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Civis Bank v. The Willows at Twin Cove Marina Condominium and Home Owners Association, Inc.

Court of Appeals of Tennessee, Knoxville

December 28, 2016


          Session June 22, 2016

         Appeal from the Chancery Court for Campbell County No. 7CH1-2015-CV-15 Elizabeth C. Asbury, Chancellor

         This case involves a residential development on Norris Lake in Campbell County called The Willows at Twin Cove Marina. The Declaration of Covenants, Conditions and Restrictions for the development grants certain rights to the individual/entity described in the document as the "Declarant." As pertinent to this case, those rights include an exemption from payment of maintenance assessments to the homeowner's association under certain circumstances. The original owner of the development defaulted on construction loans, resulting in a foreclosure sale of certain portions of the development property and the personal property of the original owner. Civis Bank, the successor owner of the property sold at foreclosure, brought this action asking the trial court to declare it to be the "Declarant, " and thereby exempted from assessments levied by the defendant homeowner's association. Both sides moved for summary judgment. The trial court held that Civis did not meet the applicable definition of "Declarant" in the Declaration. We agree. Accordingly, we affirm the court's grant of summary judgment to the homeowners' association.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed; Case Remanded

          Wilson S. Ritchie and Rachel King Powell, Knoxville, Tennessee, for appellant, Civis Bank.

          Walter N. Winchester and Joshua R. Holden, Knoxville, Tennessee, for appellee, The Wilows at Twin Cove Marina Condominium and Home Owners Association, Inc.

          Charles D. Susano, Jr., J., delivered the opinion of the court, in which D. Michael Swiney, C.J., and John W. McClarty, J., joined.




         In 2004, Twin Cove Acquisition Company, Inc. (TCAC) began development of "The Willows at Twin Cove Marina, " consisting of certain non-contiguous tracts of real property on Norris Lake. The development included a marina, a residential subdivision, condominiums, a swimming pool, and a clubhouse. TCAC obtained financing from Civis Bank, [1] among other lenders. In 2004, TCAC executed a deed of trust and security agreement granting Civis a security interest in all of its real and personal property interests in the development.

         On June 21, 2005, TCAC executed a "master deed and declaration of condominium regime for The Willows at Twin Cove Marina" (the Willows Master Deed). TCAC recorded the Willows Master Deed the following day. It defines TCAC as the "Condominium Project Developer" and the "Declarant." It also establishes "The Willows at Twin Cove Marina Condominium and Home Owners Association, Inc., " (the HOA), consisting of the owners of a unit or units within the condominium project. The Willows Master Deed authorizes the Board of Directors of the HOA to collect maintenance assessments. It provides that the "Condominium Project Developer shall not owe any maintenance fund assessments on any Unit that it is constructing, rehabilitating or restoring until a certificate of occupancy is available on that Unit." Shortly thereafter, TCAC executed a second deed of trust and security agreement in favor of Civis on June 27, 2005.

         On February 13, 2007, Civis assigned the 2004 and 2005 deeds of trust and security agreements to BankEast. The same day, Civis purchased a 26.62% participation interest in a new loan from BankEast to TCAC. In connection with the new loan, TCAC executed an amended and restated deed of trust, security agreement, and assignment of rents and leases in favor of BankEast, which grants BankEast the following:

all of the real property, interests in real property, estates, easements, rights, improvements, fixtures and appurtenances thereunto . . . TOGETHER with all personal property . . . of every kind and nature whatsoever, now or hereafter located in, upon or under the Property or any part thereof and used or usable in connection with any present or future operation of the Property and now owned or hereafter acquired by [TCAC] . . . TOGETHER with all interest, estate or other claims, both in law and in equity, which [TCAC] now has or may hereafter acquire in the Property.

(Capitalization in original.) The real property of the development consisted of eight separate tracts, designated Tracts 1 through 8, all of which were encumbered by the 2007 deed of trust and security agreement.

         On August 25, 2008, TCAC recorded a Declaration of Covenants, Conditions and Restrictions for the Willows at Twin Cove Marina (the Declaration of CCR). It contains the provision at the heart of the dispute between the parties, i.e., the definition of the term "Declarant":

"Declarant": Shall mean TWIN COVE ACQUISITION COMPANY, INC., the owner of the Properties submitted hereto, together with any successor in title who comes to stand in the relation to the Community as his predecessor. Notwithstanding the foregoing, the phrase "Owner" as referred to in this definition shall not include in its capacity as such any Mortgagee except for such Mortgagee who acquires said Declarant's entire interest with respect to the Properties . . . at the time of such acquisition pursuant to Foreclosure of a Mortgage encumbering said Declarant's interest in the Properties . . . and who then expressly assumes the position of Declarant.

(Capitalization in original.) Among the rights provided to the Declarant in the Declaration of CCR is an exemption from paying maintenance fund assessments under certain conditions:

Declarant shall not be responsible or liable for the payment of assessments (whether General, Parcel, Special or Specific) in respect to Lots for which Declarant holds record title and which do not contain occupied Residential Units (except as hereinafter provided); provided that Declarant covenants and agrees to pay assessments in the same manner as Lots conveyed to Owners for each Lot owned by Declarant containing an occupied Residential Unit.

         TCAC eventually defaulted on its loan obligations to BankEast. It is undisputed that by the time of the default, BankEast had released certain tracts of real estate from the deeds of trust, including a portion of Tract 2, all of Tract 3, and other units in the condominiums and single family lots. BankEast foreclosed on the remaining collateral on January 13, 2012. At the foreclosure sale, BankEast was the high bidder, and became the owner via conveyance by Substitute Trustee's Deed executed on January 13, 2012, which conveys "the Property, . . . together with all of the hereditaments, improvements, buildings, easements and appurtenances thereon and thereunto belonging[.]" At the foreclosure sale, the Substitute Trustee also announced the sale of TCAC's personal property encumbered by the deeds of trust. BankEast also purchased the personal property, as reflected by a bill of sale executed by the substitute trustee, which states in pertinent part:

Substitute Trustee, ("Seller") . . . does hereby grant, sell, transfer, and deliver unto BankEast, a Tennessee banking corporation, ("Buyer") the following:
* * *
All of [TCAC's] right, title and interest in . . . all of [TCAC's] accounts, contract rights, accounts receivable, inventory, leases, income, intangibles and rights to income with regard to the Premises, the improvements thereon and the Collateral, now owned or hereafter acquired and now due or which hereafter may become due, including all contract rights and general intangibles with regard to the operation of the project to be constructed on the Premises, specifically including, without limitation, all rights, title and interest of [TCAC] in, to and under all operating, management and maintenance agreements relating, directly or indirectly, to the aforesaid project and the Premises[.]

         Shortly after the foreclosure sale, on January 27, 2012, the Tennessee Department of Financial Institutions closed BankEast and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. According to the affidavit of Ben Lindley, president and CEO of Civis, "[t]he FDIC, as Receiver, sold substantially all of the assets of BankEast to U.S. Bank, . . . including the [f]oreclosed [p]roperty." There is no other documentation in the record regarding the sale from the FDIC to U.S. Bank, so it is unclear what "substantially all of the assets of BankEast" specifically included under the terms of the sale.

         On February 1, 2012, the HOA began assessing homeowners' dues[2] on the property lots owned by U.S. Bank in the total amount of $1, 350 per month. The assessments were for ten lots located on Tracts 2, 4, 6, 7, and 8. On March 21, 2013, the HOA filed a notice of lien for the assessments, claiming that the HOA had a lien for the unpaid and delinquent assessments.

         On March 28, 2013, Civis purchased all of U.S. Bank's interest in the foreclosed property, as reflected in a note purchase and sale agreement, special warranty deed conveying the real property "with the appurtenances, estate, title and interest thereto, " and bill of sale documenting the transfer of "all right, ...

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