of the
parties thereto.
If part of the description is proved inconsistent on being
applied to the premises, it does not vitiate the deed if a sufficient
part of the description remains for purposes of identification or
where the grantor's intent is apparent. However, if the deed
contains inconsistent descriptions either of which is sufficient to
identify different parcels of property, and there is nothing to
show the grantor's intention, the deed is void for uncertainty.
Where all the particulars in a description are essential, the
description in the deed must agree with every particular, or
nothing will pass, but where they are not all essential, and it
does not so agree, if it is sufficient to identify the estate granted,
the deed is good.
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Id. (footnotes omitted).
Tennessee case law is in line with the Corpus Juris Secundum on this point—to be
valid, a deed “must designate the land intended to be conveyed with reasonable certainty.”
Phoenix Mutual Life Insurance Co. v. Kingston Bank & Trust Co., 172 Tenn. 335, 112
S.W.2d 381, 382 (Tenn. 1938); Freeman v. Martin Robowash, Inc., 61 Tenn.App. 677, 457
S.W.2d 606, 609 ( Tenn. Ct. App. 1970); Sheffield v. Franklin, 32 Tenn.App. 532, 222
S.W.2d 974, 978 ( Tenn. Ct. App. 1947). Several of our courts have held that “[t]he test is
whether a surveyor with the deed before him [or her] and with or without the aid of extrinsic
evidence can locate the land and establish the boundaries.” Wallace v. McPherson, 187
Tenn. 333, 340, 214 S.W.2d 50 (Tenn. 1947); Sheffield, 222 S.W.2d at 979.
In determining when extrinsic evidence may be considered to locate the land, our
courts have adopted the following standard from Dobson v. Litton, 45 Tenn. 616 ( Tenn.
1868):
Where an instrument is so drawn that, upon its face, it refers
necessarily to some existing tract of land, and its terms can be
applied to that one tract only, parol evidence may be employed
to show where the tract so mentioned is located. But where the
description employed, is one that must necessarily apply with
equal exactness to any one of an indefinite number of tracts,
parol evidence is not admissible to show that the parties
intended to designate a particular tract by the description.
Id. at 620; Wilson v. Calhoun, 157 Tenn. 667, 11 S.W.2d 906, 907 (1928); Bates v. Dennis,
203 S.W.2d 928, 931 (Tenn. Ct. App. 1946). The Wilson court further noted that:
[I]t is not essential that the description have such particulars and
tokens of identification as to render a resort to extrinsic aid
entirely needless when the writing comes to be applied to the
subject-matter. The terms may be abstract and of a general
nature, but they must be sufficient to fit and comprehend the
property which is the subject of the transaction; so that with the
assistance of external evidence, the description, without being
contradicted or added to, can be connected with and applied to
the very property intended, and to the exclusion of all other
property.
Wilson, 11 S.W.2d at 908. The Wilson court concluded that a description, which identified
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the property as “the Redmond farm of 110 acres,” and delineated the boundaries of the farm,
was “exceptionally full and complete, with the single exception noted, namely, the omission
of the name of the state and county.” Id. at 907. The court, therefore, concluded that the
description was sufficiently definite and exclusive to permit extrinsic evidence to supply the
county and state where the farm was located. Id. at 908. In contrast, the Dobson court held
that a description of “a certain tract of land, containing nine acres and sixty-six poles, near
the junction of Broad Street, Nashville, and the Hillsboro Turnpike, Davidson County,
Tennessee” was too vague and uncertain to be enforced and that parol proof was not
admissible to remedy the defect. Dobson, 45 Tenn. at 618–19. The court noted that the
description did not specify a particular tract of land and could apply to any tract in the
vicinity containing the same number of acres, even if the grantor owned only one tract in the
area. Id.
These standards have been upheld in cases such as In re Gatlinburg Motel
Enterprises, Ltd., 119 B.R. 955 (Bankr. E. D. Tenn. 1990). In that case, the property
described in the deed of trust was “that certain leasehold interest in real property and
leasehold improvements and other leasehold rights, title and interest (the ‘Lease’) as is more
fully described in Exhibit ‘A’ attached hereto....” There was, however, no Exhibit “A”
attached to the deed of trust. Id. at 959. After reviewing Sheffield, Wilson, and other
Tennessee cases, the court held that the property description was insufficient because it
contained no description whatsoever of any particular tract of land. Id. at 966. Quoting
extensively from Dobson, the court further held that the grantee could not use extrinsic
evidence (i.e., a prior deed of trust in favor of another entity) to supply the property
description. Id. at 967.
In this case, the legal description contained in the First Deed of Trust specifically
provides:
Situated and lying in the County of Shelby, State of Tennessee:
Lot 16 [sic], Rolling Woods Subdivision, as shown on plat of
record in Plat Book 38, Page 8, in the Register’s Office of
Shelby County, Tennessee, to which plat reference is hereby
made for a more particular description of said property.
Being the same property conveyed to Charles Giacosa and wife,
Pamela Giacosa, by Warranty Deed from Roland J. Holeczko
and wife, Candice D. Holeczko, dated 05/21/2001 and recorded
06/25/2001 in Book LD, Page 1101, in the Register’s Office for
Shelby County, Tennessee.
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In addition to the foregoing description, the Derivation Clause of the First Deed of
Trust clearly indicates the correct street address of the Property (i.e., 8320 Bon Lin Drive,
Bartlett, Tennessee 38133). Moreover, the Warranty Deed referred to in this description
correctly identifies the Property as being Lot 10 rather than Lot 16. In its ruling from the
bench, which is incorporated by reference into the February 25, 2011 order, the trial court
stated, in relevant part, as follows:
[W]hen the original warranty deed to the Giacosas w[as]
prepared there was some conflicting information in the warranty
deed. On the first page it referred to a Lot 16 but it also referred
to the same property that w[as] owned by the former owners and
on the second page it clarifies the property address by
specifically stating the property address is 8320 Bon Lin Drive
and the parcel number of the property.
So even though the first page has the erroneous lot
number, there is other information in this same document that
clarifies the correct property parcel as being Lot 10 and being a
specific parcel number and also being the same property referred
to in the previous deed to the grantors of the property to the
Giacosas.
The trial court’s statements here are in line with the Dobson holding. Ostensibly, the
trial court determined that the First Deed of Trust “is so drawn that, upon its face, it refers
necessarily to some existing tract of land, and its terms can be applied to that one tract only.
. . .” Dobson, 45 Tenn. at 620. Consequently, the description in the First Deed of Trust is
“exceptionally full and complete, with the single exception noted, namely, the [scrivener’s
error listing the Property as Lot 16].” Wilson 11 S.W.2d at 907. Under the Wilson holding,
and its progeny, the trial court correctly concluded that the description was sufficiently
definite and exclusive to permit extrinsic evidence (i.e., the previously-filed warranty deed
that is referenced in the description) to supply the correct lot number. Id. at 908.
From the totality of the circumstances, we agree with the trial court that the First Deed
of Trust, in favor of ABN, sufficiently designated the land intended to be mortgaged “with
reasonable certainty” as required under Tennessee law. See, e.g., Phoenix Mut. Life Ins. v.
Kingston Bank & Trust, 172 Tenn. 335, 112 S.W.2d 381, 382 (Tenn. 1938); Freeman v.
Martin Robowash, Inc., 457 S.W.2d 381, 382 (Tenn. Ct. App. 1970) (citing Sheffield, 222
S.W.2d at 978–79) (“[I]n determining the question of title, based upon the description of the
property, the generally accepted rule is that if the instrument describes it in such a manner
that it can be located and distinguished from other property, it is good[.]”); Wallace v.
McPherson, 187 Tenn. 333, 340, 214 S.W. 50, 53 (Tenn. 1947) (holding that a mere street
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address was sufficient to identify property). The question, then, is whether the First Deed
of Trust gives ABN the superior mortgage holder position.
It is well settled that a prior recorded deed of trust has preference over a subsequently
recorded deed of trust, “unless the holder of the first-filed instrument had full notice of the
pre-existing but later-filed instrument.” Washington Mut. Bank v. ORNL Fed. Credit
Union, 300 S.W.3d 665, 668 (Tenn. Ct. App. 2008) (citing Tenn. Code Ann. §66-26-105).
In this case, the notice exception is not applicable; consequently, the First Deed of Trust, in
favor of ABN, has priority over the Second Deed of Trust in favor of Southern Security
because the First Deed of Trust was recorded first. Tenn. Code Ann. §66-26-105.3
Here, Southern Security argues that ABN should lose its priority status due to the
erroneous lot identification contained in the First Deed of Trust. Southern Security has
provided this Court with no authority that directly addresses the effect of a scrivener’s error
on the priority of mortgages, and we have found no such cases in our own research. That
being said, we find our opinion, in Holiday Hospitality Franchising v. State Res., 232
S.W.3d 41 (Tenn. Ct. App. 2006), perm. app. denied (Tenn. April 30, 2007), sufficiently
analogous to provide some guidance on this question. In Holiday Hospitality, this Court held
that a subsequent judgment lien could not take priority over an erroneously released first
mortgage. Specifically, we reasoned that:
The existence of an equitable lien in the creditor provides the
foundation for a court to restore a released deed of trust to its
priority position. Under Tennessee law, the mistaken release of
a recorded deed of trust creates an equitable lien in favor of the
creditor. Jetton v. Nichols, 8 Tenn. App. 567, 574 (Tenn. Ct.
App. 1928) (“A lien discharged by mistake is, in contemplation
of equity, still in existence.”). An equitable lien is “the right to
have the property subjected in a court of equity to the payment
of the claim. It is a floating equity until action by the court is
3
Tennessee Code Annotated Section 66-26-105 provides:
Any instruments first registered or noted for registration shall have
preference over one of earlier date, but noted for registration afterwards;
unless it is proved in a court of equity, according to the rules of the court,
that the party claiming under the subsequent instrument had full notice of
the previous instrument.
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invoked.” Osborne v. McCormack, 180 Tenn. 526, 176 S.W.2d
824, 824–25 (Tenn. 1944). A court of equity will restore a lien
where the parties intended that it should not be extinguished, so
long as the intervening rights of third parties do not prevent the
reinstatement. Needham v. Caldwell, 25 Tenn. App. 189, 154
S.W.2d 535, 538 (Tenn. Ct. App. 1941); Hamilton Nat'l Bank
of Chattanooga v. Duncan, 23 Tenn. App. 329, 132 S.W.2d
353, 354 (Tenn. Ct. App. 1939); Jetton, 8 Tenn. App. at 574.
* * *
We rely upon the principles espoused in the case of Needham
v. Caldwell, 25 Tenn. App. 189, 154 S.W.2d 535 (Tenn. Ct.
App. 1941), to support this result. In that case, a junior deed
holder claimed priority over a senior deed holder on the basis of
the first deed holder's inadvertent release of its trust deed.
Needham, 154 S.W.2d at 536. Importantly, though, the junior
lienor had knowingly accepted a second mortgage and
acknowledged its inferior position on its deed of trust. Id. This
Court restored the first deed holder's priority position, holding
cancellation of a release to be appropriate when, contrary to the
parties' intent, a deed of trust has been erroneously discharged,
so long as the rights of third parties do not prevent the deed's
reinstatement. Id. at 538.
Holiday Hospitality, 232 S.W.3d at 52–53. (footnote omitted).
In the instant case, we have a “mistake” that is even less offensive than the premature
and erroneous release of a superior lien. Here, we are dealing with a mere scrivener’s error
concerning the lot number. Moreover, as discussed in detail above, the same deed of trust
clearly and correctly references the Property by address, by parcel, and by previous warranty
deed. If the ultimate act of releasing a lien will not suffice to cancel a superior lienholder’s
priority, Holiday Hospitality, 232 S.W.3d at 52, then we certainly cannot go so far as to hold
that a scrivener’s error will negate a lien position obtained under an otherwise “exceptionally
full and complete” deed. Wilson, 11 S.W.2d at 907.
Furthermore, there is no evidence in this record that any third parties were prejudiced
by the scrivener’s error. As mentioned above and as evidenced by the Affidavit of Jeri Keith,
Southern Security undisputedly took its lien, and fully accepted its status, as second mortgage
holder on the Property. It is well settled that “[n]o . . . claim to precedence can be set up by
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a junior mortgagee whose lien was expressly made subject to the prior mortgage or who, at
the time of taking the mortgage, had actual notice of the defects in the senior mortgage.” 59
C.J.S. Mortgages § 264 (2011). Moreover, there is no dispute that the First Deed of Trust
was filed in the Register’s Office.
Tennessee law recognizes inquiry notice as a form of actual
notice. Blevins v. Johnson County, 746 S.W.2d 678, 683
(Tenn.1988). Inquiry notice is “‘knowledge of facts and
circumstances sufficiently pertinent in character to enable
reasonably cautious and prudent persons to investigate and
ascertain as to ultimate facts.’” Id. (quoting Texas Co. v.
Aycock, 190 Tenn. 16, 227 S.W.2d 41, 46 (Tenn.1950)). A good
faith failure to seek out the ultimate facts constitutes no defense,
and a party asserting this argument is still chargeable with the
undiscovered facts so long as a reasonably diligent inquiry
would have uncovered them. See id.
Holiday Hospitality, 232 S.W.3d at 49. Here, Jeri Keith indicated that Southern Security’s
title search had, in fact, revealed the First Deed of Trust. From the totality of the
circumstances, we conclude that Southern Security was, in fact, aware of the First Deed of
Trust and was, therefore, aware of is subordinate lien position.
Contract
Having determined that the First Deed of Trust was sufficient to secure ABN’s
position as the superior mortgage holder, the question is whether Southern Security was
bound to honor the bid it gave at ABN’s foreclosure sale. There is no dispute in this record
that ABN followed the necessary advertising and notice requirements before holding the
foreclosure sale. In Hawkins v. Spicer, 101 S.W.2d 151, 153 (Tenn. Ct. App. 1936), this
Court specifically held that a trustee’s sale of mortgaged property was valid where the sale
was properly advertised, there were several persons present when the sale was held, and the
whole matter was handled fairly. Having followed all notice requirements, and having the
first lienholder position, ABN’s foreclosure sale was valid. Consequently, as the successful
bidder at that sale, Southern Security was obligated to tender the purchase price to ABN. As
discussed in 7A C.J.S. Auctions and Auctioneers §34 (2010), “[t]he acceptance of a bid at
a public sale by the auctioneer conducting the sale generally gives rise to an executory
contract of sale between the parties.” Moreover, “[a] bid at an auction sale with reserve is
only an offer for the property, while, at an auction without reserve (such as ABN’s sale), it
is the acceptance of the seller’s offer to sell.” Id. at § 30. We, therefore, conclude that the
trial court correctly found that Southern Security was contractually bound to pay the
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$197,165.00 bid amount.
Damages
In its final argument, Southern Security asserts that ABN had no damages in this case
and that, consequently, it has no basis for recovery. We disagree. Clearly, ABN suffered
damages when Southern Security stopped payment on its $197,165.00 cashier’s check. As
discussed above, once Southern Security placed its bid and it was accepted by ABN,
Southern Security was contractually bound to pay the sum. In cancelling payment, Southern
Security caused ABN to suffer $197,165.00 in damages. Neither party has raised a specific
issue concerning the trial court’s denial of interest on the $197,165.00; consequently, we will
not address that question here.
For the foregoing reasons, we affirm the order of the trial court. Costs of this appeal
are assessed against the Appellant Southern Security Federal Credit Union, and its surety.
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J. STEVEN STAFFORD, JUDGE
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